Retail sector shows ‘early signs of recovery’

The $320bn retail sector is showing early signs of life after three months of home isolation and social distancing, Citi analysts say.

The Northland Shopping Centre, Preston, Victoria

Australia’s $320bn retail sector is showing some early signs of life after three months of home isolation and social distancing that turned many stores and shopping centres into ghost towns, as fresh data flowing from road traffic to restaurant bookings points to the long-awaited recovery.

Citi has compiled a COVID-19 dashboard that uses real-time data to deliver a useful window into the strength of the retail industry at a time when fast changes and economic shocks have rattled the sector, with its analysts claiming that retail sales have now turned positive for the first time in 13 weeks.

Hoovering up data from a range of industries and activities including pedestrian foot traffic, retail traffic, road traffic, restaurant bookings, public transport use and shipping data, Citi argues a recovery is evident, and there are signs of it gaining momentum.

“We note that across all measures a return to normalcy is somewhat evident but until recently was yet to translate. More recently however, we are seeing a clearer sign of improved levels of mobility across all indicators, especially from the worst-hit areas of parks, recreation and transport,’’ Citi analyst Craig Woolford told Citi clients.

Citi’s bullish view is in stark contrast to the latest retail sales report released on Thursday that revealed a massive 17.7 per cent plunge in retail sales for April as the lockdown came into effect and many consumers were in home isolation. That sales slump was a swing from the 8.5 per cent rally in March — driven by panic buying ahead of the shutdown — but is still 10.7 per cent below February levels and down 9.2 per cent year on year.

Although backward-looking, the April monthly retail sales result was tagged by Westpac economist Matthew Hassan as “unlike any seen in the 58-year history of the sales data”. He said the road to recovery will be long and difficult, but said there were green shoots of improvement. “There are already some signs that easing restrictions have generated a lift in May that should consolidate as restrictions are eased further in June.

“However, there will be enduring weakness for some highly exposed retailers. Consumers will also be grappling with a loss of income and many may well be ‘shell-shocked’ by the COVID experience, showing reluctance to return to potentially crowded retail spaces.”

Citi has shown in its more up-to-date analysis that the economy is heading for a U-shaped recovery and that retail activity continues to be the most improved data point, with retail sales turning positive for the first time since pre-COVID levels.

“This has coincided with a continuation of stores reopening (80 per cent at the end of May) and increased levels of foot traffic. General mobility stabilised in the last week, while Australian restaurant bookings have shown green shoots … job vacancies have dried up, but have improved from April lows,’’ Mr Woolford said.

The Citi analysis cited road traffic data across Brisbane, Melbourne and Sydney and said there was a gradual improvement in traffic across the three states over the last month, having been as low as down 50 per cent year on year in Melbourne at the end of April. Sydney and Brisbane are now down 10 per cent year on year with Melbourne down 22 per cent at the start of June.

“The first takeaway from this update is that the data is definitely improving across the indicators we are tracking,’’ he said.

“This is most notable in retail activity where sales have returned to positive for the first time, as stores continue to reopen. General mobility has stabilised and restaurant bookings are starting to gain momentum, albeit off a low base. Flight traffic continues to be depressed, while public transport has improved, off a low base, as public transport restrictions were relaxed.”