2018: The Year Aussie Retail Collapses


The new year has gotten off to a good start.

The Aussie dollar is dancing around the 80 US cent mark. The S&P/ASX 200 is above 6,000 points, flirting with 6,100. And the retail industry saw sales jump 1.2% in November last year, bringing sales growth to 2.9% annually, up from 1.8%.

So far so good, right?

Perhaps not…

It’s true that the broader Aussie stock market is doing well. However, I suspect the recent surge in the Aussie market is down to 17 months of inaction by the Reserve Bank of Australia (RBA).

Investors want returns. So if the RBA won’t do something about interest rates, investors will move into stocks and chase high-paying dividend stocks…ideally picking up a little capital growth along the way too.

Then there’s the Aussie dollar. It began the year with a bang. But, as I pointed out yesterday, that may be more cyclical than investors believe. And the current rally may not last much longer.

What I didn’t mention yesterday is that some news outlets suggested the ‘bumper’ retail sales for November were behind the Aussie dollar’s push higher.

The Australian Bureau of Statistics noted in a release that that incredible increase came down to one thing: the iPhone X.

As Ben James, Director of the Quarterly Economy Wide Surveys, said:

In seasonally adjusted terms, rises were led by the household goods (4.5%) and other retailing (2.2%) industries. Seasonally adjusted sales in both these industries are influenced by the release of the iPhone X and the increasing popularity of promotions in November, including Black Friday sales.

I don’t buy this line of thinking.

A jump in retail sales may make for a good headline. But a month of good news doesn’t fix a struggling industry.

The sudden rise in spending has excited too many people that the Aussie retailing industry is picking up. However, December retail sales data is what really matters.

December is the month in which people lose all sense of financial prudence, spending money with reckless abandon.

Retailers rely on this trading period. The money that flows through the tills in December tides them over in the slower months of January and February. 

Australian retail outlook is grim

The problem, however, is that December could be much worse than we realise.

The Australian Industry Group releases its own economic indicators each month — the Australian Performance of Services Index (PSI). Its retail trade index — which comes out before the ABS data — suggests punters shouldn’t get their hopes up. Take a look:

Australian PSI — Retail Trade Index

Australian PSI — Retail Trade Index | 16-01-2018

Source: The Australian Industry Group
[Click to enlarge]

The Australian PSI retail trade index shows a drop to 44.5 in December. Anything below 50 indicates a decline in trade, and anything above that indicates industry growth.

At 44.5 — well below 50 — don’t expect bumper statistics from the ABS regarding retail spending in December.

More important than this even is the bigger picture forming here. According to the Australian PSI, the retail trade index has been below 50 points since early 2017.

In other words, we’ve got an industry in decline.

Andrew Spring, a partner with insolvency agency Jirsch Sutherland, reckons 2018 will see even more local Aussie retailers collapse:

We’re hearing from accountants and business advisors that the retail sector is really struggling.

Many of those who are not selling consumables are having a particularly tough time. We’ve already seen a number of high profile retail brands collapse in 2017, including 80-year-old brand Oroton — which paints a gloomy picture for other Australian retailers.

We predict that we haven’t seen the worst of it, and that the new year will see many more homegrown brands go into insolvency.

Over the past three years, we’ve seen brand after brand crumble — without even mentioning retailers in receivership. That there’s more to come according to Spring shouldn’t come as a huge surprise.

2018 may be the year that Aussie retail finally falls flat on its face. But there’s enough evidence to suggest that it tripped over a long time ago.

Kind regards,

Shae Russell,
For Money Morning

Since starting out in the financial markets over a decade ago, Shae has extensive experience across various aspects of the industry. Shae cut her teeth in the derivatives industry, teaching clients basic trading techniques with technical analysis.

Joining Fat Tail Investment Research eight years ago, Shae has worked across a number of publications, such as Australian Small-Cap Investigator, Gold Stock Trader and Microcap Trader. She’s spent the past two years however, honing her macro analysis skills alongside Jim Rickards, showing Australians how to invest and profit form global macro trends.

Drawing on her extensive experience, Shae is a contributor to Money Morning, and lead editor of sister-publication Markets & Money, where she looks at broad macro trends developing around the world, combining them with her distaste for central banks and irrational love of all things bullion.

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