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McGrathNicol Advisory weighs in on consumer confidence

The Westpac consumer sentiment index fell by 6.1% to 87.9 in July 2020, reversing the slight improvement that had occurred in June as a result of the relative optimism towards COVID recovery.

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The survey was taken following the recent increase in restrictions in Victoria, but prior to the emergence of new outbreaks in New South Wales. During this time, the confidence measure for Victoria fell by 10.4%, providing insight into the impact that a broader outbreak and tightening of restrictions could have on national confidence. By comparison, the national measure fell by 17.7% in April 2020, at the height of the restrictions.

Although the current data is largely a reflection on the stop/start nature of the COVID economy, McGrathNicol Advisory partner, Jason Ireland said it should be noted that the index had in fact not reached positive or optimistic territory (i.e. above 100) since June 2019, and had been trending downward pre-COVID.

“Moreover, the recent correlation between consumer confidence and the ABS retail sales data provides an insight into the jumpy nature of the consumer and may serve as an indication into what July confidence data might mean for July sales,” he told Retailbiz.

“However, this will not be formally released until September. For example, a low point in consumer confidence of 75.6 experienced in April coincided with a 17.7% decrease in retail sales in that month. Consumer confidence jumped in May by 16.4% as restrictions lifted and May sales showed a 16.9% increase.”

So what can retailers expect moving forward?

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According to Ireland, consumer behaviour will permanently change as a result of the pandemic and we are likely to see more shifts to cashless transactions, online shopping, as well as increased cautiousness when it comes to hygiene and health.

“The latest consumer confidence data showed falls in some indices that track medium and longer term confidence. For some of those indices it was the first month since COVID began where they entered pessimistic territory. This points to an increased level of uncertainty for the consumer about the length of the crisis, further lockdowns, and the longer-term economic impacts. This means retailers can expect an eager (willingness to spend as restrictions lift) but more cautious and targeted consumer (having conducted research before buying),” he said.

Ireland also noted that shopping centre data has shown that people are returning to bricks and mortar stores, although not in Victoria, but they are being more targeted with shorter dwell times but higher transaction values.

“This presents both an opportunity and a risk for retailers. Retailers must take flexibility to another level and communicate directly and regularly with the consumer and target market; offer the consumer a choice of channel and adapt return handling policies; redefine value and affordability, and partner with suppliers to modify inventory purchasing procedures to conserve cash and share risk.”

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