Retailers Set To Benefit From $200Billion In Consumer Savings Supply Issues A Problem
Online trading is booming, consumers are gravitating to known brands, and premium priced products according to JB Hi Fi with a flood in store visits tipped when lockdown restrictions are lifted.
New Bureau of Statistics research reveals that consumers are also awash with over $200 Billion in savings, and when lockdown restrictions are lifted, a massive buying boom is set to hit stores which are going to struggle to keep up with demands.
The COVID-19 pandemic has caused a focus on input costs, with supply chains jammed up or demand lifting in some sectors, causing prices to rise for some bicycles or building parts.
New research reveals that household savings are now up to $200 billion this year, with $25 billion added in July alone.
The savings are the second largest on record, topped only by July last year, as tax returns and government COVID-19 supports helped push savings to $167 billion above pre-pandemic levels.
David Ackery a director at Harvey Norman is telling suppliers that the big retailer is expecting a boom in store traffic as soon as restrictions are lifted with consumers tipped to spend billions running into the traditional end of year peak period.
One Harvey Norman franchisee said “There will be no need to discount or a need to run sales because there is limited stock in the channel. I suspect that a lot of goods in particular premium branded goods are going to be hard to get”.
The Federal and State governments hope that once restrictions ease, Australians will deploy their squirrelled away savings, equivalent to about 10 per cent of gross domestic product, in an economy-boosting spending spree.
The two States likely to suffer will be WA and Queensland with Interstate visitors banned from crossing boarders.
A JB Hi Fi executive said “We suspect that the big traffic will come in States that have been locked down as consumers head back into stores.
Figures released last week reveal that in the three months to June 30, the household savings ratio – the percentage of unspent disposal income – fell below 10 per cent for the first time in more than a year, and is now half where it was the same time a year earlier,
“This dynamic alongside pent-up demand will provide powerful tailwinds early in the recovery,” JP Morgan economist Tom Kennedy said.
During the past 18 months several CE and appliance businesses have boosted their balance sheets with the overall top up in excess of $140 billion.
With vaccination rates heading towards 70 and 80 per cent, the federal and NSW governments are on track to lift restrictions — which will mean a Christmas of shopping for many households who have not been able to spend money on travel, skiing or visits to retail stores.
When COVID first broke out consumers avoided or paid down debt in the early days of the pandemic, but in the past 12 months have added $93 billion in largely housing-related debt.
What households do with their additional savings is a major uncertainty for economists and policymakers.
Treasurer Josh Frydenberg regularly talks up the importance of people spending the money.
Both Harvey Norman and JB Hi Fi management believe that there will be a flight back to stores.
Ackery has told brands that there has been a “real flight to premium brands” and that they big retailer who last week announced a profit before tax of $1.183bn for the year ended 30 June 2021, an increase of $521m from the previous year, up 78.8%. Excluding the impact of property revaluation, profits were still up $415.8m or 66.4% is expecting this to continue onto 2022.
Household consumption lifted 1.1 per cent in the June quarter.
Spending on services grew 1.3 per cent, with transport and dining out lifting 25.4 per cent and 2.2 per cent respectively, while spending on goods rose 1 per cent, suggesting lockdowns are constraining pent-up demand.
However, banks have noted much of the additional savings is sitting in mortgage offset accounts, highlighting a risk that higher debt levels will result in higher savings levels to give people financial security.
Commonwealth Bank head of Australian economics Gareth Aird told the AFR last week that his analysis of household income versus expenditure from the national accounts – another way of measuring savings – indicated an additional $155 billion in savings since March 2020, which will top $200 billion by the end of 2021.
He admits that retailers are keen to get their hands on some of that money, particularly those in services industries and operating out of bricks and mortar stores who have not been able to pivot to online delivery.
The latest retail data showed a 2.7 per cent fall in trade in July, which followed a 1.8 per cent fall in June. The soft results pushed sales for the year into negative territory for the first time since the first national lockdown.
Online spending represented 12.6 per cent of sales throughout the month, according to the Bureau of Statistics, the highest level on record.The COVID-19 pandemic has also caused a focus on input costs, with supply chains jammed up causing prices to rise for consumer electronics and appliances due to chip shortages and rising shipping costs.
Woolworths who also own Big W, chief executive Brad Banducci said the supermarket giant was “starting to see more cost increases come forward, and we’ll work through those [with suppliers] on an individual case basis”.
Ikea has said they are struggling to supply about 1,000 product lines as supply issues continues to hit businesses.
The company said the shortage of products, was down to Covid and Brexit.
Businesses ranging from networking and PC notebook brands have also been suffering from supply issues.
The government has previously said it is “working closely with industry to address sector challenges”.
An Ikea sposperson said “Like many retailers, we are experiencing ongoing challenges with our supply chains due to Covid-19 and labour shortages, with transport, raw materials and sourcing all impacted. In addition, we are seeing higher customer demand as more people are spending more time at home.
“As a result, we are experiencing low availability”.
The retailer apologised and said it hoped the situation would improve “in the coming weeks and months”.