Consumer Discretionary Sector Hit by Virus, Business Leaders Say

Consumer Discretionary Sector Hit by Virus, Business Leaders Say

Industry leaders have declared that businesses from both the high-end industry and consumer discretionary sector will be affected the most. Ever since the coronavirus outbreak, the economy has seen a declining trend in customer traffic and a disruption in the supply chain.

The Australian Bureau of Statistics (ABS) released research data last Friday, revealing that retail trade has seen its worst holiday trading period in years. Accordingly, January sales have dropped 0.3 percent amidst expectations of increased sales between December and January. The virus has a significant weight on the aggregate demand for February and March, according to economists at the Commonwealth Bank, as well as the National Australia Bank. Thus, they expect the epidemic to have a severe impact on the retail industry for the next succeeding months.

Speaking with senior economist Gareth Aird of CBA, he remarks that the first half of the year 2020 will be a struggle for retailers. Australian Retailers Association executive director, Russell Zimmerman, says trade with China has become a severe problem. Likewise, foot traffic has declined as consumers decided not to go to stores because of the epidemic.

Zimmerman also mentions a sudden plunge of at least 16 percent in customer foot traffic at major retailers such as Melbourne Central and Chatswood Chase Sydney in February. Kepler Analytics, which collects retail footfall data, shows a 10.4 percent difference in foot traffic from its 2019 data. Furthermore, lost footfall is currently at 7.9 percent this year.

Department stores such as MYER expresses concern after experiencing a significant decline in customer traffic and delay of about four to six weeks in stock deliveries. On the other hand, Mosaic Fashion predicts a decrease in the production of sweaters and cardigans for wintertime.

Margy Osmond, Tourism and Transport Forum chief executive, moots that the virus will have a direct effect on tourism as well. She posits an estimated $2-billion loss per month because of the outbreak. Furthermore, an astounding 40 percent drop in international travel through January until June.

As both Zimmerman and Osmond point out, Chinese nationals comprise an estimated 1.5 million of all annual visits in the country. In effect, the consumer discretionary sector will weaken owing 10 percent of Australia’s consumer spending to tourists, says Adelaide Timbrell, an economist from ANZ Research. With international visits plummeting, tourism businesses, and eventually, Australia’s household spending, will be gravely affected. She adds that local and global traffic demand will negatively affect consumption expenditures.

Australian travel agency, Flight Centre, has estimated a $70 million cut in their earning guidance due to flight cancellations and reschedules.

Qantas Airways, the country’s largest airline company, was recently forced to cut down bookings for both domestic and international flights, warning investors of a possible $150 million loss for the company. Global airline companies, on the other hand, could suffer total losses of $170 billion.

Ben Gilbert, head of consumer research in UBS, says the virus will most likely hurt businesses such as Adairs and Kogan because of their high replenishment cycles and private-label mix.

It is not all bad tidings for the consumer discretionary sector, though. Food retailers such as Woolworths and Coles may most likely have an increase in its third-quarter sales of this year because of panic buying. Commodities such as rice, pasta, and toilet paper have seen an increase in demand lately.

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