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The prospect of lower interest rates means mortgage-stressed 30 to 40-year-olds will rediscover discretionary spending, BDO partner says.
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Discounts, lower inflation ‘will drive early retail rebound’
15 January 2024
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A return to pre-pandemic levels of discounting will help drive an earlier-than-expected rebound in retail spending in the latter half of this year, BDO partner Salim Biskri says.
He said ABS data on inflation and retail turnover this week meant there was room for optimism about RBA interest rate moves and so relief was in sight for mortgage-stressed 30 to 40-year-olds.
Retail turnover jumped 2 per cent in November thanks to the Black Friday sales while annual inflation fell to 4.3 per cent, down from 4.9 per cent the previous month.
“It's good to see that the inflation is starting to reduce a little bit and hopefully this positively impacts consumers and some of the decisions that the RBA may make in 2024,” Mr Biskri said.
“The first half of 2024 might be a hard time for some retailers purely driven by the fact that there’s still significant cost-of-living pressures for consumers.
“It is also driven by the uncertainty around some of the decisions that the RBA will make – whether they decide to increase hike rates or not. This will certainly have an impact on the retail environment.
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“But I think there's an industry consensus that retail growth should improve, probably from the second half of 2024 or late 2024.”
“I’m definitely more optimistic than a few months ago.”
He said after a year reeling from interest rate increases, a decline in inflation would revitalise demand from Gen X and Y.
“Boomers and Generation Z have been more likely to engage in discretionary spending whereas Generation X and Generation Y have been hit hard on mortgages and cost of living pressures,” he said.
“The dynamic will change primarily for Generation X and Y, in their 30s and 40s – if there is some cost-of living relief, such as reductions in RBA rates that are passed through to customers, this will create further cash savings for that specific generation who will be entitled to effectively leverage that for buying more goods.”
Another driver of demand would be population growth, with immigration of around 300,000 people forecast for 2024.
Mr Biskri said some retail sectors, such as food and grocery, would continue to perform well regardless but it was vital that retailers kept a close watch on buying trends.
“Food and grocery has usually been a strong performer and the recent results from the largest supermarkets prove that. I think categories such as homeware and leisure equipment have struggled a bit more.
“There are still some challenges when it comes to supply chains, getting goods into the country, but probably not as bad as it was in 2021-22. But supply chains always remain a key focus for retailers to make sure that they stock up the right product, especially for small and medium retailers.
“This is why understanding your customer preferences and demands is critical for retailers to make sure that they manage stock levels adequately.”
Even with demand returning, retailers were likely to compete more aggressively on price with household savings sinking to low levels.
“One thing that I think will be considered a bit further is probably the level of discounting,” he said.
“During COVID, Australian consumers have been able to save significant cash savings because of all the restrictions.
“We've seen that cash savings have significantly dropped since the reopening of the borders in 2022. I think the level of discounting that we used to see pre-COVID is probably going to come back in 2024.”
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