Australian retailers, faced with a soft start for the shopping season, are hoping for a late rally in Christmas present buying.
So far, retail sales conditions are trending two to four percentage points slower, and barely in positive growth, leading into Christmas 2017 compared to 2016, according to analysis by Citi.
The analysts say the greatest downside over Christmas is for Myer, Harvey Norman, JB Hi-Fi and Solomon Lew’s Premier Investments.
“The signs are not great because the lead-up has been soft, discounting has been pulled forward and there are few ‘must-have’ items this year,” write Citi analysts in a note to clients.
“Praying for a late burst — Given December can be more than one-quarter of a retailer’s yearly profit, success during Christmas is vital.
“Christmas day falls on a Monday which will result in a late surge, but the buzz is not strong so far.”
Retail spending is trending weaker in the 2017 lead up than the same period over the past three years, as this chart shows:
Citi says the product cycle is less exciting, household income growth is weak, spending on necessities is crowding out retail spending and housing activity has peaked.
The analysts say the hot gifts in the shops look similar to 2016, with items such as Lego, Hatchimals, wireless headphones and video games likely to be popular again.
Christmas 2017 lacks the killer gift such as Hatchimals (fuzzy, interactive toy pets) in 2016. However, merchandising from Star Wars: The Last Jedi movie, which opens on December 14, could give retail a kick along.
“Australian retail spending has been subdued over the past six months,” says Citi.
“We are likely to see a subdued Christmas as well and perhaps some fallout with downgrades over January 2018.”
In food retailing, Citi is more positive because promotional discounting has eased and inflation is showing through in key categories such as bread and beverages.
Other research adds weight to Citi’s analysis.
According to research from Westpac, a larger proportion of Australians intend to spend less this festive season, driven by intensifying pressures on household finances.
And the annual Deloitte Retailers’ Christmas Survey shows caution reigning.
“A number of retailers haven’t survived the year and there is a concern amongst respondents that weakness may continue throughout Christmas 2017,” says David White, national leader of Deloitte’s Retail, Wholesale & Distribution Group.
“With so many new and expanding competitors in the market combined with price deflation and rising electricity costs, it will be a challenge for retailers in the apparel, footwear and department store sectors to maintain margins over Christmas in the face of these headwinds.”
Australian shoppers will spend more than $50 billion in retail stores over the Christmas trading period from November 15 to December 24, according to research by the Australian Retailers Association and Roy Morgan Research.