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[Notes] Global & Local Economy Update: LFRA Forum

28 November, 2018
Categories: Retail

Properties & Pathways was invited to the LFRA’s (Large Format Retail Association) Victoria Forum on November 15. Speakers from two of the world’s largest financial institutions – Citi & HSBC – gave some captivating insights into both Australia and the globe’s economies.

Here are the key points from two eye-opening presentations:

Bryan Raymond, Senior Analyst, Citi

Retail Sales

  • There are signs of a slowdown in retail sales right now. But interestingly, consumer spending is outpacing income growth. This means Australians are dipping into savings. Larger retailers are the winners as a result, while smaller retailers are missing out on a piece of the pie.
  • K-Mart, JB Hi-Fi and Bunnings are clear winners of market share at the moment, while Target, Myers and David Jones are losing out.
  • Of the 48 ASX-listed retailers:
    • Half are growing their store count by 3% or more;
    • Two-thirds have rising gross margins;
    • 58% have operating costs rising faster than sales;
    • Eight of 12 retailers have wage costs rising faster than sales.
  • Online penetration (excluding food) is 13% in Australia. Meanwhile, the US trend is approximately 14%.

Retail Spending

  • Retail spending growth is likely to be 3.5-4.5% (at best) over the next 12 months, which is slightly below trend. It’s important for retailers to focus more on managing costs – particularly the costs of wages.

Paul Bloxham, Chief Economist, Australia, New Zealand and Global Commodities, HSBC Bank Australia

The Macro Story

  • The Australian economy is currently performing well, partially as a result of a good global economy.
  • Australia’s GDP and unemployment rate are the best they’ve been in 6 years.
  • 2017 had the strongest global growth since the GFC at 3%.
  • The US economy is booming at 3.5%, which is well above average.
  • The US unemployment rate is at a 49-year low.
  • Two major risks:
    • Financial conditions in the US are tightening, which means other countries (who are buying in USD) need to watch the money/liquidity leaving their country;
    • Rising global trade tensions between the US and China is a big story. Australia is more aligned to China’s domestic growth story, so as China reorients its growth towards domestic infrastructure, Australia is perhaps benefiting.

Australia’s Story

  • Australia is driven by global trends. This is how:
    • Australia is a commodity-heavy exporter. High demand for commodities is driving national income. Meanwhile, Chinese environmental policy is aimed at increasing high-grade iron ore imports rather than low-grade domestic commodities.
    • Australia is exporting education (i.e. foreign students studying in Australia). This is the country’s third largest import, behind iron ore and coal.
  • Non-mining business investment is running at a high of 10%.
  • Chinese arrival numbers were 310,000 per year only 10 years ago. Now the annual arrivals are 1,500,000 (and growing at 20%).

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