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SME owners face tough 2022 after fall in January sales growth, but jobs and wages remain strong

Nicola Reindorf and her husband Orlando Reindorf own The Standard Store on Crown Street in Surry Hills, Australia. They had their best December sales in 2021 during lockdowns when parties and restaurant reservations were cancelled, and people wanted to give a nice gift instead.

“A lot of customers had connections to someone with Omicron and were very wary about how their Christmas would look. I think that is why they wanted to make sure their loved ones would have something under the tree to open,” Nicola said. 

However, things changed after the Christmas holiday. They began to experience staff issues and a significant drop in foot traffic, prompting them to close their store.

“When January arrived, it was a whole different story… the street was dead; it was a shadow lockdown. Following the Christmas spending period, it was very quiet, and many of our staff were also sick and unable to work,” she added.

“There were also no tourists around. In early January, we had to shut the store against regular trading hours due to a staff shortage from COVID.

“With restrictions continuing to ease, case numbers falling and travel returning; we’re feeling cautiously optimistic about the year to come. I am currently on a buying trip in New York City, and it does feel as though things are going back to normal, which is incredibly reassuring. 

“I do think consumers overspent in the last quarter of 2021, and now with travel back on the cards, they’re beginning to think ahead. We have new deliveries in-store, which always helps; it feels like we are coming out the other side. It would be great to see more tourists, though!”

Nicola and Orlando are not the only ones bearing the brunt of the year’s sales decline. According to a new Xero report, despite the highs of Christmas trading in November and December, Australia’s small businesses saw a decline in sales growth in January 2022. Still, employers are looking to pay more as they struggle to find staff. 

The Index fell six points to 86 points in the first month of 2022, owing largely to an increase in Omicron cases across the country. The drop is significant from the peak in November (107 points). After two months of strong sales growth, small businesses took advantage of reduced lockdown restrictions and festive season spending.

The Xero Small Business Index, developed in collaboration with Accenture and released as part of the Xero Small Business Insights program, provided the most recent data on the health of Australia’s small business economy in January.

SME owners face tough 2022 after fall in January sales growth, but jobs and wages remain strong

According to Joseph Lyons, Managing Director Australia and Asia at Xero, the January decline reflects the increased volatility that many small business owners have experienced in recent months.

“Xero’s data tells us that small businesses can bounce back from tough times, and with COVID-19 restrictions easing, case numbers falling and national and international travel returning, there’s cause to be optimistic.”

Dynamic business spoke with Louise Southall, Xero Economist, about the volatility that small businesses faced in January and why there is reason to be optimistic about a rebound.

“The latest Xero Small Business Index data reveals just how hard small businesses were hit by Omicron this summer,” Louise said.

“Small business jobs fell 1.5 per cent y/y in January as illness and the need to isolate saw a dramatic fall in the number of people who recorded at least one hour at work in January. This result is consistent with the decline in working hours seen in the latest ABS Labour Force publication.

“Sales growth also slowed to 5.7 per cent y/y in January, after a strong December (+15.1 per cent y/y). This reflects the ‘shadow lockdown’ as people avoided going out to restaurants and other potentially crowded venues to limit their chance of catching COVID-19.”   

“Looking ahead, with many health experts saying case numbers are now past their peak, we should see small business jobs and sales start to recover in the coming months.”

Sales growth slows after December highs 

In line with Christmas spending, sales increased by nearly double their average rate in December, rising 15.1 per cent yearly. Following the holiday season, sales growth slowed to 5.7 per cent year on year in January, which was expected given the significant increase in Omicron cases.

Sales in NSW ( up 6.4 per cent year on year) and Victoria ( up 4.3 per cent year on year) were well below the growth rates recorded in December (14.8 per cent year on year and 15.4 per cent year on year, respectively) as rising COVID-19 cases impacted small businesses and customers. 

Queensland sales have also slowed, falling from 14.6 per cent year on year in December to 7.4 per cent year on year in January. Despite rising COVID-19 cases, the state’s strong tourism focus may have helped it maintain a higher sales growth rate than NSW and Victoria.

Job recovery stalls 

Jobs actually fell 1.5 per cent year on year in January, compared to a 1 per cent year on year increase in December. Increases in COVID-19 cases across the country and isolation requirements and summer vacations resulted in fewer people recording the one hour of work required to be classified as working in the Xero series. 

NSW was the hardest hit of the major states, with jobs falling by 2 per cent year on year, followed by Victoria, which fell by 0.8 per cent year on year, and Queensland, which fell by 0.7 per cent year on year. Education jobs fell 13.9 per cent year on year, the largest drop in the sector since May 2020, when the pandemic’s first wave hit.

Louise Southall, Xero Economist, said: “The fall in jobs for the education sector could reflect the still comparatively low numbers of international students in Australia as Omicron delayed the border reopening schedule.

“However, as Australia’s borders reopen, we’re likely to see more of these students return to Australia, which should support future jobs growth later this year.” 

Wages continue to grow 

Wages rose 3.4 per cent y/y, up from 2.5 per cent y/y in December, with hospitality ( up 4.9 per cent y/y) and retail (up 4 per cent y/y) sectors seeing significant growth.

“The rise in hospitality wages is a direct reflection of the shortage of overseas staff that this sector normally heavily relies on. With borders gradually opening, we’re expecting to see these figures stabilise over the year as small businesses have access to more workers,” said Southall. 

To download the full January results, including industry and regional breakdowns, go to the website here

To find out more about how the Xero Small Business Index is constructed, see the background information and methodology. 

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Yajush Gupta

Yajush Gupta

Yajush is a journalist at Dynamic Business. He previously worked with Reuters as a business correspondent and holds a postgrad degree in print journalism.

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