Real retail turnover growth to fall 1.4 per cent in 2020: Deloitte

Image of closed Uniqlo store
Global fashion brands including Uniqlo have flagged significant declines in sales after they were forced to close stores during the pandemic. (Photo by Syafiq Ikmal on Unsplash)

While some measures of consumer sentiment and spending intentions have improved recently, retailers are not out of the woods yet, a new report cautions, with the end of JobKeeper and weak population growth from reduced migration posing both short and long-term risks for the sector.

“2020 has been a tumultuous year for retailers,” said David Rumbens, partner and principal author of Deloitte Access Economics’ quarterly Retail Forecasts report.

According to the latest report released on Thursday, real retail sales growth is expected to fall 1.4 per cent in 2020, making it the worst year on record.

And while the average is dire, some retailers could fare even worse, Rumbens cautioned.

“[T]here may not be many retailers performing at the average – many will fare much worse, while supermarkets, pharmacies and hardware, amongst others, have been experiencing a golden run,” he said.

Retail spending in the June quarter is expected to contract by 4 per cent, following a surge of growth in the March quarter, due to the impact of social distancing restrictions on spending.

And retailers will continue to face headwinds on the path to recovery, including rising unemployment and reduced willingness to spend in the short-term and weak population growth in the long-term.

“Migration has been an important support for retail spending over the past decade, but with borders closed there is potential for this tailwind for growth to turn into a headwind,” Rumbens said.

According to the report, there have been significant swings in consumer ability and willingness to spend during 2020, and those swings may continue as the year goes on.

“Rather than one dominant economic theme, we expect six phases to retail spending in 2020,” Rumbens said.

The six phases are:

  1. Pre-COVID normal: January and February was dominated by bushfires and the beginning of border closures, but most retailers were trading as normal with modest month-to-month growth.
  2. March stock-up: The spread of COVID led to stockpiling of essential goods, which masked a decline in discretionary spending and resulted in the highest monthly growth in retail sales on record.
  3. April slump: Stockpiling tapered off, while discretionary spending got even worse, particularly at cafes and restaurants and clothing stores, which led to the worst fall in monthly retail sales on record.
  4. May re-open rebound: Retail spending appeared to pick back up, as health concerns abated and people were given the green light to shop. This was helped by pent-up demand and government support.
  5. Recovery growth: This will be a ‘COVID normal’ period, where sales are buoyed by an improving economy and JobKeeper and other income support measures remain in place.
  6. Post JobKeeper slog: Once JobKeeper ends, the last phase for retail in 2020 may be a fairly sombre one.

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