Xmas ‘17: ho ho or ho hum for retail?

Retailing fixture Solomon Lew recently quipped “Summer is coming” – a clever twist on the Game of Thrones meme “winter is coming”. He meant it as a warning that the retail sector lives and dies over the summer holiday period.

He may well have added “Amazon is here”. But stepping back to the data, recent financial results from major Australian retailers have done little to suggest the Christmas trading period this year in Australia will be anything more than ‘Ho Ho Hum’. 

" Based on the available data we can expect there will be a boost from November to December of around 20 per cent."

Generating a return on the more-buoyant trading results of previous years will require a change in the political, economic and social factors contributing to the current languish in consumer sentiment.

From one perspective, winter is well and truly entrenched in the Australian retail summer: sentiment in the December period has been falling for decades

This is hardly the basis for expecting more than a modest retail season this year. That said based on the available data we can expect there will be a boost from November to December of around 20 per cent. However, in the current climate, it is likely we will have to 2018 before we can say ‘Ho Ho Ho’.

In contrast, the indications are the festive season in New Zealand will indeed be relatively speaking, just that.

The spike

In February 2017 bluenotes published an article What ever happened to the Christmas spending spike?

Whilst the Christmas period continues to be critical to the success of many retail businesses, we pointed out then that although there had been a small reduction in the spike in retail spend in December over November, it was still significant at around 25 per cent.

On the other hand, the spike in credit and debit card spend was declining considerably - only about 5 per cent for credit and 15 per cent for debit , down from around 30 per cent for credit and 25 per cent for debit 20 years ago.

It's a similar pattern (although less pronounced) across the Tasman, where the seasonal jump in credit-card spend from November to December has dropped from the same 30 per cent to now be around 12.5 per cent.

We continue to believe this change in behaviour is not an issue for the providers of payment cards. The nature of card use is now hugely different from the heady days of 1974 when Bankcard burst onto the market to herald the introduction of credit cards down under.

Following the earlier launch of Diners Club and American Express charge cards here, Bankcard was similarly used primarily as a fall-back to facilitate purchases when funds were not to hand. Typically, these cards were used for discretionary expenses with a skew to travel and entertainment.

Christmas therefore represented a key seasonal opportunity for use of credit cards as the concentration of expenses associated with holidays and gift giving placed pressures on the household budget.

Similar cash flow issues continue to this day so credit cards still represent a convenient vehicle for the spreading of expenses. So why has the spike reduced so much and what can we expect for Christmas 2017?


Firstly, the positioning of cards has altered dramatically since their launch. Originally used to fund payments when cash was not available, cards are now used instead of cash.

Just as importantly, they are now used for an immensely broader range of payments than was envisaged 40 or even 20 years ago. To put the increase in annual card spend into perspective, credit and debit purchases in Australia increased from $A42.9 billion in 1996 to $A551.9 billion in 2016.

From a relatively small proportion of spend, cards now account for the majority of value and volume of consumer payments. As the nature and scale of card use grew, so did the percentage spike at Christmas begin to diminish.

Much has been written of the move away from cash to cards including the Reserve Bank of Australia, which published the results of a number of consumer research studies showing the decline in cash from 69 per cent of the number of consumer payments in 2007 to 37 per cent in 2016. This is a huge change over a relatively small time.

A further indicator of the changes occurring is the use of ATMs. In 2002 when data was first available, the number of ATM withdrawals was 670.6 million.

This increased steadily to a peak of 867.4 million in the twelve months to January 2009 but from that point the numbers have declined. At 617.5 million in the twelve months to September 2017, they are now below the level of fifteen years ago.

With cards and emerging card based digital payments now firmly established, and at close to 60 per cent of the value of consumer payments, representative of the total market, what does this auger for the coming peak retail season?


As far as a spike in credit card spend is concerned, we can use the following graph to predict a) the lift from November to December 2017 is likely to be less than 2 per cent in Australia and 14 per cent in New Zealand and b) the next time we can expect a double-digit lift in credit card spend at Christmas will be in 2025.

We say this because the spikes apparent in the graph occurred in 1997, 2003, 2008 and 2014 and in each of these years, Christmas fell on a Thursday.

In every other year between 1996 and 2016, Christmas occurred on a day other than Thursday. The same correlation with a large month-on-month increase and Christmas occurring on a Thursday is also noted in the New Zealand data.

Click image to zoom Tap image to zoom


The overall level of retail - and hence card - spending will be largely determined by the level of consumer confidence.

We have theorised for some time there is a correlation between the underlying level of consumer confidence with card and total retail spend.

The extent to which uncertainty exists will influence purchasing decisions and this is particularly true when those relate to discretionary items. Expectations about future employment tenure, purchasing power, real estate and equity values contribute to the level of consumer confidence.

Click image to zoom Tap image to zoom

In addition, the stability of the political arena is thought to be a key factor with the electorate taking off points when uncertainty is introduced.

Compared to our trans-Tasman mates, Australia is a decidedly gloomy nation with a consumer sentiment index refusing to broach the 100 barrier and trending lower. In New Zealand it runs at around 125 and is heading higher.

Both countries rebounded after the crisis but the Kiwis maintained the trend whilst Australians have by and large become more concerned. How does this impact card behaviour?

We don't think it's a coincidence the average balance on a credit card is heading up in New Zealand and down in Australia. Where pessimism and uncertainty are more pronounced, spending and card behaviour can be expected to become more measured.

The differing consumer confidence levels may also be a contributory factor to gap between credit card spend spikes in December -  2 per cent to 5 per cent in in Australia and 10 per cent to 15 per cent increase in New Zealand.


Discretionary spend is especially susceptible to the expectations held by consumers and it appears with greater confidence about their future, New Zealand cardholders have a greater propensity to celebrate the holiday season than the more wary Australians.

It’s a link recently described by Harold Mitchell in Fairfax, who, when talking specifically about the uncertainties introduced with a potential change of government, wrote "Charlie says that it's really all about confidence, but all we seem to hear in the media is politicians yelling at each other. We are on the verge of ruining our economy and even worse than that, ruining Christmas". 

Click image to zoom Tap image to zoom

The longer term movement in sentiment has been down with the 1996 index at almost 10 per cent over the 100 level whilst the most recent annual index in the 12 months to October 2017 places it at 1.7 per cent below.

Our analysis leads us to agree there is a strong link between confidence and propensity to spend. Our research indicates this correlation to be closer with movements in business card where there is a strong link between business confidence and commercial card spending patterns.

Mike Ebstein is Founder & Principal at MWE Consulting

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

editor's picks

21 Feb 2017

What ever happened to the Christmas spending spike?

Mike Ebstein | Director, MWE Consulting

Australian retailers and merchants in general used to rely on a significant lift in turnover from November to December.

09 Aug 2017

PODCAST: RBA’s Bullock on cash, payments & policy

Andrew Cornell | Managing Editor, bluenotes

RBA assistant governor chats to bluenotes about the bank’s latest survey and its implication for the payments sector.