Australian retail sales are on the rise – but new research suggests growth is being driven by inflation, not by consumers buying more.
Deloitte Access Economics, in its latest Quarterly Retail Forecasts – this edition dubbed “Retail’s Turning Point” – warns that while retail is for now “still riding the post-pandemic high” the outlook remains a lot bleaker than the current figures suggest.
Real retail spending grew by 1.4 per cent through the June quarter after what was already a strong start to the calendar year.
“That left real sales growth up 5.5 per cent over the year, with the spending spree particularly centred around discretionary categories,” says the report’s author David Rumbens.
“But cracks are starting to show as the economy faces a number of challenges. Retail prices increased 4.8 per cent through the year to the June quarter with the largest price rises seen in food and household goods.
“On a quarterly basis, overall retail price growth has already exceeded sales volume growth in both the March and June quarters,” says Rumbens.
Deloitte predicts that retail sales growth volume will end the year at 3 per cent, however, retail price growth is expected to peak at almost twice that rate: 5.9 per cent.
“Having prices as the main driver of nominal retail sales – or top line revenue – is relatively unfamiliar for retail,” observes Rumbens.
The report concludes that the post-Covid spending spree has been particularly centred around discretionary categories including department stores, apparel and catered food. A growing desire of consumers to eat out and engage in experiences supported an 8.6 per cent increase in spending at restaurants, cafes and takeaway food, while winter outfit refreshes likely supported the 3.9 per cent increase in apparel spending over the quarter.
Deloitte predicts the pent-up demand for discretionary retail is expected to weather the inflation challenge “a little longer” with the volume of spending at cafes and restaurants projected to leap 42.8 per cent over the full year.
“But price growth for these categories is creeping upwards, and as consumers rein in their discretionary retail spending, most non-food categories are likely to reach their turning point in annual price vs volume growth in the 2022 December quarter,” the report says.
In another indicator of short-term Australian retail sales growth, Access believes larger retail categories have already passed that turning point.
“Significant price rises for food and household goods have contributed to a slowdown in the volume of spending at these retailers,” the report says. “Excluding the impacts of the numerous lockdowns and restrictions, at-home food (supermarkets and speciality food and liquor retailers) saw a significant difference between price and volumes growth starting in the March quarter this year. This is expected to balloon in the September quarter with prices upward of 6 per cent through the year, but volumes around 4 per cent in the red.”
Deloitte predicts supermarket sales in volume terms will fall 2.1 per cent from 2022 to 2023 before recovering 1 per cent the following year.
However, supermarkets may not see their top-line sales dip by the same degree. “The value of supermarket spending over 2022-23 is expected to grow 3.3 per cent, driven by the expected 5.5 per cent price growth.”
Meanwhile, as retail prices rise, Rumbens is also warning of the impact of labour shortages on the retail industry.
“Australia is operating at close to full employment and retailers are concerned about having enough labour in such a tight labour market. Retail job vacancies have more than doubled since May 2019, with no sign of slowing down,” he says. “These positions aren’t being filled and employment in the retail industry is lower than in May last year, down 1.2 per cent.”
The issue is being exacerbated by the absence of a key supply of workers – international students.
“Even with this being a key focus of the federal government’s Jobs and Skills Summit last week, it’s unclear if, and when, international students will return to their pre-pandemic levels,” says Rumbens.
“The higher share of casual and part-time workers in the retail workforce is likely also weighing on the industry’s ability to retain workers. With fewer entitlements binding these workers to retail jobs and high transferability of skills between retail jobs, workers are more likely to shift between employment.”
In June, Deloitte warned that inflation, not volume, would drive retail sales growth until 2025.