Australia's love for clothing is the only high spot for retailers

Designs by Scotch and Soda during the Myer Spring Launch in Sydney. Don Arnold/WireImage

Spending in Australia will stay low over the next 12 months with clothing the one highlight in a struggling Australian retail sector, says Deloitte Access Economics.

Low growth in spending reflects the increasing caution of consumers as wage growth hits record lows, according to the quarterly Retail Forecasts report by Deloitte Access Economics.

“And the wealth effects from low interest rates and high asset prices, which have saved retail spending thus far, are starting to fade,” says David Rumbens, Deloitte Access Economics Partner.

Overall, inflation-adjusted retail sales growth was 1.2% for the year to September, a significant drop on the 3.4% over the same 12 months last year.

And Deloitte Access Economics expects real retail sales growth will stay low over the current financial year at a forecast 1.3% before recovering to 3% in 2017-18.

Annual real spending growth for clothing was 4.6% for the year ended September, well above all other non-food categories. The key drivers are its position as a key sector of the online retail market, the rise of fast fashion retailers, and tourism driven luxury demand.

However, Deloitte Access Economics expects spending growth to moderate over the next year or two as asset price growth cools, consumers become more cautious and the rate of international tourism growth also starts to ease.

“Consumer wealth effects from low interest rates and asset inflation are not such a boost to retail spending any more,” says Rumbens.

“That means that weakening growth in real household disposable income (currently 1.9%) is catching up with retail turnover. In fact, retail turnover is now shrinking as a component of overall consumer spending. After outpacing consumer spending between 2013 and 2015, retail turnover has lost share in 2016.”

Christmas sales may see a rebound from recent disappointing results. Three-quarters (76%) of respondents to Deloitte’s 2016 Retailers’ Christmas Survey are expecting higher sales this year, with nearly a third anticipating sales growth of more than 5% compared to Christmas 2015.

The US election outcome has added a layer of uncertainty to the global economy.

“If consumers become more cautious due to global politics (including both the impending Trump government and Brexit), retail spend may be lower than it would have been otherwise,” says Rumbens.

“Further, if the world moves towards protectionism, any higher tariffs or barriers to trade put in place by Australia would directly affect pricing and demand for Australian retail goods.”

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