Australian retailers face shoppers spending through gritted teeth, plus increasing competition and aggressive discounting, according to Deloitte Access Economics’ latest Retail Forecasts report.
Partner David Rumbens says strengthening employment, including a rebound in full-time job growth, and continued wealth gains from housing, were providing the basis for a lift in spending.
“But consumers aren’t happy,” he says.
“Despite improvements in unemployment expectations and an increase in business confidence, consumer sentiment is at a low point with concerns over financial risks.
“And in the face of oncoming competition from the likes of Amazon, widespread aggressive discounting to lure in the consumer dollar, and rising energy prices, it’s likely retailers aren’t so happy either.”
Nominal retail spending growth for the year to June 2017 was 3.6% and Deloitte Access Economics expects it to be steady at that rate over the year to June 2018.
However, more of the growth next year may come from volume growth, with prices increasingly under pressure.
Retail volume growth for the year to June 2017 was 2.5%, and is forecast to rise to 3.4% for the year to June 2018, as this chart shows:
Rumbens says rising energy prices are putting pressure on retail margins.
The average price of electricity in Australia grew by 116.4% over the 10 years to June 2017 and 7.8% over the last year.
“This adds further pressure to retailer margins, as intense competition keeps prices down,” he says.
“On the bright side for retail costs, retail wage growth is growing even slower than the record low average wage growth across the economy.”
Supermarket spending growth in the 2017 financial year grew by just 1.2%, translating to per capita supermarket spending growth of -0.3%.
“Amazon’s recent foray into supermarkets in the US is sparking concern that the international giant could soon intensify supermarket price competition down under,” he says.
“Entry into groceries in the Australian market may still be some time off, but the existing market already has significant competition.
“It’s not just international operators that are responding to price conscious consumers. All current supermarket operators across Australia are utilising private label products to lower prices, grow sales and protect their profit margins.”
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