Friday, July 19, 2024

Tough start to year as consumers tighten their belts

Real (inflation-adjusted) retail turnover growth was 1.2 per cent for the year to March 2017, according to Deloitte Access Economics’ latest Retail Forecasts subscriber report.

Deloitte Access Economics partner and report author David Rumbens says the March quarter was a low point for retail spending, continuing what has been a problematic 2016-17 for the retail sector.

“The current challenges are also likely to remain in 2017-18,” he said. “However, we are forecasting that expected labour income growth will drive improved spending growth over the next few years.”

Deloitte Access Economics expects total nominal retail spending to come in at 3 per cent in 2016-17, and to moderate to 2.6 per cent in 2017-18. However, more of the growth next year may come from volume growth, with prices increasingly under pressure. Retail volume growth in 2016-17 is expected to be 1.6 per cent, rising to 2.2 per cent in 2017-18.

Bigger mortgages and underemployment are hindering consumer confidence, while competition – specifically the arrival of Amazon – is weighing on the minds of retailers.

Mr Rumbens says an effective omni-channel strategy, as well as strong brand equity and excellent customer service, will be crucial to keeping shoppers where retailers want them.

“Prices will get squeezed as Amazon has so much scale to absorb very low margins in most of its products,” he said.

“The bigger the retailer, the more a threat Amazon’s entry will be. But on the other hand, small players have a chance to thrive by leveraging Amazon’s role as a consolidated marketplace.”

Small players are already doing well in the online space, with Deloitte Access Economics identifying SME online retail growth in the order of 23 per cent for the year to March 2017, and total online-retail sales growth of 9 per cent.

Mr Rumbens says that as consumer preferences move away from goods and on to experiences, catered food is winning out.

“Catered-food spending grew by 4 per cent over the year to March 2017, beating out all other retail categories,” he said. “And it’s café and restaurant expenditure, combined with rapidly growing technology in the takeaway online-platform space, that’s driving this relatively strong growth.”

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