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The retail sector is not expected to return to healthy levels until the middle of next year as consumers remain reluctant to part with their dollars in the face of stubborn inflation and high interest rates.
Despite the lure of bargains and deals during last year’s Black Friday sales, retail turnover for the December quarter grew at half the rate recorded during the same period last year, prompting KPMG to lower its forecasts for recovery in the sector, which has been in a “retail recession” for 12 months.
KPMG doesn’t expect the retail sector to return to health until mid-2025.Credit: Brent Lewin/Bloomberg
“We’re coming out of it, but we’re coming out of it slowly,” said KPMG national retail and consumer lead James Stewart.
“In reality, we probably bottomed in some respect last year. But the issue is the pace of the momentum coming out of it. It is just taking a while, and it’s going to take longer than what I think people would have hoped.”
KPMG’s previous retail health index report from September predicted a “modest acceleration in trading conditions”. But an incremental lift of 0.17 index points for the December quarter suggests “the overall health of the retail sector remains poor” and that “a balanced outcome by the end of 2024 may be at risk”, according to the December report.
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In the second half of last year, consumers prioritised value for money, favouring “everyday low pricing” retailers such as Kmart and Bunnings and turning to online retailers like Kogan.com.au and Temple and Webster to find better deals. Meanwhile, the likes of Myer, Nick Scali and Kathmandu have flagged a hit to sales and profits.
Many retail executives had expressed optimism of a lift in consumer spending power in the second half of the year, thanks to the looming stage 3 tax cuts and the stabilisation and potential slashing of interest rates. Deloitte Access Economics predicted in December that the second half of 2024 would represent a “turning point” for the economy.
However, businesses will continue to contend with higher operating costs spanning electricity, fuel, manufacturing and packaging, and wages, as well as reluctant consumers.