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Retail Holiday Report: Charting a course for growth

Retailers are braced for a Blue Christmas, but will hope to start the New Year supported by a somewhat brighter economic outlook for 2025.  

For Australian retailers, there’s been no avoiding the stormy weather over the last 12 months. But while they batten down the hatches to ride out today’s challenging economic conditions, Deloitte’s 2024 Retail Holiday Report hints at clearer skies ahead

Retail conditions remain frosty

The retail sector is navigating one of its toughest periods in recent memory due to persistent cost of living pressures and high interest rates. The sector has effectively been in recession for the last 18 months, with spending declining in six of the last seven quarters when accounting for inflation. Data out today shows that nominal (not inflation adjusted) retail turnover increased by 0.7% in August, supported by the recent tax cuts and warmer weather, which is encouraging but it’s still a long way back to a healthy rate of sales growth.

Australian retailers expect generally modest trading conditions to continue into the Christmas period. According to the Retail Holiday Report, only 51% of retailers expect to see any growth in sales this holiday season, down from 57% last year. Smaller retailers are particularly feeling the pinch, with only 45% anticipating revenue growth.

Consumers are looking to be even more cautious this holiday period, with average retail spend expected to be down 18.9% from 2023. Over three quarters (76%) of Australians are looking to spend the same or less this holiday period than they did last year. The mismatch in expectations between retailers and consumers risks an even more disappointing trading period coming up for retailers – either that or some consumers will change their mind over the next couple of months and spend more.

Higher income earners are more likely than lower income earners to increase their spending but remarkably, across all income levels, the majority of consumers plan  to avoid spending more than they did last year. 

Infographic: Retailer and consumer expectations for the holiday trading period 

Source: Deloitte 2024 Retail Holiday Report

With household budgets under pressure, consumers are prioritising value for money. A significant 95% of consumers are actively seeking the best deals, and 87% are planning to stay at home rather than travel this holiday period. This may present an opportunity for retailers to capitalise on ‘staycation’ spending - despite tightening their belts, 67% of consumers still intend to splurge a little on themselves. 

When making purchasing decisions, trust is paramount. An overwhelming 84% of consumers consider trust as  important or critical to their purchasing decisions. Product quality and fair pricing were named as the two most important factors in establishing trust by consumers. This shows  that providing a good product at a good price continue to be the fundamentals of retail business.  

Brighter days lie ahead

Despite the current economic chill, there is a strong case to be made that the worst of the economic pain is behind us. Australians are now seeing real wage growth after several years of inflation outpacing wage increases, while tax cuts and energy rebates are coming through. As a result, Deloitte Access Economics expects real retail turnover (inflation adjusted) to grow by 1.5% in 2025, following a contraction of 0.3% in 2024. 

Retailers are also optimistic of some New Year cheer. More than half (56%) expect growth in sales over the next 12 months, and 4% anticipate a double-digit rise. There remains some caution though, with the share of retailers expecting no change in sales rising from 5% to 16%. 

A return to sales growth would be welcome, but retailers must continue to work hard to entice consumers to spend. Identifying and capitalising on emerging consumer trends will be crucial to success.  

This newsletter was distributed on 1st October 2024. For any questions/comments on this week's newsletter, please contact our authors:

This blog was co-authored by Andy Crossley, Manager at Deloitte Access Economics

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