Friday, July 19, 2024

Steady rise in retail sales expected in 2024, Deloitte

While the Australian economy has dodged a recession in 2023 so far, the retail sector did not. Yet after three consecutive quarters of retail decline, the worst is over – the September quarter brought the first positive change in real retail turnover since late 2022, an increase of 0.2% on June sales volumes.

Releasing the latest edition of ‘Deloitte Access Economics’ Retail Forecasts’, Deloitte Access Economics Partner and principal report author David Rumbens says: “The Australian cost-of-living crisis continues. Inflation was stronger than expected in the September quarter, and the November cash rate lift creates further household financial stress. However, with strong discounting, the retail sector did see some lift in retail sales volumes in the September quarter.

“However, retailers are still experiencing the effects of a significant sales deficit over the past year, with overall sales volumes having fallen 1.7% compared to a year ago, despite rapid population growth. In per capita terms real retail sales growth is down 3.6% over the year to September.

“Consumers are continuing to avoid discretionary spending where possible, which has led to a substantial gap between food and non-food retail sales growth. Over the year to September 2023, food sales in real terms have increased by 0.6%, while non-food retail sales have declined by 4.2% (or a 6.1% decline in per capita terms)”, Mr Rumbens said.

“None of these statistics indicate anything other than significant stress on the consumer. And even food spending is starting to give way, as more consumers cut back on eating out and economise more with their grocery shops.

“Non-food retailers are turning to discounting as a result. Department stores and household goods were the two strongest categories in the September quarter, but this was enabled by price declines of 0.2% and 0.4% respectively. This was well below the overall CPI price growth of 1.2% in the September quarter”, he said.

“While discounting was front of mind for many retailers in September, it’s playing an even more important role this December quarter. Retail price growth is expected to slow even further with big discounts over Black Friday.

“The good news is that we can expect the business cycle to start to improve in 2024, which could mean a move away from this reliance on discounting to achieve sales growth. We can expect to see a moderation of inflation in 2024 that will see a return of real wage growth, which was observed in the September data, following three long years of real wage decline. Positive real wage growth will make consumers less hesitant towards discretionary spending – a welcome change from the tight spending environment retailers have faced in 2023.

Increased retail activity will also be supported by continued population growth and potentially an end to RBA cash rate hikes in 2024. At some point early in 2024 analysts will stop talking about possible further interest rate increases and start talking about when interest rates will be cut. As a result, we expect a steady rise in real retail sales growth through the upcoming year. We forecast a rise from -0.9% in calendar year 2023 to 1.4% in 2024, and then on to 2.2% growth in 2025,” Mr Rumbens said.

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