Retail Forecasts Edition Highlights

2019 has been a dismal year for the retail sector, and it doesn’t look likely that the Christmas spend will change that underwhelming result. Weak wage growth, high debt levels and increasing price pressures are weighing on demand, while tax returns and interest rate cuts have yet to show up in retail sales. While retailers are under pressure in 2019, 2020 looks to hold more promise.

Retail sales reached a low point in the September quarter as consumers tightened the purse strings in the face of stronger price pressures. Sales volumes declined 0.2% over the year to September, the weakest result since the 1990s recession. Over the same period retail prices rose 2.6%, well above headline inflation. This is the first time since 2009 that retail prices have consistently outpaced general price pressures in the economy.

Unfortunately for retailers, this is not reflective on stronger demand, but rather increasing cost pressures from a lower Australian dollar, increases to minimum wages, and supply disruptions from drought and floods. While some of these cost pressures have been passed on to consumers, retailers have also had to absorb a portion, putting downward pressure on margins for the sector.

Heading into Christmas, retailers are not feeling the cheer. In Deloitte’s Retailer Christmas Survey (“Survey”) only 21% of respondents expect growth above 5% from last year, down from 41% of respondents in 2018. Tax offsets and lower interest rates were expected to support demand, but with consumer confidence down, it is likely that less of this stimulus will flow through to spending this year.

But it’s not all bad news, with 2020 looking possible to deliver an improved sales performance. Stronger wage growth, improvements in the housing market, and stabilisation of price pressures are all expected to support a recovery in consumer demand. The RBA and Federal government are also doing their part to support the economy with further interest rate cuts on the cards and a bring forward of some Commonwealth infrastructure spending.

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