It’s the Year of the Tourist!

Cheerful young woman in Melbourne makes a heart shape finger frame. She is standing on a bridge overlooking the Melbourne CBD along the Yarra River on a beautiful day.

Domestic retail sales demand might be lagging a bit, but the explosion of international tourism into Australia (led by China) is giving our retail sector a big boost.

At least that’s what the latest Deloitte Access Economics’ Retail Forecasts report is telling us.

This is obviously good news for the economy, and as more tourists arrive onshore, more international retailers want to come along for the ride as well. International tourism is luring international brands into the Australian retail market.

As at January 2017, 39 of the top 250 retailers globally operated in Australia.

But retail profits themselves are still under pressure. The last six months of data for retail profits has shown the lowest results in almost five years, with intense competition mixed with slow spending growth important contributors to this result.

During the 2015-16 financial year, tourist expenditure, both domestic and international, totalled around $130 billion. Retail spending accounted for around 39.7 per cent of this expenditure, including $36.1 billion (27.7 per cent) on food retailing and $15.6 billion (12.0 per cent per cent) on non-food retailing.

“Overall, real (inflation-adjusted) retail sales growth was two per cent for the year to December 2016,” said David Rumbens, Deloitte Access Economics Partner.

“We expect a steady improvement in retail sales through 2017 which is forecast to grow by 2.4 per cent for the year to December 2017, then by 2.7 per cent over 2018.”

“International tourist visitation in Australia is at record highs, and spending by tourists is exploding as well. The strong growth in tourism over recent years is expected to continue during 2017, adding a key supplementary market for Australian retailers.

“Tourist shopping expenditure from China alone is already around $1.4 billion per year, and is set to almost quadruple over the next decade. Strong growth is also expected from India and the Middle East.”

Apparel’s strong spend growth isn’t enough for some retailers. Apparel turnover is growing more rapidly than any other retail category, but many of the factors that assist apparel expenditure also create risks for retailers.

The importance of online retailing in the Australian apparel market is giving rise to an influx of international competitors, as has the rapidly growing tourism market. And a number of Australian apparel retailers couldn’t handle the heat.

Voluntary administration of retailers including Marcs, David Lawrence, Herringbone, Rhodes and Beckett and Payless Shoes indicate category growth is not the only precursor to retailer success.

Employment in 2016 swung hard to part-time jobs. Over the year, the number of full‑time jobs in Australia shrank by 56,100, while part-time jobs rose by 159,400.

Continuing underemployment in Australia is keeping wage growth at record lows (1.9 per cent nominal growth over the year). However, the uplift in jobs expected over 2017 is expected to support retail spend growth over the year.

Demand for prime CBD assets is driving retail investment.

Rumbens added, “The value of retail building approvals has been rising steadily over the past couple of years, at an annual rate of 11 per cent over 2015 and 2016.

“Investor demand for retail assets has risen as low interest rates reduce the cost of funding. Prime retail assets are in high demand, as international retailers flock to Australia. Major fashion houses from overseas have shown their willingness to pay more for prominent, attractive flagship store leases.”

 

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