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.

The shape of the recovery in Australian tourism remains a tailwind, not a headwind for retail. As at December 2022, Australians are still over-indexing on local stays. This tends to boost sales in supermarkets, liquor, apparel, pubs, restaurants and cafes. In addition, recent data also shows net migration is recovering rapidly. If current trends hold, by June 2023, population growth could be 1.5%, compared with 1.0% for the year to June 2022. This step-up in population will partly cushion the impending downturn in retail spending. We expect any downturn in retail sales is more likely around June 2023, not earlier.

Australians like to holiday both locally and overseas. With locked borders over 2020 and 2021, reduced tourism spend has been a source of savings and some of the spare cash has also made its way into retail. As tourism recovers, will retail sales slow? In Issue 2 of The Retail Mosaic, we analyse the change in tourism spending over recent years and assess the possible recovery path and its impact on retail. The good news for retailers is that any recovery in tourist spending is likely to be gradual and centre on domestic trips. Given almost half of spending by tourists while on domestic holidays is in retail stores, then the recovery in holidays may prove to be a smaller drag on retail than some fear