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Why 2019 was so tough for retail

This year has been “dismal” for the retail sector, according to Deloitte Access Economics, the company’s economic advisory arm, which released the latest edition of its quarterly retail forecast on Monday. And the next three weeks are not likely to change that underwhelming result.

“The start of the Christmas season looks to hold little cheer for retailers after a tough 2019 to date,” David Rumbens, Deloitte Access Economics partner, said, citing the company’s recent Christmas survey, which showed only 21 per cent of retail respondents expect a growth above 5 per cent this year. This is down from 41 per cent in 2018.

Much has been made of the impact of the slow housing market, elections and broader economic uncertainty on consumer confidence, and therefore spending, in 2019, which tax offsets and several interest rate cuts failed to move.

But weak demand is only part of the reason retailers have been hurting, according to the Deloitte report. Higher costs also squeezed margins, leading to an increase in retail prices and exacerbating the decline in sales volumes.

According to Deloitte, retail prices rose 2.6 per cent in the year to the September quarter.

“This is the first time since 2009 that retail prices have consistently outpaced general price pressures in the economy,” Rumbens said in a statement.

“Unfortunately for retailers, price growth is not reflective of stronger demand, but rather increasing cost pressures from a weaker Australian dollar, the increase to the minimum wage and supply disruptions from droughts and floods,” he said.

Bardot, Ziera, Stylerunner, Ed Harry and Karen Millen are just a few of the retailers that went into voluntary administration this year, with several citing a combination of changing consumer behaviour and rising costs as key factors.

However, it’s not all bad new. Certain sub-sectors demonstrated revenue and EBITDA growth in 2019, according to Deloitte. They include food distributors, leisure products and internet and direct marketing retailers. And there are signs that things will improve in 2020.

“Stronger wage growth, a reinvigorated housing market and moderating price pressures are expected to support a much stronger growth outlook in the year ahead,” Rumbens said.

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