The post-Mother’s Day consumer spending slump has steepened

When the post-Mother’s Day consumer spending slump hit large areas of the retail community, the initial reaction from many retailers was that surely this was an aberration.

Sadly, my task today is to follow up my May 31 alert of the downturn with a further alert that not only has the post Mother’s Day downturn become entrenched, but the downward sales slope has got steeper.

Discretionary retailers are looking at a slump in sales of well over 10 per cent and sometimes reaching the high teens.

As I will describe below, we are also looking at a potential fundamental change in the attitude of Australians to the economic conditions in which they live.

This change in economy will test the increasing view of younger staff members that lifestyle is more important than financial success obtained from longer working hours, which drove their parents and grandparents.

Many listed retailers are now alerting shareholders to the seriousness of the dip.

While a similar fall took place in the early weeks of the pandemic in 2020, sales then recovered quickly and a three-year boom replaced initial despondency.

But this time there is no boom on the horizon and many retailers are starting the financial year overstocked and overstaffed.

To make matters worse, the government’s inflation boosting policies mean the cost of doing business continues to escalate rapidly because inflation is entrenched in areas like energy, labour and in many cases rent.

It’s a perfect storm for those retail sectors that depend on discretionary spending. And for food retailers, consumers are switching to lower cost and lower margin products at an unprecedented rate.

As I discussed on Wednesday, if the government had applied the economic brakes to help the Reserve Bank control inflation, we would now not expect further interest rate rises and be looking forward to a rate fall.

Instead, as I pointed out, governments (including states) stimulated and moved to lower productivity, so the central bank is confronted with low unemployment and entrenched inflation and is under pressure to keep increasing interest rates, thus compounding the sales falls and community misery.

Remember that the misery is being applied to only some two thirds of the population — those with sizeable mortgages and who are renting.

I am not calling an Australian recession because the overall economy is boosted by minerals and agriculture, plus the spending of those whose finances make them immune from the misery.

But for the two thirds of the population in the eye of the storm it will be a severe recession and fear of what is ahead is now changing the attitude of Australians to the national outlook.

The ANZ-Roy Morgan Consumer Confidence index has now spent 16 straight weeks below the mark of 80, the longest stretch at that level since the index began on a weekly basis in 2008.

But ANZ senior economist Adelaide Timbrell believes that hidden in those figures is a more fundamental change in the Australian community. I have reached similar conclusions based on the experience of retailers.

Mining is one of the areas that will starve off an official national recession.

Timbrell points out that confidence about “current financial conditions” has slumped 10.6 points in the past four weeks.

Last week was the third consecutive week with ‘future financial conditions’ below 90, the longest it has been this low on record.

It’s that four-week slump in “current financial conditions” outlook that has been translated into consumer spending.

And it will get worse because the attack on contract labour by the current government is also an attack on those with a second income to pay their mortgages.

Watch out banks.

When companies set their budgets for 2023-24 around March, sales were a little soft but holding well, and so there was no panic.

Boards and chief executives over a wide area now suddenly find their budgets, plus the incentives that go with them, are totally wrong. This can create a sense of hopelessness among staff.

A whole new set of realistic financial forecasts need to be established along with very different strategies to cope with the new environment.

For most CEOs this will be the first time they have had to rewrite budgets and not all will be good at the sudden implementation of new strategies.

And while debate rages on the contracting front what should have been a nation uplifting referendum on recognising the role of Aboriginal and Torres Strait Islanders in our history, the referendum has been hijacked by the wording of the proposed constitutional measures. Many leaders of the indigenous communities believe a “Yes” vote will be result in a dramatic shift in power away from non-indigenous people.

The debate will be ferocious and just what the nation did not need at this time.