Australians are spending, but how long can it last?

Heading into Christmas, retailers are approaching their most critical time of year with cautious optimism, Paul Zahra writes. Picture: Nikki Short

Retail is an important bellwether for our overall economy – when retail performs, it helps bolster business and consumer confidence. And with one in ten Australians employed by this vital sector, the benefits flow through to many households.

Amid a gloomy economic backdrop, with cost-of-living impacts, interest rates and inflation, Australian retail sales have boomed to record levels. Nearly $35bn was spent in stores and online in August – an increase of 19.2 per cent on the same time last year. Spending is also up on pre-pandemic levels, telling us that retail has not only been resilient, but has gained strength as a sector, growing to a significant $400bn in annual economic impact.

The question now for retail is can we maintain the momentum? And how much of that growth will be reflected in profits, with the cost of doing business also continuing to surge.

As we head into the all-important Christmas trading period, retailers will be hoping the upbeat conditions will continue for a few more months and that it’ll be a soft landing for retail sales when the crunch inevitably hits. While consumer spending has gathered pace in Australia, retail sales in the UK are falling at their sharpest levels in eight months, while a recession could be on the cards in the US. Is Australia destined for the same fate?

It does take some time for rising interest rates to wash through the economy, while inflation is also yet to reach its forecast peak, so Australia is likely to be experiencing a delayed impact. What’s cushioning the blow is the high level of savings Australians accumulated during the pandemic, supported by government stimulus and cost of living relief measures, which have helped ease the pressure on household budgets. In addition to this, international travel costs have surged by around 30 per cent forcing many Australians to holiday locally further boosting the retail numbers.

Heading into Christmas, retailers are approaching their most critical time of year with cautious optimism – but what’s dampening their spirits is supply chain constraints and staff shortages. Two thirds of our members tell us that local and international supply chains have stayed the same or gotten worse over the past three months and confidence is low that they’ll improve over the remainder of the year. Australia Post has warned that supply chain bottlenecks will be amplified in the lead up to Christmas, so not only do retailers have to build resilience in their logistic networks, but consumers need to plan to ensure that their Christmas orders arrive on time.

Staff shortages are a problem right across the economy, but it’s more acute in retail with 46,100 job vacancies as of August – an increase of 14.4 per cent since May.

Retail was one of the few industries to record an increase in vacancies, which is a significant concern for businesses looking to ramp up their workforces for the festive trading season. The recruitment drive for tens of thousands of Christmas casuals is well underway, but with the scale of the labour crisis getting worse for retail, it’s unlikely businesses will be able to fill all the roles they have available to trade at their full potential.

Pleasingly, we had some quick wins out of the Jobs and Skills Summit, including an increase to Australia’s skilled migration cap and funding to speed up visa processing times. Older Australians can also take on more shifts, with a one-off income credit that’ll allow pensioners to earn more without their pension payments being affected. This will make a difference, but the benefits won’t be immediate. Following up the summit, the federal government has committed to an employment white paper, however it’s not due to be released until the second half of next year, which is concerning when immediate action is so desperately needed. We risk unnecessarily prolonging the jobs and skills crisis.

Despite these concerns, and the uncertain economic outlook, retailers still have plenty to look forward to. The Black Friday sales are expected to drive significant amounts of traffic both instore and online and provide good momentum in the run up to Christmas. And while the dark clouds are above us, in the form of rising interest rates and inflation, the storm hasn’t hit us just yet and consumers and continuing to spend freely. While retailers remain cautiously optimistic, the squeeze will eventually come as we head into 2023, but right now, retailers are riding a wave of record spending.

Paul Zahra is the chief executive of the Australian Retailers Association.