Christmas joy for retailers, but end for some

The run into Christmas is looking more positive for retailers than previously expected, but for some businesses it could prove to be the final test of survival after torrid 2020.

Deloitte Access Economics says the industry has weathered the COVID-19 pandemic remarkably well and the December quarter will be the first with limited COVID-19 restrictions since the second wave crisis hit Victoria.

Pent up demand was already starting to lift spending through the month of October, following the sharp 6.5 per cent rebound in retail volumes in the September quarter from a significant drop in the June quarter.

In its latest Retail Forecasts report, Deloitte forecasts retail turnover growth of 5.6 per cent in 2020/21 after a flat result in 2019/20 and 1.2 per cent in 2018/19.

Deloitte partner David Rumbens says there are three key drivers for this stronger outlook – improved labour market conditions; the extension of the JobKeeper wage subsidy for struggling businesses and upbeat consumer confidence.

“Combined with good news on fewer restrictions, state borders opening up, and vaccines, this has enabled consumers to feel more at ease with spending heading into December,” he said releasing the report on Tuesday.

But there is a risk it could be the last season of goodwill for many retailers.

“Not all retailers are benefiting from the boom in spending,” Mr Rumbens said.

“While spending on food and household goods are well above pre-COVID levels, clothing, department stores and cafes are all lagging.”

In a recent survey, Deloitte found that while almost two-in-five retailers expect over five per cent growth in Christmas sales – up from one-in-five in 2019 – around a quarter expect a fall in sales of over five per cent.

Despite the difficult conditions for many retailers during the pandemic, the number of insolvencies in the sector has dropped.

In 2019, almost 500 retailers had shut their doors for the last time by October, but in 2020 this had dropped to around 300.

But Mr Rumbens sees a risk of “insolvency catch-up” in the first half of 2021.

“The Christmas period is critical in any year,” he says.

“But for businesses facing significant disruption to operating conditions, who relied on stimulus measures that are slowly fading and who haven’t made necessary structural adjustments, there is a risk that a poor sales performance could be the straw that breaks the camel’s back.”

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