Consumer spending on apparel in real terms may continue to fall over the first half of 2023, according to Deloitte Access Economics’ quarterly Retail Forecast.
The apparel sector faced significant headwinds in the December quarter, with real retail turnover declining by 2.3% after a surge through most of 2022.
Despite the quarterly decline sales, volumes still increased by 9.0% over the year to December 2022.
Costs to consumers also increased during the period, as retailers made the ‘uncommon’ move to raise prices up 2.7% in the December quarter and 5.5% over the year.
According to the financial advisory firm, economic uncertainty and a transition towards higher share of spending on services will pinch consumer spending on apparel this year.
“Equally many consumers are also become more cautious and budget conscious,” the report noted.
“Data from Deloitte’s Global State of the Consumer Tracker shows a broad sweeping reduction in the proportion of spending allocated to apparel compared to the year prior.
“Sales may likely suffer in 2023 if consumers view wardrobe refreshes as a luxury rather than a necessity. That means consumer spend on apparel in real terms many continue to fall over the first half of 2023.”
It is anticipated that the sector will return to growth in the second half of 2023 and “robust” in 2024, as real wage growth drives renewed consumer spending power.
Meanwhile, department store sales have also recorded a shift in spending over 2022/23.
The December quarter was a turning point for robust growth in 2022, with department store sales falling by 2.9% in real terms.
In the September 2022 quarter, real retail turnover had increased by 2.7% - one of the largest gains of any retail category.
Annual real turnover also increased for the year to December by 7.1%.
“Unfortunately for department stores 2023 may bear closer resemblance to the end of 2022 than the robust sales performance earlier in the year,” the report noted.
“Consumers are suffering a significant real wage decline, and with increasing pressure from interest rate rises on household budgets, 2023 may see more consumers opting out of discretionary spend.”
There may also be different effects across the department store sector, according to the retail forecast.
Discount department stores are expected to see some benefit from the shift in consumption patterns as consumers seek less expensive options.
It is expected that the RBA’s interest rates hikes will take six to twelve months to fully flow through to consumer spending.
This means that the December data may only account for the very start of the RBA’s rate hike regime, with additional rate rises scheduled in 2023.
Further declines in department store sales volumes are anticipated in the first half of 2023 and only “very modest” growth in the second half.
In a poor quarter for retail turnover volumes, the department store category was the worst performers, with the volume of spend falling by 2.9%.
The December quarter also saw prices in department stores increased by 6.3% all by 0.6%, a sharp end to a period of consistent increases over 2022 as part an annual increase in 13.8% in the year to end December.
“The decline in quarterly sales volumes likely results from the pressure of interest rate rises on household budgets, with consumers increasingly opting out of discretionary luxury spend and reducing turnover for department stores,” the report noted.
“There is a silver lining for the sector with the potential for discount department stores to benefit from consumers becoming more value conscious.”