Manufacturers to suffer as sluggish retail sales continue

On its first anniversary, the quarterly AFGC CHEP Retail Index, a forward looking indicator – which draws on physical and product movements throughout Australian supply chains analysed by Deloitte Analytics – has forecast a 2.1 per cent rise for the June quarter 2012, compared to growth of 2.5 per cent in the March 2012 quarter.

The predicted slowdown in retail activity through the June quarter will put further pressure on the profitability of Australia’s leading retailers and manufacturers.

The results of the AFGC CHEP Retail Index are consistent with ongoing weakness in household spending in Australia, driven by soft consumer sentiment.

The forecast for the March and June quarters of 2012 also suggests that 2011 interest rate cuts by the Reserve Bank are yet to stimulate retail activity.

In trend terms, nominal retail spending growth fell to 2.5 per cent over the year to February 2012 – the lowest growth since September 2011, and well below the average growth over the last decade of more than 5.2 per cent.

Australia’s elevated exchange rate continues to present difficulties for retailers, with consumers increasingly purchasing goods online from overseas. A higher $A does, however, assist local retailers with cheaper prices for imported stock

At the state level, data from the Australian Bureau of Statistics shows that nominal retail spending growth in trend terms is reflecting Australia’s two speed economy. In year on year terms, nominal retail spending in Western Australia is growing at close to 10 per cent, while in Queensland and the Northern Territory growth is close to four per cent.

In contrast, year on year growth is less than 1 per cent in New South Wales, South Australia and the Australian Capital Territory, and around 2 per cent in Victoria.

AFGC Acting Chief Executive Dr Geoffrey Annison said continuing sluggish retail conditions are making life very difficult for manufacturers, who are already struggling to cope with ongoing increases in costs and the fiercely competitive retail environment.

"Despite the challenges, food and grocery manufacturers are staying positive by seeking efficiencies across the entire supply chain, through improved processes and practices," Dr Annison said.

President of CHEP Australia and New Zealand, Phillip Austin, said: "Beyond the cooler summer’s impact on the traditional seasonal peak in supply chain activity, we are seeing highly efficient current stock holdings across both wholesalers and retailers, which implies businesses along the whole supply chain will see a rise in activity as demand returns."

The AFGC CHEP Retail Index is a collaborative project between the AFGC and CHEP Australia, powered by Deloitte. It uses CHEP transactional data based on pallet movements and is a lead indicator of ABS Retail Trade data.