In the chart pack we discuss our view of the retail downturn, noting that it will be gradual because income growth is strong. We also analysed past retail cycles to provide a guide to the potential duration and magnitude of this downturn. We found that on average, past non-food retail cycles have unfolded over 18 months from peak to trough, and another 11 months to return to mid-cycle growth. The key risks to our retail forecasts are housing and price inflation. A greater than 10% fall in house prices would create a negative wealth effect for retail in 2027. On the other hand, price inflation likely to rise in food retail in 2027 masking some of the weakness in retail volumes.

Endeavour Group’s 1Q27 trading update revealed Retail sales growth of 3.0% and Hotels growth of 1.9%. Whilst this is a continuation of above-market growth in Retail, both off-premise liquor and gaming industry growth have slowed. We are cautious about any material improvement in sales from here, given Endeavour is lapping its price reset. The downside to gross margins from softer gaming sales and promotions should play out by the end of FY27e as EBIT troughs.

Coles reported a soft 1Q27 sales result with Supermarket segment comp sales of 2.7%. Coles decision to invest in price and marketing to restore market share is logical but adds risks. Coles will invest close to $40 million in 2Q27e on our estimates and ongoing price investment will be needed in 2H27e. Even so, Coles ability to restore market share will be held back by Woolworths ongoing improved execution and Aldi may not cede share in 2027. Coles Supermarket EBIT margin of 5.7% in FY26 was a peak in our view and we see it falling to 5.5% in FY27e.

Woolworths reported group sales growth of 4.7% and Australian Food segment sales growth of 6.9% for 1Q27. While these are strong results for a mature retailer, the growth rates are likely to fade from here. We expect comparable sales growth in Woolworths Food to ease back to 4.8% in 2Q27e and then hover near that level for the remainder of FY27e. While Food momentum is good, Big W and New Zealand are small detractors because the weak sales trends will limit their margin recovery.

Super Retail Group had a mixed trading update at its AGM. Sales trends are weak but the earnings outlook is resilient. Group LFL sales slowed from +1.5% in the first seven weeks of FY27e to -1.3% for the remaining six weeks. The sales swing was across all divisions and partly reflects economic conditions and also promotional activity that boosted sales in the early part of the year. Sales are likely to remain weak through to the end of 1H28e in our view. While sales are soft, Super Retail Group has gross margin gains through currency and labour cost savings to offset the sales pressure.

Wesfarmers’ AGM update revealed a slowdown in sales in Bunnings and more cautious commentary on the retail backdrop. In the scheme of things, the slowdown should be mild and therefore the debate is more about the appropriate PE ratio than it is about earnings risks. For Bunnings, we expect sales growth to slow more so in 2H27e and 1H28e as the lagged effects of lower housing churn and lower house prices show through. Kmart has soft sales growth but currency gains to offset the pressure on earnings from cost growth and DC transition.

Australian inflation was 3.9% for the September 2026 quarter year-on-year. The elevated inflation includes higher petrol prices and housing costs, such as rates and utilities. In retail, inflation has picked up a little to 2.2% but still remains below broader inflation. Inflation in supermarket categories receded while in non-food the dampening effect of a higher Australian dollar is keeping a lid on inflation. There are two issues to flow from the inflation result. Firstly, the prospects of another rate hike by the RBA are high and therefore will dent income and retail sales. Secondly, inflation in retail is more likely to rise in 2027 given the lagged effect from higher input costs, which is more of a risk in food categories than non-food categories.

Noumi reported their quarterly 4C on Friday the 23rd of October. The key takeaways from the result include sales growth in Milklab branded product of 7.6% in the Sep 2026 quarter and Plant-based division sales up 10.7% in the quarter. This was partially offset by the lower margin Dairy & Nutritionals division where sales fell 6.3% in 1Q27.

Despite the range of risks facing the retail sales outlook, there has been a level of consumer resilience that persists. We refresh our retail forecasts in this report, with a shift in the shape pushing more of the downturn into 2027. We forecast FY27e retail sales growth of 4.3% (prev 3.7%) and FY28e growth of 3.9% (prev 4.0%). The recent resilience in sales comes from the strength in income, not irrational factors like more credit. Retail cycles take longer to unfold than many expect. We have explored past cycles to help inform this pending downturn. A trough in retail usually occurs 18 months from the peak, which would date this cycle’s trough around May-June 2027. The outlook does have risk with a sharper drop in wealth our primary concern. The potential for higher retail price inflation is an upside risk to nominal sales growth.

Coles Group (scheduled 30 October 2026) and Woolworths (scheduled 28 October 2026) are due to release their 1Q27 sales results. We forecast 6.0% comp sales growth for Woolworths Food and 3.3% for Coles Supermarkets. The weighted average result is above trend and helped by improved execution at Woolworths and weaker sales for Aldi and independents. Superior sales momentum for Woolworths may last another quarter and then fade. Outside of supermarkets, it remains challenging, Coles Liquor is likely in decline and Big W will have near flat sales.