We are already a nation of shopaholics, but can it last?

Experts and analysts have been left to reconcile the recent retail excitement with the storm that many, including state treasurers, are predicting.

Consumer price index figures this week showed new housing and fuel contributed the most to the inflation environment, but prices for goods also rose faster than services, up 2.6 percent for the quarter.

The CPI figures may be lower than expected, but they still clearly outline the cost of living pressure Australians are feeling.

Categories that have benefited the most from the COVID lockdown, such as furniture and home appliances, saw the biggest price spikes.

Retail analyst Jarden Ben Gilbert said spending the past few months had been driven by happier economic conditions.

“The last quarter of trading was very strong. That’s because of pent-up demand, the strength of the housing market and significant price increases [for products]. You get all that done, and the expenses stay pretty tough,” he said.

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That trend won’t last forever.

“We will have a few more months of falling house prices. Then you’re going to get people on their electricity bill, and you run the risk that the government is revoking the fuel excise discount,” Gilbert said.

Oscar Oberg, portfolio manager at Wilson Asset Management, agrees there are some downsides coming for the sector. But investor expectations were low, and consumer stocks sold off towards the end of last year, meaning there is room for the company to surprise.

“We think this could be a pretty good period for retail given the stock price has corrected significantly and is predicting a very negative outcome, so you have to put that in context,” he said.

Consumer electronics businesses like JB Hi-Fi and Harvey Norman have been the clear winners during the lockdown, as Australians rush to buy home office equipment and entertainment products. Now it’s about seeing which companies don’t benefit from the coronavirus lockdown, Oberg said.

“Now about the companies that are exposed to ‘outgoing’ clothing – dresses, suits, jackets and that kind of retail.”

“I would say companies like Universal Store [could benefit] – where they are exposed to clothing for persons aged 18-30 years. Lovisa too, it’s a fast fashion jewelry retailer that’s doing well and it’s a global business.”

Habits are hard to lose

Australians have been feeling the cost of living under pressure for months. Gasoline prices have been an issue since before the last federal election, when the Morrison government temporarily cut fuel taxes.

Mortgage holders have heard warnings of an early rate hike in 2022, with the Reserve Bank of Australia making its first move on an increase in June.

Some consumers still maintain the habit of shopping through online or social media after the first time doing so during the pandemic. Credit:Getty

Throughout this time, strong retail numbers continue to filter. Australian Bureau of Statistics figures showed spending hit a record high in May at $34.2 billion – a figure that remained steady for June.

Gilbert said it would take a bit of time for the economic challenges to filter out consumer mindsets.

“It will take people a little longer to limit their spending at the moment. It might just take a little while for people to realize it [of these rising costs],” he says.

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McKinsey & Company has also been tracking how Australians emerged from lockdown. Despite caution about the way back from the disruption of COVID-19, researchers found people had planned to spend money in ways they might not have been able to before.

This week’s McKinsey report on consumer behavior points to a resurgence of consumer intention to shop in areas such as clothing, aviation and out-of-home entertainment in the next two to three months.

Associate partner at McKinsey & Company Abe Levavi said shoppers were showing a tendency to maintain the online shopping habits they had developed during the lockdown.

There is also room for the “omnichannel” trend to grow, where customers connect with the company online and in-store, often planning their purchases online in advance.

“We see customers buying directly from social media. From before the pandemic grew 15 percent, a sizeable number. Eighty-five percent of customers who made these purchases directly from social media said they intend to continue to do so,” he said.

Slowdown hint

Shares in online marketplace Kogan.com jumped more than 45 percent on Thursday after the company delivered a trading update, but the numbers suggest that the big growth it had during the pandemic is slowing.

Kogan said he expected gross sales to be flat last year, growing by 0.1 percent, while profit was 9.4 percent lower.

Kogan shares soared this week but profits fell. Credit:Peter Braig

Other hints of a slowdown also emerged in Australia and overseas this week. ABS retail trade figures showed no overall decline in June compared to May, but some categories did. Spending at retail stores fell 3.7 percent after the big jump, while sales of household goods fell 0.3 percent.

Meanwhile, US retail giant Walmart issued a profit warning, with chief executive Doug McMillon saying “rising food and fuel inflation rates are affecting how customers spend”.

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The tough conditions suggest a discount is coming because the company wants to clear stock – which has a flow-on effect for profits.

Morningstar analysts see Walmart’s trading updates as a signal of what’s to come.

“We saw the warning signs we saw in the US, just like everyone else, and we thought the writing was on the wall,” said Morningstar’s Johannes Faul in this week’s video update.

“The momentum we’re seeing is going back and that poses a problem for incomes in a free consumer market.”

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