Consumer goods faced a mixed market over the five years through 2011-12, with sales rising by an average 1.1% per annum. Increasing demand for consumer goods in the early part of the period was aided by growth in disposable income, low interest rates and declining unemployment.
However, the later part of the period presented a volatile market for industry operators, characterised by fluctuating income, rising unemployment and unstable consumer sentiment levels, which affected demand for a range of consumer goods. Continued growth in interest rates coupled with a downturn in the domestic economy, following the collapse of global financial markets in 2008, led to a tense time for players. Mounting consumer uncertainty surrounding the stability of the domestic economy and fears regarding the possibility of a recession caused many consumers to restrict expenditure on non-essential goods.
To boost spending and stave off the possibility of a recession, the Federal Government handed out two rounds of stimulus packages. The first package, worth $10.4 billion, drew the required effect, with retail sales boosted by growth in discretionary spending. By investing back into the economy, consumers aided the performance of department stores (up 8.3%), household goods (up 9.9%) and soft goods (up 5.8%). Despite receiving proceeds from a second stimulus package worth $42.0 billion, many consumers decided to allocate the proceeds into savings, as they faced mounting recessionary conditions, rising unemployment and falling consumer sentiment.
The consumer goods market is expected to post solid growth in 2011-12, with sales rising by 3.0% to $140.3 billion. Steady growth in real GDP will set the foundation for positive trading conditions. Consumer demand will also be driven by 3.3% growth in disposable income and declining unemployment. Retail spending will, however, be hindered by a 4.1% fall in the consumer sentiment index, with consumers expected to remain cautious about their future ability to repay debt and the possibility of rising interest rates. Individual results across each of the consumer goods industries will be varied, with department stores and footwear retailers expected to post modest increases in sales, while stronger growth will be experienced by clothing and computer retailers. Overall growth across the consumer goods market will continue to be negatively affected by a rise in the number of consumers choosing to shop online due to the vast product range, competitive pricing and lack of GST payable on goods purchased from overseas retailers.
Sales across the consumer goods market are forecast to rise by an average 2.2% per annum over the next five years, to total $156.5 billion in 2016-17. Sales growth over this period will be aided by an increase in disposable income and lower unemployment due to a strengthening labour market. Consumer goods retailers will continue to face strong competition from online players that stock similar items at competitive prices. The sector will also be influenced by the outcomes of the Productivity Commission’s inquiry into globalisation of the Australian retail sector and the broader issue of increases in the volume of online purchases by Australian consumers.
From clothing to computers, the consumer goods market will post steady growth over the five years through 2016-17, with industry sales expected to rise by an average 2.2% per annum. Demand over this period will be boosted by growth in disposable income, stronger levels of employment and an overall improvement in the trading landscape for operators. In addition, continued advances in technology (albeit at a slower pace than in the past five years) will drive demand across a range of tech-based goods. However, the market will not be without its pitfalls, as department stores and other large category killers are expected to continue to affect competition within specialist areas. The consumer goods market will also be affected by growth in the number of consumers choosing online shopping options over a visit to traditional brick-and-mortar stores.
Rising by an average 4.2% per annum, growth in disposable income will be the backbone of the recovery across the consumer goods market over the next five years. Income levels will follow an upward trajectory over this period, supported by solid economic growth. Disposable income will also be boosted by falling unemployment and rising wages. The retirement of baby boomers and resulting demand for new skilled workers will place upward pressure on wages, which is expected to extend to at least 2025. Annual trends in interest rates will continue to affect income by influencing the level of debt repayments required by consumers. Growth in disposable income will aid demand for higher-priced merchandise and broaden the range of goods available to consumers on limited budgets.
Overall demand for consumer goods will, however, be affected by fluctuations in the consumer sentiment index. Consumer sentiment will increase in the two years to 2014-15 before trending downwards. Annual fluctuations in consumer sentiment over the coming five-year period will be largely affected by the anticipation of further interest rate rise and the resulting effect on disposable income. Steady economic growth is also expected to influence consumer sentiment over the period.
The retirement of baby boomers and an overall recovery in the domestic economy is expected to provide a solid foundation for national employment over the next five years. As a result, the unemployment rate will hover at about 4.7% until 2015-16, compared with its 2009-10 level of 5.5%. The decline will be aided by faster growth in new job creation compared with growth across the labour force. Employment will be supported by the reinstatement of longer opening hours, which were cut during the economic downturn. Demand for consumer goods will be aided by a rise in household formation of about 2.0% per annum. The solid growth within the economy, coupled with a housing shortage, will lead to a rise in housing starts and hence growth in household formation. The effect will be stronger demand for many household items including domestic appliances, furniture and electrical goods.
In dollar terms, sales across the consumer goods market will rise from $143.7 billion in 2012-13 to $156.5 billion in 2016-17. Sales growth of 2.4% in the first year of this period will be driven by a solid increase in disposable income and lower unemployment. Key performers for the year will include computer and software retailers (up 4.5%), antique and used goods retailers (up 3.7%) and domestic appliance retailers (up 3.0%). However, not all categories will fare well, with recorded music stores expected to contract (down 2.5%) due to competition from the digital market; external players will affect the performance of leather goods retailers, leading to a 1.0% fall in sales. Demand for consumer goods over the remaining four years through 2016-17 will be driven by further growth in disposable income and continued declines in unemployment due to a strengthening labour market.
Sales across individual product categories will be influenced by online shopping and auction websites. Rising by about 4.4% per annum, the online shopping and mail order market will play a pivotal role across the consumer goods market. The online market will become a notable competitor for the sector, owing to growth in the IT literacy of consumers and rising consumer confidence about ordering goods online. Competitive pricing, easy delivery options and the establishment of reliable reputations will also aid demand for online goods.
Numerous surveys note that Australian consumers have continued to purchase from online retailers due to a perceived lack of products available from local merchants. Consumers have also become frustrated with the limited online options available from traditional brick-and-mortar retailers. Although price competitiveness has been important, choice and convenience have been key elements driving consumers to shop online. Future sales across the consumer goods market will be driven by advances in the type of shopping technology available to consumers. Retailers will place greater emphasis on the layout and context of e-mails sent via mobile and smartphones to consumer groups. In essence, consumer goods retailers will be required to provide greater integration between their online and store operations. By providing consumers with a variety of shop, delivery and refund options, industry retailers will be able to attract and retain a larger share of the online market.
The growing popularity of smartphones across the Australian landscape will fuel increasing demand for mobile commerce or mCommerce, whereby consumers are able to search and purchase goods using internet applications. Growth in the number of consumers opting to use mobile devices for transactions and payments will boost online sales over the next five years. In essence, the explosion of smartphone use is expected to revolutionise the retail market over the next three years.
The performance of the sector will be affected by the Productivity Commission’s inquiry into the implications of globalisation on the Australian retail sector. The inquiry will examine the structure, performance and efficiency of the sector and will consider the broader issues of an increase in online purchasing by Australian consumers and the role online purchasing plays in offering consumers greater choice, access and convenience. At the product level, consumer demand for furniture, domestic appliances and pharmaceutical, cosmetic and toiletry goods will fuel growth. Consumer electronics will be a standout, with digital TV take-up increasing and prices for flat-screen TVs and other in-demand products falling. At the same time, technology will result in new products entering the market (such as a greater range of e-book reading platforms), which will drive demand. Sales will also be boosted by growth in the House Construction industry, which will drive demand for a number of household consumer goods like whitegoods, furniture and fittings.
The mature status of most industries within the Consumer Goods Retail sector will make it increasingly difficult for operators to post growth in product margins over the five years through 2016-17. Supplier characteristics will continue to widen, with giant one-stop-shops catering to vast and diverse groups of clients; niche operators with tightly focused activities servicing small bases of customers; and shop-from-home operations that use telecommunications as a virtual shopfront. In fact, the continued introduction of new formats and concept stores will increasingly characterise the sector. Under these circumstances, it will be simpler to buy a competitor than out-compete one, so mergers and acquisitions will occur. However, with the advances in e-commerce, the barriers to entry that characterised the brick-and-mortar consumer goods market will no longer be quite so formidable. A key trend will be the increased focus on lowering the cost of doing business in a bid to increase profit margins. This will be driven by productivity improvements, enhanced technologies such as radio-frequency identification devices (RFID) and better point-of-sale (POS) systems, improved distribution and logistics strategies, and better product sourcing.
Industry value added is expected to rise by an average 2.3% per annum over the next five years, compared with growth in GDP of 3.1% per annum. Despite annual fluctuations, industry value added as a share of GDP will decline from 2.6% in 2012-13 to 2.5% in 2016-17. Although the absorption of wholesaling functions by industry operators and growth in a number of service areas within retailing will bode well for the consumer goods market, operators will be affected by rising operational costs. As was the trend in the five years through 2011-12, numerous players will undertake a review of costs in a bid to pass efficiencies on to consumers. However, rising internal and external competition will affect gross margins and profitability.
The mature life cycle stage of the consumer goods retail sector will lead to modest growth in enterprise numbers of about 1.6% per annum over the next five years. While employing operators will continue to account for the lion’s share of enterprises, non-employing operators are set to post steady growth of 1.4% per annum and will account for 46.7% of enterprises by 2016-17. Steady growth in establishment numbers will also be experienced over this five-year period, with a 1.6% per annum rise in employing stores and growth of 1.4% for non-employing outlets. The modest increase in store numbers will give rise to average growth in employment of 1.7% per annum, while wage costs paid by consumer goods operators will rise to $13.0 billion in 2016-17.
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