Little Christmas cheer but some promise in 2020 for retailers

It has been a tough year for the retail sector so far in 2019, and the upcoming festive spending will likely do little to change that underwhelming result according to Deloitte Access Economics.

Weak wage growth, high debt levels and increasing price pressures are hurting demand, while tax returns and interest rate cuts have yet to fully come through. There is some positive news, with 2020 holding more promise.

According to Deloitte Access Economics’ latest quarterly Retail Forecasts:

  • Retail sales in September posted the weakest result since the 1990s recession, falling 0.2 per cent over the year
  • Retail price pressures remain strong, eating away at volumes growth as households struggle with weak wage growth and high debt levels
  • Tax offsets and lower interest rates provided limited support to consumer spend to date
  • The outlook for 2020 is more positive with retail spending expected to grow 2.6 per cent over the year.

Nominal and retail Australian retail turnover

Deloitte Access Economics partner and Retail Forecasts principal author, David Rumbens, says retail sales look to be ending 2019 on a relatively soft note as consumers face increasing budget pressures.

“Stagnating wage growth and weak house prices have limited consumer willingness to spend, while tax offsets and interest rate cuts have yet to translate to sales. And with retail prices increasing, spending volumes have taken the hit posting the weakest growth since the 1990s recession.

“The start of the Christmas season looks to hold little cheer for retailers after a tough 2019 to date, and according to Deloitte’s recent Retailers’ Christmas Survey, only 21 per cent (down from 41 per cent last year) of respondents expect a growth above five per cent this year.

Retail prices are surging on supply factors

Mr Rumbens said retail price growth has been accelerating over the past year, with prices growing 2.6 per cent in the year to September quarter.

“This is the first time since 2009 that retail prices have consistently outpaced general price pressures in the economy,” he said

“Unfortunately for retailers, price growth is not reflective of stronger demand, but rather increasing cost pressures from a weaker Australian dollar, the increase to the minimum wage, and supply disruptions from droughts and floods.

“With retailers being squeezed on both sides from weak sales volumes and increasing costs, margins are coming under pressure.”

Looking to 2020 for a turnaround

“We expect to see a much-needed improvement in the drivers of spending, providing the environment for a turn around the weak retail demand profile in 2020,” Mr Rumbens said.

“Stronger wage growth, a reinvigorated housing market and moderating prices pressures are expected to support a much stronger growth outlook in the year ahead.”

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