A ‘rocky road’ for the retail industry: Is there light at the end of the tunnel?
A recent report has highlighted the significant challenges affecting the retail industry across Australia. With these compounding issues making trading more difficult, is a turnaround in sight?
It won’t come as much of a shock to hear that consumer spending was down in the first quarter of 2024. With the cost of living putting strain on families, Deloitte’s economic retail forecast labelled it a “rocky road” for retailers.
“The year has begun with a fizzle rather than a bang for most retailers. With real spending contracting by 0.4 per cent over the March quarter of 2024, many retailers have lost the gains achieved over the Black Friday sales as consumer frugality comes back in vogue,” said Deloitte Access Economics partner and principal report author, David Rumbens.
“A key driver of this has been the persistently high levels of price growth seen in essential spending outside of retail (rents, insurance, utilities) causing consumers cut to back on spending on discretionary retail.”
People simply can’t shop as they once did. The report highlighted that those aged 25–29 have reduced spending by 3.5 per cent in May 2024 compared to May 2023, cutting back on both essential and discretionary expenses.
“The latest monthly Retail Trade figures released last week continue the sombre story with nominal retail turnover only increasing by 0.1 per cent over the month of April … The immediate road ahead is looking rocky, particularly as unemployment rises further,” Rumbens said.
There is some hope to hang onto, however. Deloitte noted that wage growth, stage three tax cuts and interest rate cuts will help to boost consumer spending later in the year and early next year. While the tough times may persist now, Rumbens believes there is a light at the end of the tunnel.
“Throwing a spanner in the works is the slowdown in population growth working through – mostly as the post-COVID catch-up runs its course. With per capita spending stagnating or contracting for the last seven consecutive quarters, more moderate population growth risks dampening the retail recovery,” he said.
For retail workers, the recent decision by the Fair Work Commission to increase the minimum and award wages by 3.75 per cent is a welcome move. However, Rumbens described this move as “something of a double-edged sword for the retail sector.”
“On the one hand, this will provide a modest further boost to real wage growth for consumers, supporting the economy’s capacity to spend. On the other hand, the increase is higher than the retail sector wanted, and will place some businesses under further financial pressure, at a time when retail and hospitality insolvencies are already rising,” he said.
“However, retailers should be expecting some lift in consumer spending this year – the key question will be when, and to what extent.”
