The worst may be over for the retail sector after suffering a recessionary hit in 2023, according to Deloitte Access Economics.
While cost of living remains front of mind among consumer, the research group is forecasting conditions will improve in 2024 with more retailers likely to pull back on discounting in order to drive sales.
The latest edition of the Deloitte Access Economics’ Retail Forecasts report reveals that after three consecutive quarters of falling retail sales, the September quarter delivered the first positive move in real retail turnover since late 2022.
The 0.2 per cent increase on sales volumes in the June quarter was aided by strong discounting, particularly among non-food categories which have been hit hardest by a drop in discretionary spending.
“However, retailers are still experiencing the effects of a significant sales deficit over the past year, with overall sales volumes having fallen 1.7 per cent compared to a year ago, despite rapid population growth,” says Deloitte Access Economics partner and report co-author David Rumbens.
In per capita terms, real retail sales growth is down 3.6 per cent 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,” Rumbens says.
Over the year to September 2023, food sales in real terms have increased by 0.6 per cent, while non-food retail sales have slid 4.2 per cent overall, or 6.1 per cent in per capita terms.
“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,” Rumben says.
“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 per cent and 0.4 per cent respectively.”
This is well below the overall CPI price growth of 1.2 per cent in the September quarter.
But in an upbeat forecast, Rumben sees a turnaround ahead as inflationary pressures begin to ease.
“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,” he says.
“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.”
Rumben sees increased retail activity being supported by further population growth and a potential end to the RBA’s cash rate increases next year.
“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,” he says.
“As a result, we expect a steady rise in real retail sales growth through the upcoming year.”
Deloitte Access Economics is forecasting retail sales volumes to rebound from a 0.9 per cent fall in calendar 2023 to a 1.4 per cent increase in 2024, with sales gaining further momentum in 2025 with an increase of 2.2 per cent.
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