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Rising sales are hiding retailers’ anguish, says ARA chief

(Source: Bigstock.)

Retail spending across Australia is up – but there is a catch, warns Australian Retailers Association CEO Paul Zahra.

Releasing the latest monthly Mastercard SpendingPulse data this morning, that covers June, Zahra says consumer spending continued its strong trajectory, rising 11.1 per cent year on year. 

Every single retail category showed growth with fuel and convenience and jewellery leading the way, up by 23.1 per cent and 23.2 per cent respectively. 

SpendingPulse covers all in-store and online spending across all forms of payment and includes the hospitality sector. Spending on lodging in June was up by 17.9 per cent, on home furnishings by 6.5 per cent, electronics by 4.8 per cent, and apparel by 2.4 per cent. 

But Zahra warns that while retail spending is on the rise, the data does not fully reflect the state of the industry. Retailers are battling increasing costs for labour, rent, fuel and energy, and supply chain constraints are adding to what he describes as a “cost crunch” for business.

“The performance of the retail sector is not just marked on sale volumes. We are operating in an inflationary landscape, where consumer prices are increasing, which impacts overall retail trade numbers. This is creating a perception that the sector is thriving,” he said. 

“However, many businesses are severely challenged by rising operating costs associated with labour, fuel, energy, supply chains and rents.

“While consumers are impacted by the rising cost of living, the rising cost of business is in many cases more severe. The economic outlook also has many business owners feeling nervous, as rising interest rates begin to take hold and some natural belt tightening occurs with mortgage holders.”

Zahra said that the household savings rate remains above pre-Covid levels – which will cushion some of the inflationary impacts consumers are experiencing – however, when people rein in spending, discretionary purchases are the first things they cut out. 

“We remain optimistic the retail sector will be able to weather the current economic headwinds and the rising cost challenges. However, we need to acknowledge that just because overall sales are up, it does not necessarily mean that retailers are doing well. As they have through the pandemic, many retailers continue to reduce inflationary shocks for their customers by absorbing some costs, which of course affects their margins. 

“And passing on cost increases has impacted their volumes,” Zahra said. 

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