• The NAB Online Retail Sales Index continued to grow in September (+1.8%) on a month-on-month, seasonally adjusted basis, albeit slowing from a considerably strong bounce in August. 
• In year-on-year terms, the growth in the NAB Online Retail Sales Index strengthened (+10.5% y/y s.a.) in September. These results come on the back of a very weak mid-year period
• September data shows sales for all online retail categories except fashion growing in month-on-month growth terms.
• The largest sales category, homewares and appliances (1.5% mom, s.a.), was a key contributor to the headline result given its relative weight in the index, slowing from an exceptionally fast rate in August. The year-on-year change for this category remains negative due to considerable weakness in June and July. Smaller spend share category, games and toys, recorded the highest sales growth in the month, and is strongly positive in year-on-year terms. With continued strong growth in the past five months, sales for the smallest online category, takeaway food, is now approximately double what it was in September 2018. For more detail, see Charts 3, 5, 7 & 8 in the NAB Online Retail Sales Index September 2019.
• In month-on-month terms, all states and territories recorded sales growth. Tasmania again led monthly sales growth (4.4% mom s.a.). Of the large sales states, VIC (+11.3%) led in year-on-year sales growth.
• Metro areas continued to grow strongly (+2.2% mom, s.a.) whereas regional areas, which had rebounded strongly in August, contracted slightly in September (-0.5% mom, s.a.). In contrast to last month, NSW, VIC and QLD contributed strongly to the strong metro result. While regional TAS, WA and SA areas went against the broader result in the month, given the relative size of sales, this growth was insufficient to offset the overall regional contraction in the larger sales states. See Charts 15 and 16 in the NAB Online Retail Sales Index September 2019.
• With growth accelerating in month-on-month terms, international online retailers (3.2% mom, s.a.), outpaced domestic competitors (+1.4%). The large international spend share category, fashion, however was much weaker (-3.0%) compared to their domestic counterparts in September. Growth continued at a slower pace for domestic homeware and appliance retailers, but contracted slightly in the month for international merchants in this category. See charts 13 and 14, and table 3 for category growth and share in the NAB Online Retail Sales Index September 2019.
• We estimate that in the 12 months to September, Australians spent $29.53 billion on online retail, a level that is around 9.1% of the traditional bricks and mortar retail sector (August 2019, Australian Bureau of Statistics), and about 9.7% higher than the 12 months to September 2018.

NAB Chief Economist, Alan Oster commented:

Our NAB Online Retail Sales Index data indicates that, after a considerably weak mid-year period, online retail sales continued to grow in September, albeit at a more moderate pace than the significant growth rate recorded in August. 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 returned to double digits, and 12-months-to September growth remains strong.

In month-on-month terms, there was further improvement in sales growth for the largest sales category, homewares and appliances, which grew broadly in line with the headline result. Growth in this category was driven by domestic merchants, with international sales growth for this category slightly negative in the month. 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 smaller sales share category, games and toys, grew fastest in the month, with high sales growth of international merchants contributing strongly to overall category growth. 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 have doubled when compared to the monthly sales of September 2018, and is almost 50% larger in the 12-months-to September 2019.

Of the large sales states, Victoria leads in year-on-year growth, with NT and Tasmania leading the smaller sales regions. Online sales growth in Victoria on average 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 the stronger growth in September, relative to regional areas. The large sales states of NSW, Victoria and Queensland were the key drivers of the strong metropolitan area result, with regional area sales growth contracting after strong gains in August for these states.  Sales growth was stronger in regional areas than metropolitan in WA, SA (albeit slightly), and Tasmania. NSW recorded the strongest contraction in regional online retail sales in September (-1.8%). This more likely reflects a retracing of the exceptionally strong result in August (+10.8% mom, s.a.) rather than directly drought related effects.

By merchant location, international retailers (+3.2%) grew strongly in the month. Domestic (+1.4%) retailers grew at a relatively slower rate after the strong August (+5.7%) rebound. The result was due to a particularly strong rebound in the key sales categories of homewares and appliances, and media.

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 September 2019