The relationship between trading restrictions and retail turnover

Does our spending increase?

The relationship between trading restrictions and retail turnover

THE

may 2012

McKellte Institu

THE

ll McKete Institu

Introduction The recent review into Shop Trading Provisions in New South Wales and the subsequent PROPOSAL by the New South Wales Government to remove retail trading restrictions on Boxing Day has sparked heated debate.

Proponents of the current trading provisions argue that New South Wales has got the balance right in restricting trading on a limited number of days.

The status quo allows retail employees time to spend with their family and friends on significant national days of reflection, without imposing onerous restrictions which would impact on sales or the profitability of retail businesses.

Opponents of the current trading provisions argue that removing trading restrictions is necessary to provide a boost to the struggling retail sector, which will allow retail stores to create additional employment opportunities, while also streamlining and simplifying complex trading provisions.

At first glance one could look to sales figures in other States or Territories that permit trading on restricted days, or stores that are exempted in New South Wales, and see merit in this argument in support of removing restrictions.

These figures are generally the basis of the economic argument in support of removing trading restrictions.

However, on further consideration one may begin to question the relevance of this data in isolation.

Does an individual’s spending capacity increase with the availability of additional shopping days?

The answer is of course no.

Therefore collectively our community’s spending capacity does not increase either.

So from where are these additional sales being funded?

Are consumers actually spending more due to their ability to access shopping on additional days? Or are they spreading their existing spending across these days when they are available to them?

In other words, purchasing products on a restricted day that would have otherwise been purchased the day after on a non restricted day.

It is difficult to answer these questions without the ability to compare retail turnover during a period when trade was restricted on a particular public holiday and subsequently restrictions were removed to allow trade on that public holiday.

Deregulation of trading in some states and not others over recent decades provides some points of comparison. Western Australia for example has had no significant change in public holiday retailing while Victoria now only restricts trading on 2 ½ days per year.

Fortunately, Victoria provides us with such a case study to analyse.

Victoria has changed its provisions for Easter Sunday retail trading several times in the last two decades. Prior to 1993 retail trading was restricted.

From 1993 to 2002, restrictions were progressively lifted and trading was permitted. Restrictions were then re-introduced from 2003 until 2010, when trading restrictions were then removed taking effect from Easter Sunday 2011.

This paper analyses the Victorian experience of Easter Sunday retail trading to determine if there is evidence that allowing shops to trade on previously restricted days provides a boost to overall retail sales.

Does our spending increase? | The relationship between trading restrictions and retail turnover

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Background New South Wales retail trading hours The hours during which retail stores in New South Wales may trade are regulated by the Retail Trading Act 20081.

New South Wales retail stores are permitted to open for trading almost 99% of the days of the year2.

Currently, retail stores are restricted from trading for four and a half days each year.

These restricted days are: Good Friday; Easter Sunday; ANZAC Day (prior to 1 pm); Christmas Day; and Boxing Day. Some retail stores are permitted to trade on restricted days if they meet one of the following criteria: They are a Small Shop retailer; They are an Exempt Shop retailer; Their business operates within the Sydney Trading Precinct; They are the holder of a Hotel licence; Their business is located within one of the nominated Local Government Areas; or Their business has an existing Exemption to Trade.

In September 2011, the New South Wales Government initiated a review into the Shop Trading Provisions of the Retail Trading Act 20083.

A discussion paper was released calling for comments and submissions from interested persons and organisations. Around 250 submissions and comments were received from retailers, individuals and representative organisations.

In March 2012, a report outlining the New South Wales Government’s response to the discussion paper and submissions was released4.

The report made a series of recommendations including allowing all shops to open on Boxing Day and bank branches to open on the August bank holiday.

A Bill to amend the Retail Trading Act 2008 was introduced to the New South Wales Parliament in March 2012 and is currently being considered by the Parliament.

Victorian retail trading hours Victoria provides us with an opportunity to measure the impact of changes to trading restrictions on Easter Sunday.

In 1992 the Victorian State Government led by Premier Jeff Kennett passed legislation which allowed stores to trade on Easter Sunday in Melbourne’s CBD5.

Retail stores in Melbourne were permitted to trade on Easter Sunday in Victoria from 1993 and from 1997 for the remainder of the state until 2002, when the Victorian Government led

by Premier Steve Bracks re-introduced retail restrictions on Easter Sunday6.

From 2003 until 2010 retail stores were not permitted to open for trading, unless granted exemptions.

Following his election in 2010, Premier Ted Ballieu removed trading restrictions on Easter Sunday which took effect from Easter Sunday 20117.

1. Retail Trading Act 2008 No 49 (NSW) 2. Ibid, Pt. 2, s. 4 3. Department of Finance and Services. September 2011. Review into shop trading provisions of the Retail Trading Act 2008 – Discussion Paper. NSW. 4. Department of Finance and Services. March 2012. Report of the Review of the Retail Trading Act 2008. NSW.

5. Capital City (Shop Trading) Act 1992, No. of 66 and 1992.

6. Public Holidays and Shop Trading Reform Acts (Amendment) Act 2003 Act No. 1/2003 7. Shop Trading Reform Amendment (Easter Sunday), Bill 2011.

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Public holiday trading restrictions around australia Table 1

CHRISTMAS DAY

GOOD FRIDAY

ANZAC DAY

BOXING DAY

EASTER SUNDAY

LABOUR DAY

NEW YEAR’S DAY

AUSTRALIA DAY

EASTER MONDAY

QUEEN’S BIRTHDAY

OTHER

TOTAL COMPULSORY CLOSED DAYS

ACT

Open1

Open1

Open1

Open

Open

Open

Open

Open

Open

Open

Open

Nil

nt

Open1

Open1

Open1

Open

Open

Open

Open

Open

Open

Open

Open

Nil

tas

Closed

Closed

Closed2 /Open

Open

Open

Open

Open

Open

Open

Open

Open

2½ Days

vic

Closed

Closed

Closed2 /Open

Open

Open

Open

Open

Open

Open

Open

Open

2½ Days

nsw

Closed

Closed

Closed2 Closed3 /Open

Closed4

Open

Open

Open

Open

Open

Open

4½ Days

South East QLD

Closed

Closed

Closed

Open

Closed

Closed

Open

Open

Open

Open

Open

5 Days

wa

Closed

Closed

Closed

Open5

Closed

Closed

Closed6

Closed

Closed

Closed6

Foundation Day

sa

Closed

Closed

Closed

Closed7

Closed

Closed

Closed

Closed

Closed

Closed

Adelaide Cup Day

Closed

Closed

10 Days

11 Days

Source: Shopping Centre Council of Australia, October 2011

KEY:

1. Trading hours are not regulated in the territories but large shops close voluntarily on these days and on the morning of Anzac Day. 2. Trading permitted on the afternoon of Anzac Day. 3. Except for Sydney CBD, Newcastle CBD, Cabramatta and tourist areas. Shops in other areas can apply for exemptions but these are rarely granted.

4. Except for a small number of retailers with ‘grandfathered’ exemption certificates. Shops in other areas can apply for exemptions but these are rarely granted.

5. WA Government has permitted trading on this day in 2011.

6. Limited trading permitted in ‘special trading precincts’.

7. Proclamation Day in SA.

Open

Closed

The extension of trading hours does not increase retail turnover The Australian Bureau of Statistics (ABS) collects monthly data on retail trade turnover in order to monitor and analyse consumer behaviour.

Discussion surrounding the relationship between the extension of retail trading hours and an increase in overall retail trade has existed for many decades.

The ABS canvassed this issue in an article A Time Series Decomposition of Retail Trade8.

8. A Time Series Decomposition of Retail Trade, August 1991, Australian Bureau of Statistics (ABS)

Closed/Open

The article was published in 1991 and used data collected from the 1980s which covered the period when Australian retailers were increasing the length of opening hours and Sunday trading. The ABS found no evidence of an increase in the value of retail sales in response to extended trading hours: “With the extension of trading hours over recent years there has been some speculation as to whether it has caused a systematic change to the trading-day pattern associated with the value of retail trade...

To date, there appears to be no discernible systematic shift to the trading-day patterns.

This may suggest that at the macro economic level the extension of trading hours has not expanded the volume of monthly retail revenue.”

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Comparing Easter period retail turnover growth with annual retail turnover growth The Australian Bureau of Statistics (ABS) adjust for public holidays and other variable factors, such as an additional weekend falling in a month, in their adjusted Retail Turnover figures.

However unadjusted Retail Turnover data can be compared amongst different states for the same time periods as the vast majority of variables that are adjusted are common amongst all states.

This allows us to analyse unadjusted retail data amongst different states to identify the impact of any policy settings such as restrictions on retail trading.

We have compared unadjusted annual retail turnover in Victoria with other states for the Easter period of March and April using the state’s own annual retail turnover growth as the baseline.

This allows us to observe if any increase in retail turnover can be detected over the Easter period in Victoria during the years when Easter Sunday trading was permitted compared to states which do not permit retail trading on Easter Sunday.

If Easter Sunday trading does provide a boost to overall retail turnover, we would expect to see a higher Easter period growth in Victoria during years when Easter Sunday trading was permitted and suppressed growth during years when trading was restricted.

The graphs show a high degree of volatility between the rate of growth throughout the March/ April periods relative to the annual growth on any given years. Some years it is well above and some years it is below.

If extended trading days do in fact result in an increase in turnover, we would expect to see a stronger positioning of March/April growth for a state enacting deregulation, reflecting the fact that it has gained an extra day of trading while other states have not. The following year however, growth should return to a level more in line with other states, all else remaining equal.

What was observed however was that there was no significant, ongoing benefit from deregulation for Victoria. Any changes arising from regulatory shifts are completely lost within the broader year-to-year volatility. For example, those pointing to the weaker March/April performance of Victoria in 2003 following re-regulation would struggle to explain the significant retail growth in 2004. The March/April 2004 period saw growth 3% higher than the annual average, and Victoria clearly outperformed its rivals despite still having trading restrictions on Easter Sunday.

The data simply refutes the theory that an extension of trading days will lead to a sustained increase in turnover. It is evident from these graphs that retail trading is much more effected by other external factors, such as interest rate changes or consumer confidence levels, than it is by changes to the number of trading days.

As the graphs on page 6 illustrate, this is not the case. There is no consistent increase in retail turnover in Victoria during years when Easter Sunday trading was permitted nor a consistent drop in retail turnover in Victoria during years when Easter Sunday trading was restricted.

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Easter retail growth (March/April) relative to annual growth Victoria and NSW

VIC

4.00

NSW

3.00

Easter period turnover growth relative to annual retail turnover growth (%)

2.00 1.00 0.00 -1.00 -2.00 -3.00 -4.00

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Victoria and South Australia

2010

VIC

4.00

2011

SA

3.00

Easter period turnover growth relative to annual retail turnover growth (%)

2.00 1.00 0.00 -1.00 -2.00 -3.00 -4.00

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Victoria and Western Australia

2010

VIC

2011

WA

4.00 3.00

Easter period turnover growth relative to annual retail turnover growth (%)

2.00 1.00 0.00 -1.00 -2.00 -3.00 -4.00

1990

1991

KEY:

1992

1993

1994

1995

1996

1997

Restricted Easter Sunday trading in Victoria

1998

1999

2000

2001

2002

2003

2004

Unrestricted Easter Sunday trading in Victoria

2005

2006

2007

2008

2009

2010

2011

Unrestricted Easter Sunday trading in Melbourne CBD

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Victorian Easter period comparisons

The graph on page 8 groups together each of the seven Easter period categories and plots their retail turnover (March/April) as a percentage of annual retail turnover. As expected the share of annual retail turnover varies between 15%-16%, consistent with a two month trading period.

The way in which days fall within a given trading month naturally impacts upon retail turnover.

For example, a calendar month which sees five weekends fall within the month will inherently have a different retail turnover profile when compared to a month which sees four weekends fall within it, all other things being equal.

Easter periods that fall between the years 1997-2002 when Easter trading was fully deregulated are marked on the graph as ‘Easter Sunday Trading’ and Easter periods when Easter Sunday was generally restricted are marked as ‘No Easter Sunday Trading’.

In order to measure the Easter period of March and April in Victoria using unadjusted data, we have created seven different categories. The Monday category represents years when the 1st of March fell on a Monday. The Tuesday represents years when the 1st of March fell on a Tuesday, etc.

These categories are listed below in table 2.

If the removal of trading restrictions provided a boost to overall retail spending, then we would expect to see on average higher retail turnover during the years when Easter Sunday trading was permitted compared to years when Easter Sunday trading was restricted.

These Easter periods are identical in terms of when days fell during the period, they have an identical number of weekends, an identical number of Thursday night shopping periods etc.

As we see on page 8, there is no correlation between Easter Sunday trading and additional retail turnover. Years when Easter Sunday trading was permitted, on average, underperform compared to years when trading was restricted. This is not to suggest that trading restrictions increase sales, but simply provides further evidence that deregulation of trading does not increase turnover.

Therefore, the retail trading profile of these categories are identical, with the exception of changes to trading restrictions on Easter Sunday.

EASTER PERIOD CALENDAR CATEGORIES Table 2

Year

Year

Year

Year

Monday (1 March)

1993

1999

2004

2010

Tuesday (1 March)

1994

2005

2011

Wednesday (1 March)

1995

2000

2006

Thursday (1 March)

1990

2007

2001

Friday (1 March)

1991

1996

2002

Saturday (1 March)

1997

2003

2008

Sunday (1 March)

1992

1998

2009

Does our spending increase? | The relationship between trading restrictions and retail turnover

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The Easter months share of the total value of retail sales with and without Easter Sunday trading 16.2% 2009 16.1%

2004 1993

2011

1992

1990

2005 1995

16.0%

2006 2007 15.9%

15.8%

1994 2002 1996

2010 1999

2000

1997 2008

2001

15.7%

1991

2003

15.6%

1998

15.5% Monday (1 March)

Tuesday (1 March)

No Easter Sunday Trading

Wednesday (1 March)

Thursday (1 March)

Friday (1 March)

Saturday (1 March)

Sunday (1 March)

Easter Sunday Trading

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Conclusion This analysis shows there is no evidence of consumer spending increasing when an additional day of retail trading is available.

Consumer spending that occurs on previously restricted days is the result of purchases that would have taken place on regular trading days during that period.

In the largely deregulated market that exists, retail turnover is driven by consumer spending capacity.

When measured by population share by jurisdiction, Australia has made significant progress in deregulating trading hours compared to the rest of the world.

New South Wales already has deregulated hours compared to other states. Of the mainland states, only Victoria allows two more trading days to occur on public holidays.

That is, the two most populous Australian states are already substantially deregulated.

Due to the nature of retail trading, many retail workers regularly work on weekends and are not able to spend this time with family and friends. In New South Wales, the four most significant days of reflection (Good Friday, Easter Sunday, Christmas Day and Boxing Day) as well as Anzac Day morning are restricted to allow retail workers a small number of guaranteed occasions to spend with their family and friends who also have the time off.

At a time when our community is suffering from a lack of interpersonal connection, and the challenge of balancing work and life commitments is becoming increasingly difficult for many, it seems ill advised to further accelerate this process by removing trading restrictions without a compelling case for the broader societal benefits.

What therefore, would be the incremental benefit of giving up another public holiday in New South Wales? That is almost impossible to measure any increase in terms of additional turnover, but much easier to measure in its impact on affected workers and their families.

With the bulk of retail turnover dominated by the major retail outlets, retaining limited regulation offers other providers an opportunity to compete in particular on non-traded essential consumerables which are not sourced from offshore either directly or via online trading.

Unrestricted trading hours has not limited the dominance of the major chains. On the contrary it could be argued that it has encouraged even greater levels of concentration as the majors compete through loss-leader promotions for an even greater cut of market share, resulting in even less competition.

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This is unlikely to be reflected in sustained lower prices to consumers over the longer term and therefore in either attracting more consumers or in dealing with the threat of lost sales to online competitors.

The challenge of online retailing must also be kept in perspective with a mere 6% of total Australian retail sales occurring online and two thirds of these online sales are made with Australian companies9.

Access Economics has concluded that following the deregulation of trading hours there is very weak evidence for minor reductions in retail price growth10. Access Economics also found that there was weak evidence of regulation distorting retail trade to other consumer activities11.

Pushing for even greater levels of unrestricted trading hours in New South Wales is unlikely to either stimulate more consumer demand or address the challenge to online retailing because of the combination of cautious consumers in the wake of the global financial crisis and strength of the Australian dollar.

Rather than supporting a cost-based race to the bottom, retail must look to its own value and quality characteristics in order to attract more consumers and greater levels of spending.

9. Economic Structure and Performance of the Australian Retail Industry, Productivity Commission Inquiry Report No. 56, 4 November 2011, p. 73.

10. Ibid, p. 301.

11. Ibid, p. 296.

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Methodology Data has been sourced from ABS Retail Trade Statistics, Australia, Feb 2012, CAT 8501.0.

Data from Table 3: Retail Turnover by State.

Total Industry Turnover by State, original (unadjusted). Data used from January 1989 to December 2011.

Growth was calculated for each state on an annual basis and on an Easter period basis.

Annual growth was calculated for each state by comparing the January to December period in one year over that same period the previous year.

Easter growth was calculated for each state by comparing the March/April period in one year over that same period the previous year.

A two month March/April period was used to reflect that Easter is a moving holiday, falling in both March and April, and that spillovers are often spread across both months. Specifically, if Easter were to occur at the end of March and retail trading was restricted, consumers may delay purchases until April, and any spillover effects of this trading would also be deferred.

Likewise, if Easter were to fall in early April, some of the spending could be brought forward into March. To properly capture spending shifts and spillover, a two month period was necessary.

MULTIJURISDICTIONAL ANALYSIS As unadjusted data has been used, there is the potential for discrepancies between an Easter period during one year compared to an Easter period during the next. For example one year may contain an addition weekend which would impact on total turnover.

To compensate for this, analysis was conducted across states as the same temporal differences would apply across all states, a comparison of growth across the different jurisdictions would allow for any comparison to be placed in its proper relative context.

A multi-jurisdiction analysis also assists in separating out state separate impacts from national impacts.

Easter period relative to annual growth analysis allows us to attempt to pinpoint state specific, time specific factors which have impacted on retail trading growth. Changes to retail trading regulation should factor here if deregulation leads to increased turnover.

The objective was to ascertain the level of growth from one year to the next in the Easter period relative to the level of growth experienced annually.

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VICTORIAN CALENDAR ANALYSIS To adjust for temporal differences each year was grouped into a category based on which day of the week the 1st March fell.

This created seven categories, one for each day of the week.

The seven categories were graphed on the X axis and the percentage share of annual turnover (for the March/April period) was represented on the Y axis.

This methodology allows for a robust comparison by eliminating calendar differences such as the number of weekends or late night trading days in any given year.

Each individual year’s March/April percentage share of annual turnover was plotted by each of the seven categories.

This allowed a comparison of identical calendar years to analyse if unrestricted trading led to an increase in turnover.

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1. Introduction About the McKell Institute The McKell Institute is an independent, not-for-profit, public policy institute dedicated to developing practical policy ideas and contributing to public debate.

The McKell Institute’s key areas of activity include producing policy research papers, hosting policy roundtable discussions and organising public lectures and debates.

The McKell Institute takes its name from New South Wales’ wartime Premier and Governor–General of Australia, William McKell.

William McKell made a powerful contribution to both New South Wales and Australian society through progressive social, economic and environmental reforms.

For more information phone (02) 9113 0940 or visit www.mckellinstitute.org.au

The opinions in this report are those of the authors and do not necessarily represent the views of the McKell Institute’s members, affiliates, individual board members or research committee members.

Any remaining errors or omissions are the responsibility of the authors.

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