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Tight economic conditions will hit discretionary spending but there is light at the end of the tunnel, it says.
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Retailers must hang tight through a tough 2023, says Deloitte
01 March 2023
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Clothing and household goods stores will have to hang tight through a tough 2023 with demand shrinking up to 5 per cent before light at the end of the tunnel next year, according to the latest Deloitte forecast.
Deloitte Access Economics partner David Rumbens said there had been warning signs of a contraction and now consumers were adjusting to increased economic pressure.
“What was seen as a risk to retail sales in the first half of 2023 became a reality for retailers in the December quarter of 2022,” said Mr Rumbens.
“We’re entering a period where higher interest rates will take a chunk more out of disposable incomes for consumers and increase the proportion of mortgage holders at risk of mortgage stress.”
“Unsurprisingly, this has stoked consumer caution with sentiment diving along with the RBA’s latest rate hike. We’re seeing consumers become more value conscious, and saving money by purchasing lower cost alternatives, for example, 27 per cent purchased store brand products in January 2023, up from 22 per cent in September 2022.”
Deloitte said it was a mixed picture, with discretionary sectors facing the worst of the downturn.
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“Non-food sectors are forecast to experience the brunt of the retail slowdown as consumers prioritise non-discretionary items, with real non-food sales expected to see a contraction of around 3.0 per cent while food retailing should stay afloat with growth of 2.8 per cent over 2023,” said Mr Rumbens.
“The tight consumer environment risks real retail spending going further backwards over the first half of 2023, and this may result in weak growth of just 0.1 per cent for real retail trade over the 2023 calendar year.”
However, Mr Rumbens said retail trade should rebound by late 2023 or early 2024.
A real increase in average wages, population growth returning to near pre-pandemic rates and more tourists as China reopened were all factors influencing a positive outlook into 2024.
Mr Rumbens said these elements along with the RBA reaching its high point in interest rates would see real retail turnover increase 1.9 per cent in 2024.
“Real wage growth and consumers getting their spending mojo back, population growth, a return of tourists and a pick-up in residential construction will all push the retail sector into a brighter 2024,” he said.
“So a better growth future for retailers may be with us as soon as the end of 2023.”
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