ABS hardware retail stats: Sept 2023

The Australian Bureau of Statistics (ABS) has released stats for hardware retail turnover through to September 2023.

We can treat the trailing 12-month through to September as periods, which we denote with a "p" prefix. So p2022 refers to the period from October 2021 through to September 2022.

The ABS data shows us two major points: on that trailing 12-month basis, turnover for Australia as a whole has now entered negative growth. This is by a small amount, but given underlying inflation, it is likely indicative of a larger market contraction.

The second point, however, is that across Australia results for both August and September 2023 have been broadly positive. Up, as we all know, is good, in any circumstance.

In terms of how much direct inflation there is in the hardware retail market, that remains difficult to determine. In our recent article on the ABS stats for the Producer Price Index (in this e-newsletter) as it relates to construction, we indicate that this is broadly flat. However, if you consider the categories listed, many of those that more directly relate to hardware retail have trended down. It is somewhat likely as a consequence that inflation for hardware retail is below the 5.4% consumer price index (CPI) increase for p2023 - but will still be significant.

The overall numbers

Australia overall saw sales of $25.46 billion for p2023, down $21 million from p2022, a decline of -0.08%. That contrasts with an increase of 7.54% for p2022 over p2021.

In both percentage and dollar terms, Queensland (QLD) saw the steepest fall for p2023. Revenue was down $85 million, representing a decline of -1.58%. Both New South Wales (NSW) and Victoria (VIC) were close to that, with declines of $81 million/-1.05% and $72 million/1.08% respectively. Tasmania (TAS) also recorded a fall for p2023 over p2022 of 0.93% and $6 million.

In both percentage and dollar terms, South Australia (SA) had the steepest increase, gaining 6.28% and $103.9 million. Western Australia (WA) was just slightly under that with $103.4 million, representing an increase of 3.88%. Northern Territory (NT) grew by 3.05%/$8 million, and Australian Capital Territory (ACT) went up by 1.35%/$7million.

The chart below illustrates the specific revenue comparisons between the states:

The chart below shows the shift in growth from the three major east coast states to the rest of Australia, in dollar and percentage terms.

While the east coast dominates in terms of market size, the rest of Australia has been outgrowing it in percentage terms.

New South Wales

In the contrast between p2022 and p2023, the decline in revenue over April, May and June have dragged down performance in the most recent period. While August 2023 came in marginally below August 2022, September 2023 has seen revenue nudge past September 2021 to provide an all-time high for the month.

The question that remains is whether revenues over the coming quarter will run high, following the December quarter over the two previous years, or if it will fall back to 2020 levels. Based on a range of factors, HNN expects the results for the three months of the quarter to be around the $1.9 billion to $2.0 billion mark, averaging just above December quarter 2020.

To add some overall context to this result, it's worth noting that from p2019 to p2023 retail turnover in NSW increased by 33.1%.

Victoria

Of all the states, VIC has actually benefitted the least from the COVID bump to hardware retail. That's largely down to its subdued performance in p2021, when sales increased by only 0.1%, a period when both NSW and QLD boosted sales by over eight percent. The gain from p2019 to 2023 for VIC is the lowest for all states and territories, at just 17.1%.

Given that, it's a little surprising that in a time where p2023 sales trailed those for p2022 consistently, the state outperformed p2023 throughout the September 2023 quarter. That was especially true for September itself, with sales up 8.9% over September 2022. That's not against a weak comparative either, as sales in both August and September 2022 were the highest to date, a feat obviously repeated in 2023.

While this is encouraging, HNN still expects total retail turnover for the current December quarter to come in just below that of NSW, at $1.8 billion to $1.9 billion.

Queensland

QLD began p2023 by setting record highs in sales for October and November 2022, and just nudged a new record in February 2023. However, from June through to September 2023 the state has underperformed the previous period.

Again, to provide some perspective, sales for p2023 were up over 30% on those for p2019, increasing by $1.3 billion.

South Australia

Every single month of p2023 has seen SA set a new record for hardware retail sales, with September's increase of 9.2% over September 2022 only the fourth highest percentage gain for the period.

It's difficult to predict what December quarter of 2023 will bring, but it is likely to be over $500 million in total revenue. SA has been the state to most benefit in percentage terms from the COVID bump, with hardware sales up over 50% for p2023 against p2019.

Western Australia

Like SA, p2023 was a good year for WA hardware retail, with only April 2023 dipping below results for p2022, and every other month setting a new record for the state.

The overall COVID bump from p2019 to p2023 has been 39.5%.

Australian Capital Territory

Through until April 2023 performance for p2023 closely followed that of p2022, but since May 2023 the territory has outperformed the previous period. That culminated in a 10.4% lift for September 2023 over September 2022.

ACT saw a COVID bump of 45.7% from p2019 to p2023.

Tasmania

As we've started to fully cycle out of the data blackout that happened for the state during the COVID years, we can present at least the two post-COVID years.

As the chart indicates, p2023 followed p2022 very closely.

Northern Territory

NT also has enough data available to now present the two most recent periods.

In part due to its size, NT tends to be volatile in its results, but these do indicate that p2023 outperformed p2022 until July 2023, and has underperformed p2022 for all of the September quarter. However, that is in part due to an exception p2022.

Analysis

The primary fact to understand about the current Australian economy is that it is the intent of the Reserve Bank of Australia (RBA) to create conditions where Australians will spend less, especially on housing.

The overriding influence on the economy is a shortage of supply, which means that even moderately high demand can lead to inflation. As mentioned in our analysis of the ABS Producer Price Index numbers for construction, the ABS sees demand in construction for the September 2023 quarter as being split. While supplies used up until first fix have seen diminishing demand, and hence price reductions, second fix supplies continue to see high demand, and hence price increases. This would indicate that the RBA has started to achieve its goals.

Where HNN sees real concern for hardware retailers is in how the more DIY market plays out over December 2023 and March 2024 quarters. As we mentioned in our analysis of the DIY market, we've grown used to both analysts and corporate CEOs relying on a model that sees DIY pick up when house sales slow. There has always been some truth to that, but it has become an increasingly simplistic analysis as other factors come into play. It might have been a leading market modality back in 2018, but in 2023 and 2024 it is just one factor among equals.

One of those factors is that HNN is seeing increasing anecdotal evidence that DIY has become less popular. It seems to be moving to a more narrow focus. We do think one area that could see growth is in repair as opposed to improvement, with an increased willingness among homeowners to take on annual, seasonal tasks to ensure their homes stay in good shape.

All that said, it is true that Australia's hardware retail industry has managed to stay surprisingly robust and resilient through some quite turbulent economic times, as the chart indicates.

Even if revenues pull back to the levels of p2021, the industry will have retained much of the growth experienced during COVID. While that won't be good news for corporate hardware retailers, for independents there have been real gains in both market size and share. As we also expect to see the number of business exits from hardware retail increase through calendar 2024 (as owners seek to exit on a high), we see conditions continuing to improve for those independents.