How OZ Retailers Benefitted From COVID
Australian retail sales have come out of the pandemic better off than if it had never happened, according to astonishing data released by Deloitte.
In fact, the current inflation issues are most likely to be a problem for retail than COVID-19, with spending expected to slow this half, and retailers facing margin squeezes and rising operating and staffing costs.
According to Deloitte Access Economics’ latest quarterly Retail Forecasts report, retail spending surging at the end of last year, and saw a further 1.2 per cent gain in the March quarter.
If we compare these figures how retail spending was trending ahead of COVID, it shows that actual spending is some 6.2 per cent higher than the levels expected had the pandemic never occurred.
Retail is on trend to see a “very healthy real retail sales performance” of 5.5 per cent growth during the calendar year.
“The growth outlook is positive, but it still presents a number of challenges for retailers,” warns principal report author, and Deloitte Access Economics partner, David Rumbens.
“Inflation is now a cold, hard reality, to the extent that the majority of turnover growth over the next few years is expected to be driven by prices rather than volumes.
“For households, the price pinch is near unavoidable, with CPI price growth for non-discretionary goods and services up 6.6%, more than double that of discretionary which was up 2.7%. These non-discretionary goods and services are the ones households are less likely to reduce their consumption of, including food, fuel, housing and health, placing significant pressure on other components of spending.
“The March quarter saw retail prices up by 3.2% over the year, driven by a 4.5% increase in retail food prices. And the cost of inputs is unlikely to taper anytime soon as producer prices were 16% greater than pre-pandemic levels in March. This means retailers are likely to feel the brunt of rising costs for a while.”
As Deloitte points out, the majority of retail turnover growth for the rest of 2022 and into the next two years will be driven by high prices rather than sales volumes.
Retail sales volume growth may average only 1.1 per cent over 2023 to 2025, compared to 1.9 per cent each year for retail price growth.
“For now though, businesses may need to look to ways to lower costs and reduce disruptions to operations to avoid losing competitiveness,” Rumbens said.
“This could involve diversifying and building more resilient supply chains, or shifting to a more vertically integrated structure to better control supply chain visibility. With wage pressures high, businesses may need to maximise staff retention as much as possible through investment in the likes of training, talent pipelines and automation.
“Overall, the cost of living squeeze, higher interest rates and preference for spending on services are expected to lead to a slowdown in retail momentum through the second half of 2022, which may then result in real per capita spend on retail falling over 2023 and 2024. That means the speed of return of net migration will become a significant driver of retail’s future growth prospects.”