Ouch is the best way to describe this month’s retail sales numbers.
With overall retail sales down by 0.9 per cent and core retail sales down by 0.2 per cent, this was the weakest performance since the depths of the pandemic. In volume terms, the numbers are even worse: overall volumes declined by 2.5 per cent, which represents a material pullback by consumers.
Now, before everyone runs around declaring that the sky is falling, there are two important points of context to the February numbers. The first is that this year, February had one fewer trading day as last year was a leap year. This may seem like an inconsequential shift, but its impact on the figures is substantial. By our calculations, when this anomaly is removed, overall sales grew by 2.8 per cent on a directly comparable basis. By the same measure, core retail sales grew by 3.2 per cent. These figures are obviously more agreeable and present a very different picture.
The other factor that was disruptive to trade was the weather. Some big storms across parts of the country, including one over a weekend, kept people at home, which reduced their spending. Like the leap year calendar shift, this is a temporary factor that is not a signal of impending economic doom. Nor is it a reliable indicator of where retail will trend across the balance of this year.
All that said, even when these one-offs are considered, the growth rate for retail has moderated this month and is now well below the 4 per cent growth level that has been present since October. This is where another factor, namely consumer confidence, comes in.
Across February and into this month, consumer sentiment has tumbled. Big policy changes, especially on tariffs, have spooked consumers and have created uncertainty. In actuality, very few consumers have seen a material impact of these policies yet. However, with household finances in a fragile state from high debt levels, continuing high inflation, and other factors, it does not take much to blow the consumer off course and get them to retrench.
Unfortunately, this also coincided with more households taking stock of holiday credit card bills which, on average, were heftier than usual. From our data, the financial hangover of a happy holiday has pushed deeper into the new year than normal.
Where does this leave retail for the rest of the year? We maintain our view that retail will be positive across this year. It is unreasonable to expect the declines of this month to become a new normal. However, it is also clear that the sector is increasingly fragile, and that spending could be squeezed still further if the economy tightens, and uncertainty continues.
On a sector basis, consumable sectors like food and gas were very soft. The former grew by just 0.1 per cent, with volumes in negative territory. The latter declined by 4.4 per cent. Gas prices were generally lower than last year; however, both segments are elastic so suffer from one fewer day of trading. The same is true of foodservice, where sales declined by 2.3 per cent over the prior year.
Sales at apparel stores dropped by 3.2 per cent. After a strong start to the year, many consumers pulled back in February. Discounting and promotions also dropped back a bit after retailers cleared down inventory, which depressed demand a little. With consumers not ready to start refreshing closets for spring and the warmer months, the incentive to shop for apparel was particularly weak across the month.
At furniture and home stores, sales increased by 1.5 per cent. Some of the boost from a more robust housing market over the back end of last year continues to help trade. However, so too does the fact that the sector is coming out of a long-run dip.
The same did not hold true for electronics stores, where sales declined by 9.2 per cent. It is here we see suppressed confidence playing a role. Concerned consumers are less likely to make expensive, discretionary purchases.
This mindset will be particularly problematic for retail going forward.
