The struggles of retailers across the country have come as consumers switch their spending away from goods to services and so-called “experiences”, a central bank official says.
Reserve Bank of Australia assistant governor economic Philip Lowe says figures from the national accounts and household expenditure survey show the share of spending on goods has declined in recent times.
Meanwhile the share of spending among households on non-housing services has risen.
As an example, the data shows in the early 1980s some 14 per cent of total household expenditure went to clothing, footwear, household equipment and furniture.
Today, it is just eight per cent, Dr Lowe told delegates at the Australian Economic Forum in Sydney on Thursday.
“In contrast, there have been substantial rises in the shares of total expenditure accounted for by health, education and a range of household and personal services,” Dr Lowe said.
“While these increases are partly explained by a rise in the relative prices of many of these services, the volume of consumption of these services has also increased.”
Dr Lowe said reasons for the shift were difficult to pin down and came amid higher household savings rates in recent times.
The assistant governor put some of it down to the strong growth in household income, as well as a move away from goods and towards “experiences”, reflected by the strong growth in spending on recreational activities in recent times.
Spending measured by the official statistician’s monthly retail trade report now accounted for just one-third of total consumption, compared with about 40 per cent in the early 1980s, Dr Lowe said.
“There are significant changes in saving and saving patterns taking place in Australia,” Dr Lowe said, adding that the effects of these changes was most pronounced in the retail sector.
“As a result, conditions are quite difficult for many retailers.”
Department store chain David Jones said on Wednesday first half profit for fiscal 2012 was expected to fall between 15 to 20 per cent compared with the prior corresponding period.
Other retailers have also reported soft conditions.
Dr Lowe said Australia’s household savings ratio had returned to levels seen in the 1980s, reversing a period of significant decline between the mid-1980s and mid-2000s.
He expected the net savings rate would stay somewhere between 10 and 12 per cent in the period ahead.
“I think that’s a good thing because if we do, that’s building up buffers in the household sector, reducing risk,” Dr Lowe said in response to a question.
“I think it’s a good thing from a risk management perspective.”
Dr Lowe also said the difficult conditions for business had prompted many firms to look at new ways of doing things and examine their longstanding work practices.
