Retailers set for billion-dollar spending sprint to Christmas but slowdown to follow

There is an upbeat mood among Australian shoppers for the most important trading period of the year for the nation’s $320bn retail sector. But what happens when all the gifts are opened?

Meghan and her daughter Scarlett Murray with assistant store manager Tate Griffin assistant store manager at the Myer giftorium in Sydney. Picture: John Feder

It’s a cold and wet summer in Melbourne, but shoppers still line up to view the historic Christmas windows in the heart of the city.

The number of people shuffling past this holiday season is expected to hit almost a million, approaching the 1.2 million crowd that walked along Bourke Street before the pandemic struck.

Up in Sydney it is much the same. At the Myer Sydney store kids are lining up to chat to Santa as parents pick out gifts.

Both are tangible examples of the upbeat mood among Australian shoppers heading into the most important trading period of the year for the nation’s $320bn retail sector.

In a spending binge that will drain bank balances and ring up credit card bills, Australians are tipped to spend $66bn in the lead-up to Christmas, up almost 7 per cent on last year, and as much as $21bn in the 10 days before Christmas Day.

“Fiscal 2023 has certainly been a strong year for Myer, with our best first-quarter sales on record followed by more records across the Black Friday sales. We have good momentum, a great offer for our customer and the flexibility of both in-store and online to capitalise on the remainder of Christmas and Boxing Day,” Myer chief customer officer Geoff Ikin told The Australian.

 

But when the presents are unwrapped, the music from New Year’s Eve quietens and the bills start coming in, what happens next to the consumer and their propensity to spend?

This is something that economists, analysts and retailers are now contemplating.

Rochelle Eldridge, Commonwealth Bank’s general manager, shopping, said the company’s research showed customers were starting to tighten their belts.

“Our latest consumer research shows that 61 per cent of Australians are planning to spend less on Christmas this year. Customers are looking for ways to save money and ease pressures with the rising cost of living,” she said.

“Seventy-three per cent say they have cut back on discretionary ‘nice to have’ items, while 69 per cent are looking for ways to make money go further, including preparing ahead and shopping on sale.”

Unsurprisingly, cost of living pressures remain top of mind for many shoppers, according to CBA’s consumer research, with 78 per cent planning to buy essentials when they are on sale.

Many retailers are more bullish, however, upbeat about the race to Christmas Day but privately cautious how the consumer will behave in the early months of 2023, with the Reserve Bank expected to lift interest rates again in February and March.

In October, Coles boss Steven Cain said he believed consumers would “push the boat out” for Christmas and in the new year devote savings to paying down credit card bills and mortgages.

His counterpart at Woolworths, Brad Banducci, is also optimistic for Christmas spending, but in a closed-door meeting with suppliers in November warned of a “tipping point” in January as back-to-school bills, higher energy prices and steeper mortgage payments finally rein in spending.

“This will be the biggest Christmas on record for Australia, with Aussies predicted to spend $66bn in the Christmas trading period – up 6.4 per cent on last year’s spending, according to our Australian Retailers Association holiday sales predictions with Roy Morgan,” Australian Retailers’ Association boss Paul Zahra said.

Australian Retailers Association CEO Paul Zahra.

National Retail Association interim CEO Lindsay Carroll.

Some of this extra spending firepower will come from inflation and rising prices for consumer goods and service, but it will be the volumes of sales that will be keenly watched by retailers and analysts.

The National Retail Association’s interim chief executive, Lindsay Carroll, said cost of living pressures had prompted consumers to approach their festive spending a little differently this year.

“Due to rising inflation and interest rates, consumers kicked off their Christmas shopping earlier than previous years to spread the cost of their celebrations. People have been shopping more often but with smaller purchases, so it’s no surprise retailers will be run off their feet in the final 10 days,” she added.

Deloitte Access Economics partner David Rumbens has tagged the last few weeks to the end of the year as a ‘‘sprint to Christmas’’ as shoppers spend up, but many fear a downturn in January.

“Despite increases in the cost of living, retail remained buoyant through the September quarter, with nominal retail turnover increasing by 2.3 per cent. However, cracks are beginning to appear with growth in sales volumes slowing to just 0.2 per cent,” Mr Rumbens said.

“The domestic and global economic environment is souring as retailers face strong headwinds. Rising inflation and interest rates are increasing cost of living pressures, causing consumer confidence to plummet.

“While the poor sentiment hasn’t been fully reflected in spending yet, it will only be a matter of time before spending growth moderates further.”

Mr Rumbens’ latest research shows that with cost of living pressures and a mortgage rate squeeze clouding the horizon, retailers are growing pessimistic about the state of the consumer in 2023, with around 58 per cent of respondents to the recent Retailers’ Holiday Survey for 2022 expecting consumer confidence to deteriorate throughout 2023.

“So a more sombre 2023 after a sprint to Christmas,” he said.