Deloitte is forecasting a 'modest' lift in Australian retail sales

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  • Deloitte Access Economics forecasts retail turnover to rise to 2.6% in 2018-19.
  • The imposition of GST from next month on overseas sales will support “a more level playing field for the retail sector”
  • The rise of online spending is the greatest threat to big box and department store retailers.

Retail sales in Australia, still suffering from increasing competition, digital disruption and weak household income growth, will next year see a modest lift, according to the latest quarterly Retail Forecasts from Deloitte Access Economics.

Overall real retail turnover is expected to lift to 2.6% in 2018-19 from 2.4% in the current financial year.

“Current growth is being driven primarily by categories closely tied to the housing market which have benefited from now cooling higher property prices, while intense competition in apparel and department stores has resulted in falling prices but rising sales volumes,” says Deloitte Access Economics partner David Rumbens.

“The biggest drag on headline retail growth was food spending, a category closely tied to fluctuations in household income growth which has struggled to pick up over the past year or so.

“There are some indications that wages are starting to pick-up, but there is still a long road ahead.”

Here’s how Deloitte sees retail turnover to 2024:

Rumbens says retailers would have welcomed last month’s Federal Budget, which featured income tax cuts estimated to put around $13.4 billion back into consumer pockets over the coming four years.

“Given the weak wage environment, these tax cuts are a welcome development for household budgets. And for retailers, the sector is likely to be a major beneficiary of the improved household income position,” he says.

Amazon

However, the entry of overseas retailers and increasing penetration of online platforms including Amazon continues to give an abundance of choice for Australian consumers, and heavy price discounting for retailers as they compete for market share.

“With GST not payable on smaller purchases from overseas online platforms, some domestic retailers believe they have been at a disadvantage when it comes to prices and margins,” he says.

“But this is about to change, and the industry will be watching closely as GST on these smaller purchases comes into effect on July 1.

“Amazon’s announcement that it will not collect GST on Australian purchases, and restrict locals to the smaller offering of its recently launched Australian site has made the headlines. But others are, perhaps reluctantly, embracing the change.

“This may cause some consumer angst in the short-term, but overall the policy will support a more level playing field for the retail sector.”

Rumbens says the rise of online spending is set to be the greatest threat to big box and department store retailers in coming years, which historically held the competitive advantage of being a consolidated marketplace for just about everything.

“As Amazon becomes an established operator in the Australian market, this advantage will be gradually eroded, challenging the operating margins of larger retailers,” he says.

“While downsizing and consolidation is likely, there is also a wave of new large-scale international entrants establishing operations in Australia.

“This means that the trend towards flagship stores and investment in effective omni-channel techniques will likely continue.”

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