The outlook for retailers is changing fast and they are sprinting to Christmas before consumer caution takes hold, according to the latest edition of Deloitte Access Economics’ Retail Forecasts.
Despite increases in the cost of living, retail remained buoyant through the September quarter, with nominal retail turnover increasing by 2.3%. However, cracks are beginning to appear with growth in sales volumes slowing to just 0.2%.
“The domestic and global economic environment is souring as retailers face strong headwinds,” says Deloitte Access Economics partner and principal report author, David Rumbens. “Rising inflation and interest rates are increasing cost of living pressures, causing consumer confidence to plummet.”
Matter of time
Mr Rumbens says while the poor sentiment hasn’t been fully reflected in spending yet, it will only be a matter of time before spending growth moderates further.
“Internationally, spending has already dipped, with nominal retail spending in the US decreasing by 1.3% and UK sales volumes decreasing by 3.0% over the September quarter,” he says.
“For now, we’re expecting the holiday season and end-of-year events to throw the retail sector a lifeline. Year-to December growth in nominal retail sales is expected to grow by 10.4%. But most of this is expected to be driven by prices, as retailers try to maintain their margins by passing on rising costs. Retail prices are anticipated to grow by 7.6% over the year to December.”
Difficult start to 2023
Looking ahead, Mr Rumbens says retailers are likely to face a difficult six months as they ring in the new year.
“With cost of living pressures and a mortgage rate squeeze clouding the horizon, retailers are growing pessimistic about the state of the consumer in 2023. Some 58% of respondents to the recent Deloitte Retailers’ Holiday Survey for 2022 expect that consumer confidence will deteriorate through 2023,” he says.
“Sales are expected to curtail at the start of 2023. The result could see the sector entering a short and shallow ‘retail recession’. Sales volumes are anticipated to decrease by 0.2% and 0.4% over the March and June quarters of 2023, respectively, and few retail categories are expected to be spared, with a wide sweeping reduction in demand expected.
“Sales are likely to pick up through the second half of 2023, but result in a bottoming at zero real growth over the year to December 2023. So a more sombre 2023 after a sprint to Christmas in 2022,” says Mr Rumbens.
