This article is from the Australian Property Journal archive
AUSTRALIAN retail sales have come out of the pandemic better than if it never happened, but inflation challenges could prove more problematic and spending is tipped to slow in the second half of this year, according to Deloitte Access Economics.
Deloitte Access Economics’ latest quarterly Retail Forecasts report suggests retail price growth is forecast to peak at 5.5% over the year to December 2022, with food retail prices up 7.6% over the same period.
The majority of retail turnover growth for the second half of this year and into 2023 and 2024 will be driven by prices rather than sales volumes.
Retail sales volume growth may average only 1.1% over 2023 to 2025, compared to 1.9% per annum for retail price growth. The cost of living squeeze, higher interest rates and preference for spending on services are expected to lead to a slowdown in retail momentum through the second half of 2022, future growth prospects.”
The report is released as the monthly MasterCard SpendingPulse showed consumer spending for May remained upbeat in the face of inflationary pressures and rising interest rates, with sales increasing 7.8% compared to May last year.
All categories of retail recorded year-on-year sales growth, apart from Apparel which dipped 0.2%. Fuel and convenience recorded the largest increase in sales (up 7.4%), followed by electronics (5.6%), home furnishings (4.4%), groceries (4.1%), lodging (3.5%) and jewellery (up 1.6%).
Australian Retailers Association CEO Paul Zahra said whilst it’s pleasing to see retail sales continue their positive trajectory across most categories, we are entering a challenging economic environment.
“A generation of homeowners are experiencing their first interest rate hikes, while the cost of food and essentials are going up which is impacting family budgets. However, we’re yet to see these cost pressures impact retail spending, which is a positive indicator that Australians in the short term will be able to withstand the current inflationary challenges,” Zahra said.
“Right now, retailers are experiencing one of their busiest months of the year with the mid-year sales in full swing, which the ARA forecast will result in an $8.8 billion spending boost as consumers snap up bargains and retailers clear out their excess stock. Despite the current positive trajectory of retail sales, we also acknowledge that many businesses are confronting some record cost pressures which is impacting their performance.”
Principal report author and Deloitte Access Economics partner, David Rumbens, said the growth outlook is positive, but still presents a number of challenges for retailers.
“Inflation is now a cold, hard reality, to the extent that the majority of turnover growth over the next few years is expected to be driven by prices rather than volumes.
“For households, the price pinch is near unavoidable, with CPI price growth for non-discretionary goods and services up 6.6%, more than double that of discretionary which was up 2.7%. These non-discretionary goods and services are the ones households are less likely to reduce their consumption of, including food, fuel, housing and health, placing significant pressure on other components of spending.”
The March quarter saw retail prices up by 3.2% over the year, driven by a 4.5% increase in retail food prices. The cost of inputs is unlikely to taper soon as producer prices were 16% greater than pre-pandemic levels in March, which means retailers are likely to feel the brunt of rising costs for a while, Rumbens said.
Early and encouraging signs in relation to lower shipping costs include the Reserve Bank is looking to actively suppress price growth via interest rate rises.
“For now though, businesses may need to look to ways to lower costs and reduce disruptions to operations to avoid losing competitiveness,” Rumbens said.
“This could involve diversifying and building more resilient supply chains, or shifting to a more vertically integrated structure to better control supply chain visibility. With wage pressures high, businesses may need to maximise staff retention as much as possible through investment in the likes of training, talent pipelines and automation.”
