The retail sector in Australia is bracing for a “significant” discounting period from November, with Black Friday and Cyber Monday sales expected to play a crucial role in supporting retailers through the end of the year.
This is according to the National Retail Association’s interim CEO Lindsay Carroll, who added that discretionary spending remains subdued, with many retailers doing it tough in the lead-up to Christmas due to high interest rates and high cost of living pressures.
“Retailers are working hard to generate enough profit, but consumer spending isn’t where it needs to be,” Carroll said.
“Ongoing pressure from rising interest rates continues to impact the sector, with little relief in sight.
“The weight of these interest rates is unprecedented, especially since they’ve done little to address true inflationary drivers like housing supply and low productivity.”
The NRA added that despite government efforts to raise retail wages, workers in the industry are still vulnerable due to the high cost of living and cuts to working hours.
“Business owners are having to scale back on shifts just to manage rising costs, which in turn undermines the wage reforms meant to support workers,” she said.
“Policymakers need to take greater action to protect the industry and support both businesses and their employees.
“Retail is the largest employer of young people - the first group to feel the effects of economic downturns.
“We need a regulatory environment that supports businesses so they can grow and provide better opportunities for their workers. More must be done to protect such a vital part of our economy.”
All this comes as retail spending flatlined in July month-on-month, with year-on-year spending up just 2.3 per cent, according to the latest Australian Bureau of Statistics (ABS) data.
Fashion spending held back monthly growth in July, posting a spending fall of 0.5 per cent, with the category also posting a $14 million fall year-on-year.
Spending across the upcoming Black Friday/Cyber Monday for 2024 is also expected to be impacted, with Deloitte’s Annual Holiday Report for 2024 showing that consumers plan to spend an average of $1,002 for the upcoming holiday season - down from $1,192 in 2023.
“This 18.9 per cent decline signals a more frugal holiday period may be on the way,” the report read.
This average spending will also vary across demographics, with the Deloitte report claiming that older generations tend to gravitate towards gifts and other spending, while younger generations often value experiences more than material possessions.
“That said, consumers expect to strongly cut back on experiences, including travel,” the report continued. “Non-gift spending is only expected to fall 4.2 per cent, suggesting people will entertain at home this year.
“Retailers that tailor their offer to this consumer may take more than their fair share of the market these holidays. Whilst consumers will be belt-tightening this year, they are still holding out for that must-have gift.
“Only 12 per cent [of survey respondents] tell us that it is not important to obtain the exact product they want and 62 per cent believe it is important even if they have to pay full price. This is evident across all income groups but especially in the lower income cohort.
“It seems that whilst consumers may be spending less and looking for great deals, if they can’t find the product they want then they might just do without. The challenge for retailers this holiday season is to convince customers that their product is the one to splurge on.”
Impacts in overall sales for BF/CM is also noted by predicted falls in other key trading periods this year.
Valentine’s Day spending in February was expected to hit $465 million, down by $20 million from 2023, with Halloween spending predicted to fall by $40 million from last year.
However, end of financial year (EOFY) sales prompted a boost in June retail spending year-on-year by 2.9 per cent, ABS had reported, showing that BF/CM sales for 2024 may not decline. Sales in June were up across all retail categories, including clothing, footwear and accessories.
But these June results were predominately driven by discounting which may impact profitability for many discretionary retailers and small businesses according to the Australian Retailers Association CEO Paul Zahra.
“We saw many Australians embrace EOFY sales this year due to the ongoing cost-of-living crunch as a means of stretching their household budget,” he said.
“While retailers have enjoyed a slight uptick during June, growth remains modest, and challenges remain as retailers navigate high business costs and a slowdown in discretionary spending.
“There is no doubt shoppers are still feeling the pinch and are therefore being stricter with their spending habits.
“Spending on essentials such as food has remained stable, and there has also been an ongoing shift towards lower priced, value-oriented products.”
Zahra added that the Reserve Bank’s decisions for the remainder of 2024 will have a critical impact on consumer spending and the viability of vulnerable retailers, and in particular small business.
In September, the RBA held interest rates at 4.35 per cent. Its next meeting will be held in early November.
“The ARA continues to call for targeted government support for vulnerable businesses. Retailers are also battling a retail crime wave, ongoing labour shortages and continued supply chain pressures alongside the most intense changes to our workplace relations system in more than a decade,” Zahra said.