Consumers are spending again as lockdowns end and boosting economy, says Rob Scott of Wesfarmers

Wesfarmers boss Rob Scott says its key retail businesses such as Bunnings and Officeworks have witnessed sales growth as lockdowns are eased.

Wesfarmers chief executive Rob Scott and chairman Michael Chaney are reporting improving sales growth for the conglomerate’s retail arms as lockdowns are eased. Picture: Colin Murty/The Australian

Wesfarmers chief executive Rob Scott says there is now clear evidence of a link between rising vaccination rates and improving consumer and business confidence that is providing the perfect launching pad for a retail rebound.

As key regions across Australia head to 80 per cent double-vaccination rates and the NSW economy emerges from lockdowns, Wesfarmers has been a major beneficiary, with Bunnings, Officeworks and online marketplace Catch in particular forging higher sales growth. Speaking to The Australian after the Wesfarmers annual general meeting in Perth on Thursday, Mr Scott said the rollout of Covid-19 vaccinations was lifting confidence within the economy.

“I think there is no question that as vaccination rates are increasing we see that corresponding in consumer confidence.

“There is clear evidence that vaccinations reduce health risks for those being vaccinated and also reduce the overall community health risks in terms of restricting the extent of transmission,” Mr Scott said.

“And what we have seen in some regions with vaccination rates – in the ACT it is almost at 90 per cent vaccination levels, and NSW and Victoria rapidly scaling up – that is starting to pave the way for restoring our way of life and freedoms that we previously were used to, so there is an absolute correlation between higher vaccination levels and consumer and business confidence.”

The optimism for the December quarter follows federal Treasurer Josh Frydenberg recently saying the government expects the economy to contract 3 per cent in the September quarter from the June quarter, due to coronavirus lockdowns.

Economists at Commonwealth Bank, Westpac and AMP have predicted a contraction of at least 4 per cent and the consensus among market economists is for a contraction of 3.2 per cent.

But the economy is still expected to post strong growth of 3.7 per cent over 2021, assuming the major capital cities don’t return to lockdowns next year.

A survey of 41 economists by Bloomberg last week found a 1.9 per cent quarter-on-quarter rebound was expected in the December quarter.

The economy was expected to expand by an above-trend rate of 3.7 per cent in 2022 and 3 per cent in 2023. Meanwhile the Perth-based conglomerate is putting its considerable muscle behind improving vaccination rates, announcing before the AGM that it believed all of its 114,000 workers would be vaccinated by the new year and that any new employee at a Wesfarmers business would need to be vaccinated.

Earlier on Thursday Woolworths announced that it would move to mandatory vaccination for its 170,000-strong workforce, Coles said it would implement mandatory vaccines for workers in NSW, Victoria and the ACT, while discount supermarket retailer Aldi will begin talking to its staff about ushering in a similar policy.

As NSW and Victoria exit lockdowns and consumers with pent-up demand prepare to unleash as much as $200bn in stored savings between now and Christmas, Mr Scott said he believed Wesfarmers was in a good position to benefit from the return to normal trading.

In his address to shareholders at the AGM Mr Scott, whose Wesfarmers conglomerate is highly exposed to the retail sector, said pent-up demand from consumers was starting to pour into ­Wesfarmers’s retail chains, such as hardware giant Bunnings, Officeworks and discount department stores Kmart and Target in NSW as lockdowns ended last week.

Wesfarmers revealed on Thursday that sales declines experienced in the first eight weeks of the 2022 financial year had turned around, with sales growth returning to some of its retail business in recent weeks.

Mr Scott said since August when Wesfarmers delivered its full-year results there had been an improvement in sales for Bunnings, Officeworks and online marketplace Catch. Results in Kmart and Target continued to be affected by temporary store closures, however.

“Lockdowns, government-mandated store closures and other restrictions have significantly impacted trading conditions for the group’s retail businesses in recent months. There have been periods during which almost half of our retail stores were either closed or restricted in some way,” Mr Scott said in his speech to the AGM.

Mr Scott said the business was well prepared for the Christmas season and he did not warn of supply constraints due to disruption to global supply chains as other CEOs have.

“Our retail businesses have been effective in managing the disruptions in global supply chains and are well positioned with inventory for the important Christmas trading period.”

Mr Scott said at Bunnings, sales results for the year remained robust. Sales growth from commercial customers had been strong which, combined with elevated online sales, had partially offset the impact of lower consumer sales growth.

Kmart and Target had been most affected by store closures, with many stores closed or only operating for click and collect orders, he said.

The chemicals, energy and fertilisers division made a solid start to the year. Demand for ammonium nitrate from mining customers has remained robust, and the Kleenheat business has benefited from favourable LPG pricing as a result of broader strength in global energy prices. Performance in the industrial and safety division has continued to improve, with pleasing growth in the Blackwoods and Coregas businesses.

Mr Scott said Wesfarmers continued to progress its recent takeover bid for pharmacy group Australian Pharmaceutical Industries, where the conglomerate has made an all-cash proposal of $1.55 per share. A fortnight ago, Wesfarmers announced it had acquired a 19.3 per cent interest in the company.

Wesfarmers chairman Michael Chaney said companies had been faced with some difficult choices during the pandemic, including whether to stand down team members or keep paying them.

“We were in the fortunate position of having the financial capacity to do the latter,” he said.