IBISWorld reveals festive food, fizz and all things online fuelling growth in stagnated Christmas spending

Christmas retailWhile revenue is on the rise for online retailers, liquor stores and supermarkets, growth across other key categories has been constrained due to downturn in consumer income and sentiment

According to IBISWorld, Christmas retail spending is expected to stagnate this December, falling by 0.2% compared to the same time last year. While not all categories will be affected, IBISWorld is attributing the overall decline to lower discretionary incomes, negative consumer sentiment, and price discounting across the retail sector.

“Overall, IBISWorld has observed early signs that retailers will struggle to outperform over the 2017 holiday period,” said IBISWorld analyst, Mr Jason Aravanis. “Consumers are tending to transition to cheaper online retailers, particularly as the entrance of Amazon into the market increases the awareness of online platforms. Jewellery retailers, department stores, and electronic goods retailers are all expected to underperform this holiday season, although it isn’t all bad news – with liquor retailers, supermarkets, and online retailers expected to experience some growth over the period.”

Category Revenue in $ millions 16-17 Growth
Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
Electronic goods 1,526.1 1,666.1 1,711.2 1,690.4 1,669.4 -1.2%
Jewellery and watches 463.0 500.4 529.9 547.9 539.7 -1.5%
Liquor 1,258.8 1,353.0 1,400.5 1,478.4 1,540.0 4.2%
Department Stores 2,725.5 2,756.9 2,913.6 2,850.4 2,796.3 -1.9%
Supermarkets 8,707.0 9,023.8 9,442.9 9,850.4 10,083.2 2.4%
Recreational goods 791.0 798.5 799.4 781.7 780.9 -0.1%

Source: ABS and IBISWorld

Electronic goods retailing

Christmas spending on electronic goods is expected to decline by 1.2% compared with this time last year, to total $1.7 billion. Despite advances in product design and technology, revenue has fallen due to strong price-based competition, progressive declines in the average price of some domestic appliance categories, and weak consumer sentiment. An expected drop in discretionary income in the current year is likely to cause some households to postpone big-ticket purchases, particularly computers and televisions.

“This Christmas season is likely to be particularly interesting due to the recent entrance of Amazon into the Australian market. Amazon is expected to try and capture the trust of Australian consumers during this Christmas period. IBISWorld expects Amazon to aggressively drive down prices, although this may not occur until after Christmas as Amazon integrates manufacturers into their local supply chain. Other large players, including Harvey Norman and JB Hi-Fi, are expected to accept lower margins as they offer significant discounts in an effort to prevent Amazon from capturing market share,” explained Mr Aravanis.

Jewellery and watch retailing

Jewellery and watch retailers are expected to encounter subdued demand over December 2017, as revenue declines to $539.7 million, down 1.5% from the previous holiday period. IBISWorld research shows that spending on jewellery and watches typically doubles over the Christmas period. However, spending on these items over the entirety of 2017-18 is expected to be lower than previous years due to negative consumer sentiment and falling discretionary incomes.

“As consumers become less willing to spend large amounts on luxury items, IBISWorld expects retailers of more affordable jewellery and watches to attract a greater share of Christmas demand. However, independent online retailers are also likely to increase their share of the market as an increasing number of consumers opt for unique and cheaper jewellery items that are only available through online platforms,” said Mr Aravanis.

Liquor retailing

According to IBISWorld, liquor sales are expected to grow by 4.2% this Christmas compared with last year. Over $1.5 billion is expected to be spent on liquor goods over the Christmas period, which represents close to 13.2% of total liquor sales revenue for the calendar year.

“The composition of alcohol consumption is expected to differ in comparison to previous holiday periods. IBISWorld expects average beer consumption per capita to be about 10 litres per person, while wine consumption is expected to be close to 4 litres. However, IBISWorld expects beer and wine to account for a smaller share of total alcohol spending, as demand for cider surges by 5.7% over 2017-18. In addition, craft beers are expected to account for a greater share of beer consumption, as consumers increasingly favour quality over quantity,” explained Mr Aravanis.

Overall alcohol consumption per capita is expected to continue to decline due to rising health consciousness. Big-box liquor stores, such as Woolworths-owned Dan Murphy’s, have relied on aggressive discounting to outperform independent retailers.

Department stores

Department stores’ festive takings are anticipated to decline this Christmas season, with sales expected to be 1.9% lower than last year’s holiday season. Over December 2017, consumers are expected to spend $111.64 per capita in department stores. This is down from $116.94 in the previous year.

“Competition from online retailers is expected to continue to negatively affect sales, particularly as Amazon seeks to capture market share over the Christmas period. Discounting and negative consumer sentiment are also likely to hinder revenue growth,” said Mr Aravanis.

IBISWorld expects major players such as David Jones and Myer to protect their margins by offering exclusive high-margin products and expanding their product ranges. In contrast, budget department stores such as Big W are expected to compete primarily through discounting.

Supermarkets

Festive feasting is set to drive supermarket sales during the month of December. Consumer spending across most core categories is usually around 35% stronger during this period than over the rest of the year, according to IBISWorld research. Spending is expected to reach $10.1 billion in December 2017, which is an increase of 2.4% from last year’s holiday period.

However, it may not be a happy holiday for supermarket establishments. While Christmas is a key period for supermarkets and grocery stores, intense pressure is limiting the margins of most establishments – with fierce competition between Woolworths, Coles, and ALDI.

“Price deflation across the supermarkets and grocery stores industry is expected to limit the increase in revenue generated during the Christmas period in 2017. In addition, consumer spending is expected to be hindered by falling discretionary incomes,” explained Mr Aravanis.

Recreational goods

According to IBISWorld, total spending on recreational goods such as toys, sporting goods and video games is expected to reach $780.1 million by Christmas, which is slightly lower than the same time last year.

“IBISWorld expects Christmas spending on sporting goods to be higher this year, due to greater sport participation. In contrast, expenditure on video games is expected to fall as online retailers continue to attract consumers through the advent of faster and cheaper internet connections,” said Mr Aravanis.

Amazon’s entry into the domestic market is expected to significantly increase price competition among retailers of recreational goods.

Online shopping

Online retailers are expected to be the big winners this Christmas season. Consumers will be driven online by the allure of lower prices and greater product ranges.

“IBISWorld expects online spending during December to grow by 15.0% from last year as budget-conscious consumers seek discounted items and Amazon increases the popularity of online shopping. Per capita online spending this Christmas is expected to reach $83.34, up from $76.68 in the previous year,” said Mr Aravanis.

Consumers are more likely to shop online for items that are unlikely to be damaged during shipping, such as clothing. Increasing confidence in transaction security and shorter delivery times are also likely to spur greater use of online shopping platforms. The entrance of Amazon is likely to significantly increase retail trade over future Christmas periods, as consumers become aware of Amazon’s discounted prices, short delivery times, and broad product range.

“The company’s launch in Australia has been significantly more aggressive than in other countries, and IBISWorld expects Amazon to ramp up competition across retail industries,” Mr Aravanis added.

For more information on sectors referenced in this release, visit www.ibisworld.com to access the following reports:

G4111   Supermarkets and Grocery Stores in Australia

G4123   Liquor Retailing

G4200   Consumer Goods Retailing

G4222   Computer and Software Retailing

G4242   Video Game, DVD and Recorded Music Retailing in Australia

G4243   Toy and Game Retailing in Australia

G4260   Department Stores

G4253   Watch and Jewellery Retailing

X0004   Online Shopping

For a printable PDF of this release, click here.

For more information, to obtain industry reports or to speak with an analyst, please contact:

Georgia Cook/Nick Aldrich

IBISWorld Media Relations Representatives – Anne Wild & Associates Pty Ltd
Tel: (02) 9440 0414
Mobile: 0422 289 916/0402 277 110
Email: gcook@awassociates.com.au/naldrich@awassociates.com.au