Australia’s 18-month retail recession exposed in “horror show” report
Australian businesses are enduring an “economic horror show” through a retail recession, with meaningful relief unlikely before 2025.
Australian businesses are enduring an “economic horror show” through a retail recession, with meaningful relief unlikely before 2025.
Fresh analysis from Deloitte Access Economics, released overnight, shows real retail spending has fallen in six of the last seven quarters.
Per capita spending — the amount spent on retail businesses divided by the number of Australian households — paints an even grimmer picture.
“Real per capita retail spending has contracted for the last eight quarters and is now 2.5% lower than June 2023 and 6.3% lower than June 2022,” the report said.
In a statement, Deloitte Access Economics partner David Rumbens drew a grim conclusion from the data.
“The evidence shows that Australia’s retail sector has effectively been in recession for the last 18 months,” he said.
“Oh god, things are bad”
The findings will come as no surprise to Australia’s main street businesses and e-commerce retailers, many of which have struggled in a post-lockdown economy.
Michelle de Salvo is the owner of Southern Belle Boutique, a fashion store in Manjimup, Western Australia.
The regional centre feels like ground zero for the retail spending downturn, di Salvo says, with fellow store owners wondering how they can stay open if retail spending levels do not recover.
“Everyone’s been walking in and out of each other’s shops, saying, ‘oh god, things are bad. Oh god, things are bad,’” di Salvo told SmartCompany.
Some traders are “not getting enough foot traffic to even really cover the rent. They’re not taking any wages”.
Increasing wages for employees, the rise in superannuation contributions, worker’s compensation insurance, and the cost of freight are further compounding the struggles for local retailers.
Services and travel spending a counterpoint
The Deloitte report underscores why, exactly, so many shoppers are closing up their wallets.
The major issues of inflation and surging interest rates have carved into household savings rates, which sat at 0.9% in the March quarter, compared to a pre-COVID average of roughly 5%.
Much of the savings buffer accrued in lucky households during COVID-19 lockdowns has been exhausted.
And those who are spending might not be spending at the shops.
“Services have taken precedence over goods, with per capita goods spending falling 1.3% over the quarter while per capita services spending increased by 0.6%,” the report said.
Tellingly, the Deloitte analysis shows household spending on international travel and tourism is higher than expected, as Australians continue to catch up on holidays cancelled by the COVID-19 pandemic.
That trend is being felt in Manjimup, too.
“I’m asking everybody who comes in, ‘What are you getting the bathers for?’ Just general chit-chat,” di Salvo said.
“I would say 80 to 90% of people that come into the store here are traveling overseas to the likes of Europe, and they’re doing big trips.”
The months ahead
There are some positives in the report, although the experts say conditions won’t ease until the new year.
Cost of living relief in the form of Stage 3 tax cuts is likely to boost disposable income, although the full effect of those tax measures, which came into effect on July 1, is yet to be seen.
Energy bill relief is also expected to ease some spending pressures.
Indeed, the Australian Bureau of Statistics’ Consumer Price Index shows inflation of 3.5% in the year to July, down from 3.8% in June, with much of that decrease chalked up to government energy rebates.
Those downward-trending inflation figures will figure into the Reserve Bank of Australia’s interest rate decision-making.
“Interest rate cuts – whether they come late this year or in the first half of next year – would also make a big difference to consumers’ sentiment,” the report said.
The fact consumers are so price-conscious also means discounts could benefit retailers in a position to slash the price of stock.
“Discounting and sales events will continue to be crucial for consumers, making the apparel sector’s approach to Black Friday sales pivotal for their year-end performance,” according to Deloitte.
Not every retailer is in a position to benefit from those sales: di Salvo said retailers in her circle are already stretched thin as it is.
Predicting the future is a tough gig, but the economics team suggests the cumulative effect of moderating inflation, tax cuts, and potential interest rate reductions could lift real retail turnover by 1.5% over both 2025 and 2026.
All told, Deloitte estimates non-food retailing volumes will grow 2.1% on average in the five years to 2028-2029.
That’s below the five-year average of 3.3% leading to 2023-2024, but even slow upward momentum makes for slightly better reading than “economic horror show”.
For now, di Salvo said she is organising a meeting of local businesses to discuss what the community, and the shire itself, could do to support hard-hit traders.
“I called a meeting because it’s been really difficult for most of the last six months,” she said.
Never miss a story: sign up to SmartCompany’s free daily newsletter and find our best stories on LinkedIn.
Comments