ABS hardware retail revenue to April 2023

The Australian Bureau of Statistics (ABS) has released hardware retail sales stats up to April 2023. HNN will use the trailing 12 months to April in analysing these stats, timespans which we refer to as "periods". This means that, for example, p2019 refers to the timespan from May 2018 to April 2019.

The main image for this article, Chart 1 shown above, indicates continued growth through p2023. Overall for p2023, Australia saw revenue increase by $825 million to $25.50 billion, a lift of 3.34%. The distribution of that increase, however, continued the trend of leaning on states outside of the three major east coast states which provided much of the growth during the pandemic years.

The top growth state was South Australia (SA), with an increase of 14.8%. In dollar terms, its hardware retail revenue increased by $224 million, only slightly behind the growth leader in dollar terms, New South Wales (NSW), which grew by $269 million, representing a 3.6% increase.

Western Australia (WA) grew by 6.4%, an increase of $165 million, while Australian Capital Territory (ACT) grew by 5.27%, gaining $27 million. Trailing the pack were Queensland (QLD), with growth of just 2.9% or $152 million, and Victoria (VIC), which saw negative growth of just under 1%, a loss of $61 million.

Since p2022, there has been a decided shift in overall growth patterns, with the east coast states (NSW, VIC and QLD) collectively lagging the Rest of Australia (RoA) in percentage growth terms. For p2023, this has been further extended, with RoA now outperforming the east coast in gross dollar terms as well, as is illustrated by the two graphs in Chart 2:

New South Wales

The state's performance for most of p2023 has been stellar, as is indicated in Chart 3:

There has been only three months when p2023 did not outperform p2022 - and given that all of p2022 provided record-setting revenue levels, that means setting nine new records during those 12 months.

That said, however, the decline by -5.2% for April 2023 does seem significant, and not part of the pattern for the previous 11 months. The revenue for that month nudges just above the result for April 2021, and is below the early-pandemic result for April 2020.

Victoria

As with NSW, there's the potential to attach additional significance to VIC's result for April 2023. Its ongoing pattern of retreat from past highs is shown in Chart 4:

While p2023 has not been as good for VIC as it was for NSW, nonetheless three record highs were set, in August, September and October 2022. Revenues failed to match the highs of the pandemic years for November 2022, and since the start of calendar 2023, the state has underperformed results for the previous period.

That said, the dip from March to April is built into the seasonality for the state. However, what makes the April 2023 result potentially significant is that it has underperformed every result going back to just after the start of the pandemic, in April 2020. Though even at that, of course, it is still significantly above pre-pandemic results. The highest result for April previously was $455 million in 2019. The April 2023 result was $509 million, which is 11.9% above the 2019 number.

Queensland

Unlike VIC and NSW, the April 2023 result for QLD may be -4.7% lower than the April 2022, but it is above April 2021, and exactly the same as April 2020 - and it is a whopping 28% above April 2019. The pattern is shown in Chart 5:

That follows on from a p2023 which has set record revenue levels for seven months, mostly from June to November 2022.

South Australia

April 2023 set a record for SA, in a period where all but one month (May 2022) resulted in record hardware retail revenue, as seen in Chart 6:

Western Australia

Similar to SA, WA has set record revenue levels for 10 of the 12 months in p2023, the exceptions being May 2022, and the most current result for April 2023, as indicated by Chart 7:

While this does represent a break in the pattern for the period, it's not possible to see it as predictive for the rest of calendar 2023.

Australian Capital Territory

The general record for the ACT sees the territory apparently following the trend in p2023 of echoing results from either p2022 or p2021, depending on which is higher, as seen in Chart 8:

It seems likely there is some kind of upper-limit limiting factor at work here, which could simply be supply logistics, working to constrain growth to around the maximum in previous period.

Analysis

An underlying factor that is difficult to judge is the exact impact of inflation on these revenue numbers. Hardware had its own unique inflationary aspects due to constraints on supply. Also, just as margins tend to suffer when costs initially increase, so there is also often a "honeymoon" period directly after costs decrease where retailers can recover a portion of those previously lost profits. So while growing revenue is obviously a good thing, it is likely not as universally positive as it would have been in 2018 or 2019.

It Is the nature of statistical evaluation to always be alert to potential breaks to past patterns. It's helpful, though to return to the overall picture to affirm that things are, in general, going well. That is clearly indicated by the overall comparison for Australia, as shown in Chart 9:

It is hard to be pessimistic about a period which as set national records for hardware retail revenue for eight out of 12 months. Still, though, the results from NSW do require close attention.

To return to the issue mentioned in the introduction and overview, there is a distinct difference between the east coast and Rest of Australia. One aspect of this might be that the effect of the COVID-19 pandemic was most sharply felt on the east coast, driving up hardware revenues sharply, and that the rest of the nation is catching up to those higher levels of expenditure.

Another factor might be that house prices have been historically higher in the east coast, and that the recent increases in interest rates have more severely affect households in that region, slowing growth in retail expenditure.

What has been difficult to really tie down, of course, and the true externalities to hardware retail that may still strongly affect the market. Most of these relate to aftereffects of the COVID-19 pandemic. As HNN has suggested in the past, the recovery from the pandemic might seem to be "V" shaped, but in reality it is more "K" shaped, with some portions of the economy making a rapid reversion to pre-pandemic performance, while others lag considerably.

Overseas travel is, unexpectedly, one of those areas. While travel has resumed a higher level, airline prices have remained high, due to the intersection of increased demand and somewhat limited supply. That may mean that frequency of travel has increased, but actual expenditure has been constrained - families are choosing less expensive destinations.

It is becoming increasingly evident, however, that "limited supply" is due less to actual physical and organisation restraints, more down to airlines preferring high prices on restrained supply than lower prices on broader supply - they are strategising for more profit per seat, in other words, rather than more seats at less profit.

This means that households may still desire travel, but face a very different equation in terms of its value as compared to, say, renovating the kitchen. It is highly likely that those kinds of externalities will continue to exert effects through to the end of the next financial year.

Underlying the commercial strategies is the need to deal with increased levels of global risk, a necessity headlined by Russia's peculiar need to invade Ukraine. Accepting higher profit on restrained supply is not a good growth strategy, in general, but it does de-risk the situation, as funds are not being committed to expected growth that may not eventuate.

One of the factors that does enable that strategy is a decline in competition, and it has certainly been the case that both some smaller competitive companies were knocked out during the pandemic, and other larger companies saw their ability to exert market influence broadly depleted.

The real fear for longer-term forecasters in hardware retail is that at some stage these market inhibitions are going to reverse, and it's not clear what effect that will have on the market. The current market conditions could end up being ephemeral, and we could all eventually look back on this period as being the halcyon days that eventually just fluttered away.

One way to strategise against that possibility is to thoroughly re-capitalise businesses, and seek out new ways to better service future markets. However, especially for smaller businesses, that is frequently a difficult path to follow. It is simply hard when things are finally going well after a decade of slow and slowing growth to envision a future where current business practices will not be a good fit for the new markets. It's difficult, but it is also very necessary.