Early sales events push retail spend higher

Early end-of-financial-year promotions and mid-year sales events attracted consumers to the shops in May, with Australian retail turnover rising 0.6 percent, according to seasonally adjusted figures from the Australian Bureau of Statistics (ABS). This compares to a 0.1 percent rise in April and a 0.4 percent fall in March.

Robert Ewing, ABS head of business statistics, said consumers were “watchful” and motivated by discounts amid today’s high cost of living.

“Many retailers started end-of-financial–year sales early, offering larger discounts than usual and noted that shoppers remain price-sensitive in response to persistent cost-of-living pressures,” Mr Ewing said. “Retail businesses continue to rely on discounting and sales events to stimulate discretionary spending, following restrained spending in recent months.”

However, May’s boost belies “stagnant” underlying demand trends. Mr Ewing notes retail trading in trend terms is up by 1.5 percent over the year to May, which is very low. Gareth Aird, Head of Australian Economics at CBA, points out that population growth in 2023 was 2.5 percent, so on a per-capita basis a 1.5 percent lift in spending is exceptionally weak.

Mr Aird said shoppers are “savvy, cautious and price sensitive” and “more tactical than usual when determining when to spend on discretionary items”. Non-food retail was stronger than food retail in May, with the highest rise being a 1.6 percent lift in clothing, footwear, and personal accessories spending. Household goods spending lifted 1.1 percent.

Deloitte Access Economics partner, David Rumbens, says frugality is “back in vogue” with persistently rising prices for essentials like rent, insurance and utilities forcing consumers to cut back on discretionary purchases. An expected reduction in population growth as immigration reduces over the next year may also keep retail spending weak.

Deloitte’s latest retail forecasts point to a rocky road ahead, particularly if unemployment rises. Mr Rumbens said the 3.75 percent lift in minimum and award wages give consumers more spending power but will put pressure on business costs. He points out retail and hospitality insolvencies are increasing in today’s economy.

However, tax cuts and eventual interest rate cuts should lead to more retail spending in the second half of 2024 and in 2025. Deloitte forecasts no growth for retail spending overall in 2024 but a 2.5 percent uplift in 2025. “Household goods turnover should pick up more with better economic conditions and with an uplift in national building activity, supported by the Government’s ambitious housing targets,” Mr Rumbens said.