Retail sector adapting to new frugality – big box shopping & affordable luxuries

Australia’s retail sector has had to adapt to the new frugality as a result of the financial crisis, and it appears that, among bricks-and-mortar retailers, only big box stores such as Bunnings have thrived. Yesterday saw the site launch of the new Bunnings at West Ipswich (Bunnings brings hundreds of jobs to Ipswich) and last week brought news of the approval of Costco’s new store at North Lakes. Masters has also expanded in Queensland, and the new store at Springfield appears very popular, although Masters is at least a couple of years away from profitability (Masters ‘a couple of years’ away from profit).

Cafes also appear to be performing well and proliferating at the moment, and are part of the leading sub-sector in through-the-year growth to March (see chart below). I expect this reflects both lifestyle changes (i.e. the popularity of brunch out at a cafe on weekends) and a desire for the affordable luxuries of coffee and cake at a cosy little cafe, which can be a cost-effective way of boosting spirits.

retailOverall, the Queensland retail trade data from yesterday were quite encouraging, with through-the-year growth not too bad at all (see the Treasury brief). But Victoria, whose manufacturing sector is suffering under the high Australian dollar, is a major drag on activity nationally.

Regarding today’s RBA Board meeting, I expect the Board will wait another couple of months before it decides to cut rates again. It would be best for the Board to wait for the March quarter GDP figures in early June, meaning they shouldn’t move until July. For more discussion of the RBA Board meeting today, see Pete Faulkner’s commentary at Conus Economics Blog.


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