Report reveals surprising windfall for Australian retailers, but experts warn of grim outlook as inflation bites

Shocking numbers have revealed that Australian retail sales have come out of the pandemic “better off than if it had never happened”, with real sales up 1.2 percent for the March 2022 quarter.

But economic experts have warned that challenges posed by inflation in the second half of this year could “put a brake” on overall spending as retailers face a shift to value purchases, margin constraints, and rising operating costs.

Report reveals surprising windfall for Australian retailers, but experts warn of grim outlook as inflation bites

According to the latest retail forecast report from Deloitte Access Economics, retail spending is about 6.2 percent ahead of pre-Covid trends — the spending expected as “No Covid disruptions had occurred.”

The report found that this was boosted by the 1.2 percent increase in real sales and retail spending at the end of 2021.

Spending for Camera IconRetail rose in late 2021, followed by a further 1.2 percent increase at the end of the March 2022 quarter. NCA NewsWire/Bianca De Marchi Credit: News Corp Australia

Further revenue growth for clothing, restaurants and department stores is expected to yield an additional 5.5 percent growth.

David Rubens, the partner of Deloitte Access Economics, said the growth outlook was “positive”, but inflation was now a “cold harsh reality” for many retailers and households.

“The price squeeze is almost inevitable, with the CPI price for non-discretionary goods and services rising 6.6 percent, more than double that of discretionary goods, up 2.7 percent,” he said.

Mr. Rumbens said households were less likely to reduce their consumption of these non-discretionary goods, such as food and fuel.

He warned that this would put “significant pressure” on other spending components.

Retail price growth is expected to peak at 5.5 percent in December this year.

In the same period, food prices are expected to rise to 7.6 percent.

Camera Icon While the retail growth outlook is positive, Deloitte warned that inflation could hold back overall spending for the remainder of the year. NCA NewsWire / Luis Enrique Ascui Credit: News Corp Australia

Mr. Rumbens warned that the bulk of retail sales for the rest of the year and in 2023 and 2024 would be driven by prices rather than sales volume.

“Retail sales growth could average just 1.1% over 2023 to 2025, compared to 1.9% per year for retail price growth,” he said.

Camera icon David Rumbens of Deloitte Access Economics. Credit: News Corp Australia

Mr. Rumbens said companies might need to consider reducing costs and avoiding losing competitiveness, such as diversifying and building resilient supply chains.

In their outlook report, Deloitte noted that the hospitality industry had “completely recovered” as catering spending rose nearly $12.5 billion in the March quarter.

Spending rose another 8.3 percent, on top of another 18.3 percent in December 2021.

Real department store sales were 8 percent higher than pre-Covid levels, but cost-of-living constraints made it unlikely that the sector would continue its recent spectacular run.

“The worst may be yet to come with increased producer prices still flowing to retailers and embedding expectations for price growth,” the report said.

Lori J. Kile
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