Supermarkets fight over Christmas spend

While revenue is on the rise in online, liquor and supermarket retail, growth across other key categories is constrained due to the downturn in consumer income and sentiment, according to IBISWorld.

CHRISTMAS retail spending is expected to fall slightly this December with industry market researcher predicting a fall of 0.2 per cent compared with the same time last year.

While not all categories will be affected IBISWorld is attributing the national overall decline to lower discretionary incomes, negative consumer sentiment and price discounting across the retail sector.

IBISWorld analyst Jason Aravanis said there were  early signs retailers would struggle to outperform during the 2017 holiday period.

Mr Aravanis said consumers were tending to transition to cheaper online retailers, particularly as the entrance of Amazon into the market increased the awareness of online platforms.

“Jewellery retailers, department stores, and electronic goods retailers are all expected to underperform this holiday season, although it isn’t all bad news – with liquor retailers, supermarkets, and online retailers expected to experience some subdued growth over the period,’’ he said.

According to IBISWorld, liquor sales are expected to grow by about 4.2 per cent this Christmas compared with last year.

Mr Aravanis said more than $1.5 billion was expected to be spent on liquor goods during the Christmas period, which represented close to 13.2 per cent of total liquor sales revenue for the calendar year.

“The composition of alcohol consumption is expected to differ in comparison to previous holiday periods.

“IBISWorld expects average beer consumption per capita to be about 10 litres per person, while wine consumption is expected to be close to 4 litres.

“But IBISWorld expects beer and wine to account for a smaller share of total alcohol spending, as demand for cider surges by 5.7 per cent in 2017-18.

“In addition, craft beers are expected to account for a greater share of beer consumption, as consumers increasingly favour quality over quantity.

“Overall alcohol consumption per capita is expected to continue to decline due to rising health consciousness.

“Big-box liquor stores, such as Woolworths-owned Dan Murphy’s, have relied on aggressive discounting to outperform independent retailers.’’

Consumer spending in supermarkets across most core categories is usually around 35 per cent stronger during the Christmas period than over the rest of the year, according to IBISWorld research.

“Spending is expected to reach $10.1b in December 2017, an increase of 2.4 compared with the previous holiday period.

But Mr Aravanis said it might not be a happy holiday for supermarket establishments.

“While Christmas is a key period for supermarkets and grocery stores, intense pressure is limiting the margins of most establishments – with fierce competition between Woolworths, Coles and Aldi.

“Price deflation across the supermarkets and grocery stores industry is expected to limit the increase in revenue generated during the Christmas period in 2017.

“In addition, consumer spending is expected to be hindered by falling discretionary incomes.’’

Christmas spending on electronic goods is expected to decline, falling by 1.2 per cent compared with last year, to total $1.7b.

Despite continued advances in product design and technology, revenue has fallen due to strong price-based competition, progressive declines in the average price of some domestic appliance categories, and weak consumer sentiment.

Falling discretionary incomes has also caused some households to postpone big-ticket sales, particularly computers and televisions.

“This Christmas season is likely to be particularly interesting due to the recent entrance of Amazon into the Australian market.

“Amazon is expected to try and capture to the trust of Australian consumers during this Christmas period.

“IBISWorld expects Amazon to aggressively drive down prices, however this may not occur until after Christmas as Amazon integrates manufacturers into their local supply chain.

“Other large players, including Harvey Norman and JB Hi-Fi, are expected to accept lower margins as they offer significant discounts in order to prevent Amazon from capturing market share.’’

Department stores’ festive takings are anticipated to decline this Christmas season, with sales expected to be 1.9 per cent lower compared with the previous holiday season.

During December 2017, consumers are expected to spend $111.64 per capita in department stores – down from $116.94 in the previous year.

“Competition from online retailers is expected to continue to negatively affect sales, particularly as Amazon seeks to capture market share over the Christmas period.

“Discounting and negative consumer sentiment are also likely to hinder revenue growth.

“IBISWorld expects major players such as David Jones and Myer to protect their margins by pivoting to exclusive high-margin products and expanding their product ranges.

“In contrast, budget department stores such as Big W are expected to compete primarily through discounting.”

Total spending on recreational goods such as toys, sporting goods, and video games is expected to reach $780.1 million by Christmas morning.

“This is expected to remain largely flat compared with last year-

“But IBISWorld expects Christmas spending on sporting goods to be higher this year, driven by greater sport participation.

“In contrast, expenditure on video games is expected to fall as online retailers continue to attract consumers through the advent of faster and cheaper internet connections.

“Amazon’s entry into the domestic market is expected to significantly increase price competition amongst retailers of recreational goods.’’

Mr Aravanis said online retailers were expected to be the big winners this Christmas as consumers were driven online by the allure of lower prices and greater product ranges.

“IBISWorld expects spending during December to grow by 15 per cent from last year as budget-conscious consumers seek discounted items and Amazon increases the popularity of online shopping.

“Per capita online spending this Christmas is expected to reach $83.34, up from $76.68 in the previous year.’’

He said consumers were more likely to shop online for items that were unlikely to be damaged during shipping, such as clothing.

“Increasing confidence in transaction security and shorter delivery times are also likely to spur greater use of online shopping platforms.

“The entrance of Amazon is likely to significantly increase retail trade over future Christmas periods, as consumers become aware of Amazon’s discounted prices, short delivery times, and wide product range.

“The company’s launch in Australia has been significantly more aggressive in comparison to other countries, and IBISWorld expects Amazon to ramp up competition across retail industries.’’