One is gloomier than the other, but with the uncertainty now surrounding the economic future, it’s vital the retail sector prepare for whatever may unfold.
Deloitte Access Economics partner and principal report author, David Rumbens, said the first scenario is what is presently unfolding — where consumer sentiment is weak and retail sales in real terms are going backwards — which was what happened in the final quarter of 2022 and much of 2023 may see a similar environment.
“The other future is brighter — where migrants and tourists are back in big numbers and consumers have regained spending power,” Mr Rumbens said.
“That future is not now, but it may emerge as soon as the end of 2023. And it means Australian retailers should also have an eye to growth.
“We’re entering a period where higher interest rates will take a chunk more out of disposable incomes for consumers and increase the proportion of mortgage holders at risk of mortgage stress. Unsurprisingly, this has stoked consumer caution with sentiment diving with the RBA’s latest rate hike.”
Mr Rumbens said consumers are becoming more value-conscious and saving money by purchasing lower-cost alternatives.
“Non-food sectors are forecast to experience the brunt of the retail slowdown as consumers prioritise nondiscretionary items, with real non-food sales expected to see a contraction of around -3.0 per cent, while food retailing should stay afloat with growth of 2.8 per cent over 2023,” he said.
“The tight consumer environment risks real retail spending going further backwards over the first half of 2023, and this may result in weak growth of just 0.1 per cent for real retail trade over the 2023 calendar year.”
That other future for retail is a growth environment, where consumers are confident again and seeing gains in real disposable income.
“Real wage growth and consumers getting their spending mojo back, population growth, a return of tourists and a pick-up in residential construction will all push the retail sector into a brighter 2024,” Mr Rumbens said.
Stoked by non-food and food retail increasing by 2.4 per cent and 1.5 per cent, respectively, real retail turnover is expected to bounce back in 2024 to 1.9 per cent, when price growth should also be far more constrained.
“So a better growth future for retailers may be with us as soon as the end of 2023,” Mr Rumbens said.
