• The NAB Online Retail Sales Index contracted in October (-1.4%) on a month-on-month, seasonally adjusted basis. This follows two exceptionally strong months in August and September.
• In year-on-year terms, the growth in the NAB Online Retail Sales Index weakened (+7.3% y/y s.a.) in October, but continues to outpace the broader ABS retail sales series.
• October data shows mixed results, with sales for half the online retail categories contracting in month-on-month growth terms. The largest sales category, homewares and appliances (-4.7% mom, s.a.), was worst performing in the month, and a key contributor to the headline result given its relative weight in the index. Growth was strongest in the month for the second largest spend share category, grocery and liquor. However, this growth, along with games and toys, personal and recreational, and takeaway, was insufficient to offset the drop in the other categories. Grocery and liquor has performed strongly this year and is approximately 14% larger compared to the same period 2018. For more detail, see Charts 3, 5, 7 & 8 in the attached document.
• In month-on-month terms, all states and territories recorded sales contraction.Tasmania, which had led growth in the past two months, was weakest in October (-6.4%). Of the large sales states, while still negative, VIC (-0.7%) performed better than the headline result, along with smaller sales state, SA (-0.6%).
• Metro areas contracted in-line with the overall index. Regional areas also contracted, but at a much slower rate (-0.3%), after a flat result in September. In contrast to the headline result, regional SA (+1.3%) and NSW (+0.4%) grew in the month. In all states except WA, metro areas performed worse than regional areas, with metro VIC the least negative. See Charts 15 and 16 for more detail.
• Although growth slowed in month-on-month terms, international online retailers recorded growth for a fifth straight month (1.0% mom, s.a.), outpacing domestic competitors, whose sales growth was negative. The large spend share category for international, fashion, contributed heavily to the result (+1.2%), with domestic competitors in the same category contracting. The headline contraction in the largest overall sales category, homewares and appliances, was solely domestic (-4.7%), with the small category for international virtually flat (+0.2%). See charts 13 and 14, and table 3 for category growth and share.
• We estimate that in the 12 months to October, Australians spent $29.84 billion on online retail, a level that is around 9.1% of the total retail trade estimate (September 2019, Series 8501, Australian Bureau of Statistics), and about 10.9% higher than the 12 months to October 2018.

NAB Chief Economist, Alan Oster commented:

Our NAB Online Retail Sales Index data indicates that, after two solid months of growth in August and September, online retail sales weakened in October. Online retail sales tend to be more volatile than broader retail, experiencing far greater monthly fluctuations, but the past six months have been considerably more so. Looking through the month-to-month volatility, sales growth in year-on-year terms slowed, although it, and the 12-months-to October growth, remained much faster than comparable traditional retail sales growth.

In month-on-month terms, there was further improvement in sales growth for the second largest sales category, grocery and liquor. Growth in this category was driven by domestic merchants, which make up the bulk of sales, with international sales growth for this category slightly negative in the month. The largest sales category, homewares and appliances, recorded a significant monthly contraction in sales, and was a key contributor to the headline result.  This category was significantly impacted by the mid-year sales weakness, so much so, that its share of the online index has dropped from around 28% a year ago to about 26% now. The smallest sales category, takeaway food, has been the most volatile in terms of sales growth, possibly due to structural changes by way of high profile exits and consolidation. Through this volatility, this category’s sales are up 80% when compared to the monthly sales of October 2018, and is almost 50% larger in the 12-months-to October 2019.

The three most populous states represent just over 80% of all online sales, slightly above their share of the population. Of these large sales states, Victoria leads in year-on-year growth, with ACT and NT leading the smaller sales regions. On average, online sales growth in Victoria has been higher than NSW over the past couple of years. Consequently, the gap in spend share between the two is narrowing.

Representing about two-thirds of all online sales, metropolitan areas recorded a bigger contraction in sales growth in October, relative to regional areas. This generally followed across all states except WA, where regional sales growth contraction was larger than metro areas. In addition, regional online retail continued to grow in NSW and SA, indicating that the headline contraction for these states was driven by metro areas.

By merchant location, international retailers (+1.0%) grew strongly in the month, while domestic (-1.6%) retailers contracted. While key domestic categories of grocery and liquor, and personal and recreational continued to grow, it was insufficient to offset weakness in the sales categories of homewares and appliances, media, fashion, and department stores. Fashion, games and toys, and small sales category takeaway food contributed to the continued growth for international merchants.

It is worth noting here that our definition of a domestic online retailer can include those merchants whose parent organisation might be overseas with an Australian subsidiary. Solely using GST as a key defining characteristic of domestic and international is no longer appropriate given changes made in July 2018.

For further details, please see the NAB Online Retail Sales Index October 2019