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Retail Forecasts for 2024

Mild rebound later this year

23 January 2024

Australian retail has had a difficult 2023 with below trend sales growth of 3.1%. We expect another challenging year with growth of 2.5% for 2024. While a weaker year, it will be a tale of two halves with softer growth in the January-June period and better growth for July-December. Moreover, we expect slowing sales in at-home food & liquor and a sharper slowdown in cafes, restaurants and takeaway food. We expect an improving rate of growth for non-food retail. While tax cuts will help sales later in 2024, lower retail price inflation, higher unemployment and a shift of spend to travel will all limit the upside in industry sales growth.

Where are all the household savings?

A longer-term perspective

11 August 2023

Australians saved a lot of money during COVID-19. They saved $246 billion more than usual in fact. Bank data shows that households have now started drawing on that savings buffer. Is this good news or bad news? Do all demographics have savings buffers? We use demographic data to answer these questions and find that all income groups (lowest to highest) have some buffers. Amongst age cohorts, the groups aged 25 or older have saved more. Younger people have few buffers. The excess savings will result in a gradual slowdown in retail spending, potentially milder than many fear. The impact of higher interest rates will hurt higher income households the most as they carry more debt relative to income. Those over 65 are net beneficiaries of higher rates. Given data on spending by demographics, liquor and food at-home are likely to outperform. Dining out and travel may suffer when higher income earners pull back on spending.

Retail forecasts for FY24e

The downturn is here. What next?

20 July 2023

Australian retailers have begun to experience a slowdown in retail spending and it’s going to get tougher over the next 4-6 months. We expect FY24e retail industry sales to rise 1.5%, a slowdown from 9.0% growth in FY23e. While this may sound gloomy, a glass half full perspective is overall sales may not slow any further from the trends as at June 2023. The glass half-empty view is that we may not return towards trend sales growth until 2025. The willingness of households to tap into excess savings shapes our view that the downturn will be shallow. We also note that food inflation will prop up that sector until early 2024. The path of price inflation is likely to have a greater bearing on sales outcomes more so than retail volumes, which are already in decline.

National Accounts for March 2023 quarter

Clarity on the consumer

09 June 2023

Australia’s national accounts for the March quarter provides a clear narrative about the state of the consumer in 2023. Wages growth is very strong and even though interest rates are starting to bite, households are still spending. They have lowered their savings and switched spending to travel and recreation. The retail downturn thus far is only partly attributable to higher interest rates. The combination of a continued switch in spend outside of retail and higher interest rates mean the downturn will become more acute over the next six months. We may not see a return to trend growth in retail until 2025.

National accounts for Dec '22 quarter

A new normal emerging

01 March 2023

The Australian national accounts for the December 2022 quarter foreshadow the dynamic that will play out in 2023. Wages growth is strong, but disposable income is weak. Consumers are also switching back to more normal spending habits with strong recovery in recreation. So far retail has not felt the effects, but under the surface there is already weakness. Retail sales growth of 9% year on year in the December quarter was largely a function of price. As we move into 2023, the fade in retail inflation contribute meaningfully to weaker sales growth. While savings rates are now below 2019 levels, the stored up savings from the last two years are still yet to be spent. For more, please see our report Retail forecasts for 2023 – Brace for Impact, January 2023.

Elevated household deposits support consumer spending

Data from the banking regulator

07 February 2023

Australian households may have a lot of debt, but they also have a lot of money sitting in bank deposit accounts. We keep a close eye on banking regulator data that discloses household deposits. At 31 December 2022, the total balance of household deposits was $1.39 trillion. It’s an impressive figure and equates to $125,000 per household, on average. On our analysis, deposits are about $16,000 per household higher than the trend line would suggest, which reflects the majority of the excess savings built up during lockdowns. More cash in the bank is supporting consumer spending and one of the reasons there is a disconnect between sentiment and spending in our view. For more on the disconnect between sentiment and spending, see this report, What correlates with retail sales? The disconnect between sentiment and spending

Retail forecasts for 2023

Brace for impact this year

11 January 2023

It is inevitable that Australian retail sales growth will be much weaker in 2023 compared with 2022. We forecast industry sales growth at 2%, down from 11% last year. Many are anticipating that retail spending will fall off a cliff. However, volumes are already weak. It is price inflation that is supporting above trend spending. We expect inflation to taper off gradually, which means a more visible downturn in retail sales in the July-December 2023 period in our view. The categories most vulnerable to an earlier slowdown are furniture, hardware and recreational goods where we forecast a decline this year. In the food sector, elevated inflation will support growth of 5% in 2023. The risks to our retail forecasts are to the upside if inflation is higher and households dip into their excess savings built up over the past three years.

National accounts for Sept ’22 quarter

Income slowdown begins

07 December 2022

The National Accounts highlights the pinch from higher interest rates starting to show through. Household income rose 3.6% in the September 2022 quarter, down from 6.5% in the June quarter. However, savings rates are the cushion that will continue for the next six months, preventing a retail sales downturn till mid next year.  Savings dropped from 8.3% in June to 6.9% in September. The stored up savings in the bank over past 2.5 years have not been used, which keeps consumers personally confident despite a multitude of macro-economic headlines that spooks sentiment. We expect a good Christmas for retail and even decent March 2023 quarter. Retail sales will slow meaningfully, just not yet.

National accounts for June ’22 quarter

Income growth accelerating

08 September 2022

The National Accounts for the June 2022 quarter paints a strong picture of the  Australian consumer. Despite fears about higher interest rates, the prevailing climate is one where incomes are growing faster and savings are being drawn down gradually. We expect the strength of income and savings to outweigh the headwinds for at least another six months. It is fair to caution that once the slowdown arrives around mid-2023, it could be a protracted downturn.

Australian national accounts for March 2022 quarter

Sizing the financial buffer for consumers

01 June 2022

Australian national accounts show that the consumer still has a preference for retail spending, even as government stimulus unwinds.  Household incomes rose 4% and spending was up 7% in the March 2022 quarter. Savings are still high at 11% of income, compared with a pre COVID level of 7%. We also thought it was interesting that the recovery in non-retail spending in the quarter was not at the expense of retail spending. Compared with the US and UK, we expect a longer-dated slowdown in retail spending that timestamps the risk for 2023, not 2022.

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