Recent analysis by Deloitte Access Economics reveals a stark reality: real retail spending has decreased in six of the past seven quarters, with per capita retail expenditure showing even steeper declines. Specifically, real per capita retail spending has contracted for eight consecutive quarters, standing 2.5% below June 2023 levels and 6.3% beneath June 2022 figures.
The situation paints a dire picture of an economy in recession, a sentiment echoed by David Rumbens of Deloitte Access Economics. He notes that Australia’s retail sector has effectively been in a state of recession for the past 18 months, a point that many local businesses can attest to.
This economic strain is particularly evident in regional areas like Manjimup, Western Australia, where Michelle de Salvo, owner of Southern Belle Boutique, reports a severe downturn. De Salvo notes that local shop owners are expressing their concerns about survival, with many struggling to cover even basic expenses due to diminished foot traffic and reduced consumer spending. The added financial pressures from rising wages, increased superannuation, and escalating costs for freight and insurance further exacerbate the difficulties faced by retailers.
Deloitte’s report highlights that inflation and high interest rates have significantly impacted household savings, which have dropped to 0.9% compared to a pre-COVID average of around 5%. This diminished savings buffer has led consumers to prioritize spending on services over goods. For example, while per capita spending on goods fell by 1.3% in the last quarter, spending on services increased by 0.6%. Moreover, the desire to catch up on travel postponed during the pandemic has driven higher-than-expected expenditure on international travel.
Despite the gloomy outlook, there are some hopeful signs. The introduction of Stage 3 tax cuts, effective from July 1, is anticipated to improve disposable income, though the full impact remains to be seen. Additionally, recent reductions in inflation, aided by government energy rebates, may ease some financial pressures. The Australian Bureau of Statistics reported a drop in the Consumer Price Index to 3.5% for the year ending in July, down from 3.8% in June.
Looking ahead, potential interest rate cuts by the Reserve Bank of Australia could further boost consumer sentiment. Deloitte’s analysis suggests that with moderating inflation and possible tax cuts, real retail turnover might grow by 1.5% in 2025 and 2026. Although this forecast is modest compared to previous years, it signals a potential gradual recovery.
In the meantime, retailers are exploring ways to sustain their businesses. Di Salvo is rallying local businesses in Manjimup to discuss collective strategies for support, highlighting the challenging conditions faced by traders. While the path to economic stability may be slow, the collaborative efforts and forthcoming fiscal measures could offer a glimmer of hope for the retail sector’s future.
Contact Accountancy Insurance
We would love to hear from you.
About Accountancy Insurance
Thousands of accounting firms offer our tax audit insurance solution, Audit Shield to their clients.
Find out why.