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Expect Retail Sales To Drop: Citi

A report from Citi has warned that retailers could face a sharp fall in sales as coronavirus restrictions and stimulus payments ease.

The June quarter saw consumers, thanks to $50 billion government stimulus and early super withdrawals, propel the retail sector to nab market share from other areas; however, according to a note to clients from Citi analyst Craig Woolford reported in The Australian, COVID-19 has distorted household income and spending, with much of it fuelled by the stimulus.

“The June 2020 quarter national accounts provides a useful insight, highlighting that retail has won in terms of its share of spending and the household’s income has been propped up by the government.

“In the June quarter, consumer spending fell by 12 per cent, while retail spending rose two per cent. Household incomes rose by eight per cent, but if we strip out the government support they would have fallen by nine per cent,” he said.

Woolford warned that retailers should expect a drop in turnover as stimulus measures end, with household spending leaving retail.

“The size of the stimulus to households will likely fall while the underlying pressure on incomes from fewer jobs and lower wage growth should remain.

“Moreover, as restrictions ease, households should start to redirect their spending outside of retail. We are cautious on most discretionary retailers and have a preference for grocery,” he said.

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