Australian retailers are navigating some of the most challenging economic conditions in over a decade. The landscape has shifted significantly with a substantial downturn in consumer spending driven by severe cost of living pressures.
Despite the difficult environment, Deloitte’s 2023 Retail Holiday Report shows that some retailers are cautiously optimistic about holiday season growth, with 14% of respondents expecting sales to increase by 5% or more over the period (a notable uptick from 6% last year). Unsurprisingly however, overall top-line sales confidence has fallen – only 57% of respondents expect Christmas sales to exceed the previous Christmas period (down from 67% last year).
Chart: Do you expect Christmas sales to exceed the previous Christmas trading period?
Source: Deloitte Retail Holiday Report.
Overall, 71% of respondents expect the levels of discounting to increase over the holiday period, and 52% of respondents expect a decline in margins. Retailers are reporting that discounting and promotional activity will be the key to enticing customers as well as doubling down on omnichannel strategies such as online, delivery options, click-and-collect, and enhanced in-store experiences.
Importantly, while this upcoming holiday period brings challenges, it could be the precursor to a stronger retail environment in 2024. Strong population growth (driven by a return of international students) is supporting economic growth and spending, something retailers sorely need as domestic spending remains cautious.
Inflationary pressures are also expected to ease substantially next year, and Australia’s labour market has been impressively resilient. Combined, this means we’ll soon see real wage growth go back to positive. Retailers have likely already survived the worst of the retail recession.
So how do we navigate the next twelve months, when economic uncertainty remains high and consumer spending starts to return? Retailers should keep the following three points in mind while they gear up for 2024:
Read the full 2023 Retail Holiday Report here.
This newsletter was distributed on 21sth September 2023. For any questions/comments on this week's newsletter, please contact our authors:
This blog was co-authored by Michelle Shi, Economist at Deloitte Access Economics.
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