Lounge sweet: Adairs and Nick Scali thrive in lockdown

A select number of retailers has never had it so good, with shoppers filling their homes with objects that make them feel good about being at home.

Nick Scali CEO Anthony Scali says consumers are buying household goods with money set aside for holidays. Picture: Chris Pavlich

A funny thing happened on the way to the recession: consumers are spending like there is an economic boom going on and filling their homes with leather sofas, velvet throws and Scandinavian-style coffee tables.

Australia is in the early stages of what many experts expect will be a deep and prolonged recession, unemployment is racing to 10 per cent and thousands of businesses are only open and able to employ people because of government wages subsidies.

But a select number of retailers involved in discretionary spending such as furniture and homewares have never had it so good.

Their shoppers, many of whom are more affluent than the average Australian consumer, are pouring money that was earmarked for holidays and nights out at restaurants and entertainment into filling their homes with objects that make them feel good about being in lockdown.

Adairs chief executive Mark Ronan says the retailer is benefiting from consumers updating their homes.

Then there is the weight of more than $30bn taken out of superannuation accounts, the equivalent of more than one month’s total retail turnover in Australia.

Early withdrawals are expected to reach close to $40bn by Christmas.

Companies such as Kogan.com, Nick Scali, Temple & Webster and Adairs have treated their investors to reports of steadily building sales and profitability in the early weeks and months after the first wave of COVID-19 in March. This has been led by a roaring online trade as home isolation, lockdowns and social distancing have diverted traffic from bricks and mortar stores to digital shopping platforms.

Nick Scali, the upmarket furniture chain, kicked off reporting season by revealing that orders were up more than 70 per cent for May, June and July, with the group building on that momentum to forecast a profit rise of 50 to 60 per cent for the first half of fiscal 2021. Online pure play furniture and homewares retailer Temple & Webster had a similar story to tell, as its sales bounced 74 per cent in 2020, with sales growth of 130 per cent in the fourth quarter repeated in July.

National Australia Bank chief economist Alan Oster believes consumer discretionary spending is being fuelled by the twin rockets of JobKeeper and early withdrawal of superannuation, and with nowhere to go in terms of travel and entertainment the money is being thrust into selected retailer cash registers.

“What we are seeing is (household) cashflow, if anything, has actually gone up.

“You got JobKeeper and the dole more than replacing the income you are getting.

“There was also, particularly in May, a big increase in superannuation withdrawals,’’ Mr Oster told The Australian.

“That sort of died away in June a bit but now in July the superannuation payments are happening again. So the cashflow that is going into the household is, I won’t say at record levels, but the sort of levels we haven’t seen for three of four years.”

These consumers, flush with cash, aren’t saving to help cocoon themselves from the recession and perhaps long periods of unemployment; rather they are spending.

“What we tend to see is hoarding in the supermarkets, and then we see particular electricals and furniture etc, and that we think is preparation for working at home for a long time. So they are buying at JB Hi-Fi, Harvey Norman, buying desks and computers, and that is still going.

“We are finding things like specialised food and that kind of stuff going absolutely through the roof.’’

He said retail sales were up 6 per cent on this time last year, which he labels as “unbelievable”.

That spending must soon end, Mr Oster argues, especially as the reserves of superannuation able to be taken out early dry up.

“You can’t spend that money forever. You can’t keep going. They are not saving for a rainy day. And we worry a lot about it. Some of them aren’t paying off their mortgages.

“But I’m not sure if I was a retailer, a discretionary retailer, that I would be celebrating.

“It is still going to cause grief.’’

The chief executive of bedding and furnishings retailer Adairs, Mark Ronan, told The Australian he believed the current boom time conditions for some retailers was reflective of a reallocation of consumer discretionary dollars running through the economy.

“Perhaps a reallocation of some of that spending to create an environment in their home that they want and they love given they are spending more time in that space than perhaps they were before,” he said.

“So from our point of view we are seeing good growth in new customers who haven’t shopped at Adairs before, returning customers coming back in and it seems to me they are updating their homes. For me, I think there is a section of the economy that is going better than others and I think some of those customers are in our demographic.’’

He also mirrored comments by Nick Scali boss Anthony Scali that money set aside for holidays was being spent on household goods.

“I think it comes back to as much that the money that was potentially being saved or spent on holidays and restaurants and those sorts of things is being reallocated to creating an environment they are spending a lot more time in and Temple & Webster, Nick Scali and all of us are benefiting from the fact that is where we play.’’