Despite ongoing growth in retail spending over 2022, global consultant firm Deloitte warned that retailers are edging closer to a turning point in retail spending, especially in the apparel sector.
The figures come from Deloitte’s recently released Access Economics’ Retail Forecasts report.
According to Deloitte, high price growth means that prices are becoming the key driver of retail sales growth, rather than volume.
Deloitte Access Economics partner and principal report author, David Rumbens, said retail is still riding the “post-pandemic high”, with real retail spending growing 1.4% through the June quarter.
“That left real sales growth up 5.5% over the year, with the spending spree particularly centred around discretionary categories,” Rumbens said.
“But cracks are starting to show as the economy faces a number of challenges.
“Retail prices increased 4.8% through the year to the June quarter with the largest price rises seen in food and household goods.
“Indeed, on a quarterly basis, overall retail price growth has already exceeded sales volume growth in both the March and June quarters of 2022.”
According to the report, one of the strongest categories across 2022 so far was apparel. This was buoyed by “winter wardrobe refreshes” which have kept demand for clothing and other apparel up over the June quarter.
Over the June quarter, real spending on apparel rose by 3.9% and by 15.8% over the year. Footwear and accessories had a slightly stronger quarter than clothing in June, with nominal sales up 6.8% and 6.4% respectively.
This has kept apparel spending well above pre-COVID levels.
The report also noted that with no more lockdowns expected and an ongoing return to offices, events and holidaying, consumers have returned to apparel stores in force. This is expected to continue in the lead-up to Christmas.
Another driving force for apparel spending was a “relatively” slower price growth that may be supporting consumer demand, the report noted. Clothing and footwear prices have increased 1.6% over the year to the June quarter of 2022.
While this was historically high with the category seeing declining price growth historically, it was the second lowest by CPI category (behind communications) and substantially lower than the 6.1% overall inflation rate.
This relatively lower price growth may make consumers more comfortable spending on apparel compared to other categories, according to the report.
Overall, retail prices across all sectors increased 4.8% through the year to the June quarter. On a quarterly basis, the turning point for overall retail price growth to exceed sales volume growth has already been reached.
This occurred in both the March and June quarters of 2022, according to the report.
“The price pinch will continue to be seen in retail over the next 12 months,” Rumbens said. “Sales volume growth is expected to come in at 3.0% through the year to December 2022, and retail price growth is expected to peak at a much higher 5.9% over the same period.
“Having prices as the main driver of nominal retail sales, or top line revenue, is relatively unfamiliar for retail.”
Deloitte’s Global State of the Consumer Tracker reported some 42% of Australian respondents thought apparel prices went up in July, compared to a much higher 75% for grocery.
The report predicted that apparel spending is likely to slow - while remaining positive - over the coming months as post-pandemic demand wears off.
Growth in the volume of apparel spending over 2022-23 is also forecast to be 15.2%. However, after a successful run, growth over 2023-24 may be more modest, according to the report.
Despite the successes, the report warned that there are still risks weighing over apparel.
If cost of living pressures continue to rise, it said, clothing sales may one of the areas where consumer spending slides.
Rumbens went on to note that while supply side drivers have cooled, it will take some time for year-to price growth to come down to normal levels. He expects this will happen by 2023.
“But a slowdown in price growth will be little help against another turning point for retailers, when consumers shift further towards services spending over H2 2022 and H1 2023.
“Overall consumer spending growth is expected to outpace retail growth over the year to the December quarter.”
“For now, though, Australia is operating at close to full employment and retailers are concerned about having enough labour in such a tight labour market,” Rumbens continued.
“Retail job vacancies have more than doubled since May 2019 with no sign of slowing down.
“These positions aren’t being filled and employment in the retail industry is lower than in May last year, down 1.2%.”
Rumbens cited that the retail worker shortage was due to the industry missing a key component of its workforce: migrants and international students.
He noted that it's unclear if, and when, international students will return to their pre-pandemic levels.
“The higher share of casual and part-time workers in the retail workforce is likely also weighing on the industry’s ability to retain workers,” Rumbens said.
“With fewer entitlements binding these workers to retail jobs and high transferability of skills between retail jobs, workers are more likely to shift between employment.
“While the labour market is expected to remain tight, there are actions retailers can take to attract new talent and retain and excite the talent they already have.”