Australian shoppers are now “super cautious” about their spending habits, one small business operator says, as the effects of long-running inflation and interest rate concerns lead some economists to declare a “retail recession”.
Data released by the Australian Bureau of Statistics (ABS) on Thursday confirmed retail turnover dropped -0.5% in the June quarter, marking the third consecutive quarterly decline.
Outside of the COVID-19 pandemic, those official estimates, which go back four decades, only show one other occasion where real retail sales dipped in three consecutive quarters: when interest rates surged in the lead-up to the Global Financial Crisis.
Retail sales volumes in June 2023 were also -1.4% lower than the same period last year, marking the first time since 1991 sales volumes have fallen compared to the previous year.
Those financial pressures are being felt across retailers in categories both old and new.
Viv Conway is the founder of Girls Get Off, an online retailer of sex toys and other personal pleasure products for women.
While the brand offers a unique range of products, Conway told SmartCompany the businesses is facing circumstances felt widely across the retail sector.
“People are super cautious of the money that they’re spending,” Conway said.
Those “dismally weak” retail trade numbers amount to a “deep retail recession,” said economist Stephen Koukoulas.
Retail experts say Australians are cutting back their spending in response to external cost pressures, driven by inflation and the interest rate hikes designed to curtail those rising prices.
“Retailers are seeing less demand at a time where wages, rents, insurance, utilities, supply chain and materials are all increasing in cost,” said Paul Zahra, CEO of the Australian Retailers Association.
“The widespread fall in sales volumes reflects what retailers have been telling us about consumers focusing on essentials, buying less or switching to cheaper brands,” Dorber added.
Household goods retailing dropped -1.5% over the quarter, reflecting hardship in a sector that flourished through COVID-19 lockdowns.
There were some bright spots in the ‘retail recession’ data, with quarterly turnover in the clothing, footwear and personal accessory retailing category rising 1.1%.
However, even that increase was likely a “sugar-hit” borne of heavy discounting and winter sales promotions, Zahra added.
Sales are only part of the solution, Conway said.
The brand has offered sales events on some products, but “we’re very mindful at the same time, because we also don’t want to discount our products too much,” she added.
“We could easily do that, but it’s not sustainable, and it’s also not a long-term strategy.”
Instead, Conway said Girls Get Off is focused on building brand affinity through community outreach and its social media campaigns in a maturing retail sector.
“Look at how people spent money for Taylor Swift,” Conway said.
“People will still spend money… We just have to be positioned at something that they really, really, really want.”
Not all retail experts categorise the last nine months of data as a genuine retail recession.
Gary Mortimer, an associate professor in marketing and consumer behaviour at the Queensland University of Technology, said the recent spending downturns apply to spending levels that grew massively post-pandemic.
“If you look at the raw numbers, we’re still spending $35 billion, or just over $35 billion dollars every month across the sector, and that has certainly shifted upwards post the pandemic,” he told SmartCompany.
After pandemic conditions which dramatically altered spending behaviour, Mortimer views the latest data as a “recalibration of the market” and a return to the incremental quarterly peaks and valleys more commonly observed prior to 2020.
Spending is “clearly slowing in certain pockets,” he said.
Even so, Mortimer sees the potential silver lining in macroeconomic terms, with reduced spending likely to lead to lower inflation in the long run.
Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
Comments