How Do We Think the 2022 Federal Election Will Impact Retail Spend?
Anecdotally, it’s been suggested that the uncertainty surrounding an election negatively impacts consumer spend. And our experience has shown us, time and time again, that many retailers are quick to blame an election for a drop in consumer confidence and subsequent slowdown in sales.
But is there any truth to this?
What have past elections told us?
Fortunately, we have multiple years of historic retail spend data to test the claim. So let’s look at what past behaviour tells us.
Although it has traditionally been suggested otherwise, there appears to be little evidence to support the claim that retail sales are negatively impacted from the uncertainty surrounding elections. A study conducted during the 2016 federal election by the Queensland University of Technology, found that elections have minimal impact on consumer spend. Whilst it was found that retail spend might take a bit of a hit, this was in most cases only temporary. Research from both Princeton and the University of Chicago in the US showed a similar picture over in the US with consumers.
Consumers are still expected to spend, rather this spend is deferred.
To be clear, we’re not saying federal elections don’t impact retail spend and pose a challenge to retailers. They do. But the impact is a lot less than we have traditionally thought. Rather, sentiment amongst consumers during these times of uncertainty results in “deferred” spend. That is, many consumers will take a “wait and see” approach until they understand the impact of the election. And in most cases, consumer confidence tends to bounce back directly after.
Certain categories are more affected than others.
When we break the retail spend data down further, the impact is clearer across certain categories. Particularly when looking specifically at those “big ticket” discretionary items. We’re talking cars, real estate, furniture, high-end fashion, and consumer electronics. In many cases, consumers will typically curtail spending on these items.
And as for those household basics such as food, groceries, alcohol and fuel; these generally remain well protected during uncertain times.
Could this election be an exception?
Potentially this year may be a bit different. We now have multiple factors in play which are likely to affect retail store sales. Consumers have just experienced the first interest rate rise seen in more than 11 years (with many more expected to come throughout the year). Fears of stagnant house prices, soaring inflation and consumer prices, and falls in the stock market here in Australia and overseas. Whilst time will tell the consumer impact of these, it’s likely that any impact to retailers will be higher than the election.
In conclusion...
Historically many retailers have blamed the election for drops in retail spend. However, as the data shows us, this belief appears to be unfounded. Sure, we might see a drop in consumer confidence and retail spend leading into and throughout May. However, past experience shows us that this spend could simply be deferred, bouncing back in the periods that follow. Additionally, how much of this is likely drop is attributable to the election instead of other variables in play, remains up for debate.