Little luxuries offer retailers some upside as consumer spending falls

Retail sales fell in March and the future outlook is not good, but there is one tiny bit of good news: consumers seem prepared to spend a little more on feel-good luxuries like lipstick.

Retailers are down in the dumps, with the latest Australian Bureau of Statistics Retail Trade data’s seasonally adjusted estimate suggesting retail trade fell by 0.5% in March 2011.

The Australian Retailers Association (ARA) has quickly seized on the data to declare that any new taxes can’t be countenanced, as they will only cause spending-shy consumers to spend even less.

“Disappointing March retail trade is a sure sign to the Government that household discretionary spend is tighter than ever and consumers will react to any new taxes announced in Tuesday’s Budget by further tightening their purse strings,” ARA Executive Director Russell Zimmerman said in a press release.

“To protect the jobs of the 1.2 million people employed in the retail sector the Government must make sure any attempt to reduce debt in the Budget is done by cutting back on Government spending, not by taking more cash away from consumers with new and increased taxes,” he added.

Analyst IBISWorld’s take on the new retail spending data suggests that while consumers are shy of buying new big ticket items, they are starting to spend more on little luxuries that make them feel good about themselves.

“Cosmetics sales grew 2.6%, indicating that consumer preferences are moving towards low-cost substitutes for discretionary spending,” the firm said in a release, which dubs this kind of spending “the lipstick effect.”

The firm also says that retailers can blame TV for some of their woes.

“The success of television cooking shows such as MasterChef, have seen many Australians opt to cook at home – creating their own culinary masterpieces, rather than eat out," its release said.

"This has seen the cafes, restaurants and takeaway food sector grow by only 2.1%, while it bodes good news for food retailers – particularly those providing gourmet ranges, with supermarket and grocery stores revenue growing by 3.4%, and specialised food retailing up 4.1%.”

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