Retail uplift to come after Christmas

Retailers hoping for a Christmas boost could be disappointed but there are hopes of a turnaround next year.

Shoppers in Westfield, Sydney, for the Black Friday sales on November 29. Picture: Damian Shaw.

Retailers hoping for a Christmas boost could be disappointed but there are hopes emerging that next year will produce a turnaround on the back of a reinvigorated housing market.

The potential for rising property prices to lift confidence was called out by investment bank UBS, and sales were also perked up by the Black Friday promotion, with Deloitte Access Economics now arguing that ­demand will recover in 2020.

But in the short term, monetary and fiscal stimulus has failed to fire spending, casting a cloud over the crucial holiday period, ­potent­ially hitting both retailers and landlords, according to Deloitte.

The company’s latest quarterly forecast warned that the ­already tough year for retail was unlikely to be changed by coming festive spending. It cited weak wage growth, high debt levels and rising price pressures as crimping ­demand, and said the impact of tax returns and interest rate cuts had yet to fully come through.

Deloitte said retail sales in September posted the weakest result since the 1990s recession, falling 0.2 per cent over the year.

Retail price pressures also ­remain strong, eating away at volume growth as households struggle with weak wage growth and high debt. The Morrison government’s tax offsets and the Reserve Bank’s interest rate cuts have provided only a limited spur to consumer spending.

But Deloitte said the outlook for 2020 was more positive and retail spending was expected to grow by 2.6 per cent over the year.

The report’s principal author, David Rumbens, said retail sales “look to be ending 2019 on a relatively soft note as consumers face increasing budget pressures”.

October retail sales % annual change

“Stagnating wage growth and weak house prices have limited consumer willingness to spend, while tax offsets and interest rate cuts have yet to translate to sales. And with retail prices increasing, spending volumes have taken the hit, posting the weakest growth since the 1990s recession,” he said.

Mr Rumbens said the start of the Christmas season looked to hold “little cheer” for retailers and in Deloitte’s recent survey of ­retailers only 21 per cent of ­respondents expected a growth above 5 per cent this year.

Mr Rumbens said retail price growth had accelerated over the past year, which he said was the first time since 2009 retail prices had consistently outpaced general price pressures in the economy.

“Unfortunately for retailers, price growth is not reflective of stronger demand but rather ­increasing cost pressures from a weaker Australian dollar, the ­increase to the minimum wage, and supply disruptions from droughts and floods,” he said

On his analysis, retailers are being squeezed by weak sales volumes and increasing costs, putting margins under pressure.

Next year could see a pick-up. “We expect to see a much-needed improvement in the drivers of spending, providing the environment for a turnaround to the weak retail demand profile in 2020,” Mr Rumbens said.

He predicted stronger wage growth, a surging housing market and moderating price pressures would support a much stronger growth outlook, stimulating ­demand for retailers.