“Economic storm”: Report reveals Australian retailers unlikely to bounce back until late 2025

The latest data shows that KPMG Australia’s Retail Health Index fell by a further 0.24 points, moving from -1.49 to -1.73 between the March quarter and June quarter.

The report highlights that renters and those struggling with mortgage payments have been hit hardest by rising costs.

“Retail volumes and consumer sentiment continues to decline, as retailers bear the brunt of Australia’s two-speed economy which sees renters and mortgage owners’ pair back spending while out right homeowners and older Australians continue to splurge,” the report says.

Meanwhile, outright homeowners were found to be spending on "big ticket" purchases such as overseas holidays and leisure instead of major household goods. The report has found the number of Australian travellers increased by 7.3 per cent in the 12 months to June.

KPMG estimates that per capita retail sales have now declined for each of the last eight quarters, despite a significant uptick in population growth including net overseas migration of 547,300 in 2023.

“Unsurprisingly, discretionary retail is vulnerable as shoppers remain wary of acquiring major household items”, says KPMG's head of retail and consumer James Stewart.

Retail trade in July was unchanged, following small rises of 0.5 per cent in both May and June which were largely driven by end-of-financial-year sales.

The report also found profitability for the retail sector is continuing to get squeezed as discounting-led sales activity is resulting in reduced margins given operating constraints and wages rising.

While the decline in the sector was smaller than the overall industry profit drop of 3.9 per cent, the retail sector’s contribution to total industry profit remained at 4.7 per cent – well below its long-term average of 6.3 per cent.

Turnover rose the most in non-food related industries in the month of June, led by household goods retailing (1.1. per cent), which was followed by department stores and other retailing (1 per cent), and clothing, footwear and personal accessories (0.7 per cent).

Food-related spending was mixed, with a small 0.2 per cent increase in food retailing while there no changes in cafes, restaurants and takeaway food services.

Most sectors recorded negative growth in sales volumes during the June quarter, with the exception of household goods which grew by 1.3 per cent. Clothing, footwear and personal accessories saw the largest fall at -1.7 per cent, followed by food (-0.9 per cent), department stores (-0.8 per cent) and cafes, restaurants and takeaway (-0.7 per cent).

“Retailers are currently weathering a perfect economic storm where consumer spending is down at the same time wages, manufacturing and operating costs are up,” KPMG Chief Economist Dr Brendan Rynne says.

“The latest national accounts show industry gross value added (IGVA) has recorded two quarters of negative growth while food and accommodation has gone backwards over the past three quarters. So, while the economy is just holding onto slight growth, the retail sectors are absolutely in a technical industry recession.”

More consumers are turning to online shopping for discounts, with sales coming in at $4.2 billion in July in seasonally adjusted terms.

Through-the-year sales are also up 16 per cent to $579 million. Online food retailing fell slightly from 6.5 per cent to 6.4 per cent, while non-food retailing rose from 17.7 per cent to 18.3 per cent.

The report notes that major online marketplaces such as Shein, Temu and Amazon are leveraging social media and supply chain models which cut out the middleman – the retailer – and all their fixed costs. These platforms enable the consumer to buy directly from mostly Chinese factories at price points up to 60 per cent less than they would otherwise pay in a store environment.

“Social media platforms have changed the shopping pathway for consumers who are increasingly starting their discovery journey directly through social networks,” says Stewart.