KPMG's Retail Health Index fell to -1.07 in the June quarter, down sharply from -0.39 in March, with rising business costs and a slump in consumer confidence dragging the sector further into negative territory.
The index has now sat in negative territory for two consecutive quarters, after holding positive since December 2023. All four components weighed on the result, with the deterioration in consumer sentiment the largest single drag, taking 0.54 index points off the index compared with just 0.05 points in the March quarter.
The Producer Price Index removed a further 0.42 index points, reflecting the pass-through of energy and transport cost increases tied to the Iran conflict and disruptions to shipments through the Strait of Hormuz. Final demand PPI rose 3.6% over the year to June, up from 3.0% the previous quarter, with quarterly growth accelerating to 1.3%.
Road freight transport prices rose 15.5% over the quarter and 17.6% over the year, the largest quarterly increase since the ABS series began in 1997.
Retail insolvencies climbed to 254 in the June quarter, up from 204 in March and 240 in the same quarter last year, taking the sector's share of total insolvencies to 7%. Retail sector pre-tax profits fell 6.5% to $4.6 billion, dropping the sector's share of total profits to 4.2% from a recent peak of 5.1% in March, the lowest reading since the March quarter 2024.
Employment softened, with retail shedding 9,100 jobs to 1.50 million over the quarter. Job vacancies fell by 4,700 to 26,000, taking the sector's vacancy rate to 1.7% against an all-industry rate of 2.1%.
Sales themselves held up better.
Retail turnover rose 1.4% in current prices over the June quarter, up from 0.7% in March, with inflation-adjusted turnover returning to growth at 0.8% after a 0.7% decline. Clothing, footwear and personal accessories recorded a modest increase of 0.1 percentage points, matching department stores, while household goods led all categories at 5.6 percentage points.
KPMG attributed the improvement largely to end-of-financial-year promotions rather than any underlying recovery.
"The improvement in retail turnover was encouraging, but it also reinforced the extent to which demand is being supported by promotions, discounts and targeted offers rather than a broad-based recovery in consumer confidence," the report said.
Clothing and footwear inflation eased to 3.8% over the year to June, down from 5.4% in March.
Online continued to take share, with spending reaching $21.9 billion in the June quarter, up 14% year on year and accounting for 25% of total retail spending. Fashion grew 9% year on year, lagging online marketplaces at 17%. Average basket sizes fell to a record low of $90, down 5%.
The report found 59% of shoppers no longer buy at full price, with Black Friday and Cyber Monday the most anticipated events at 44%, ahead of Boxing Day at 36% and EOFY at 33%.
KPMG expects conditions to remain weak, with the index forecast to stay negative until the end of 2027.
"Margin management remains the defining challenge for the sector. Retailers continue to face elevated supply chain, freight and operating costs, while increasingly price-sensitive customers are limiting the industry's ability to fully recover those costs through higher prices," the report said