‘Sombre’ outlook for retailers could be why your Christmas shopping is more expensive this year

Retailers are gearing up for an upcoming ‘retail recession’ in the new year, as businesses move to capitalise on consumer spending over the holidays.

Christmas shopping is about to get more expensive this year, with retailers expected to pass on costs to consumers to get ahead of an upcoming ‘retail recession’, according to new research.

The latest Retail Forecasts report from Deloitte Access Economics show that while nominal retail sales for the year-to December are expected to jump by 10.4 per cent, this growth is mostly due to retail prices growing by 7.6 per cent over the year to this month in a bid for businesses to maintain their margins.

“The holiday season is here but price rises across many goods and services are creating a surge in the cost of living,” Deloitte said. “While Australians are expected to spend more over the December quarter it may not be more presents under the tree, but rather more expensive ones.”

The retail sector’s success in the September quarter boasted an increase of 2.3 per cent in nominal retail turnover, but rising inflation, interest rates and cost of living pressures are expected to finally dwindle consumer confidence.

Retailers are expected to pass on costs to consumers this month. Picture: NCA NewsWire / Jeremy Piper

Principal author of the report, David Rumbens, said consumer spending is expected to dip next year, in line with similar sentiments overseas.

“For now, we’re expecting the holiday season and end-of-year events to throw the retail sector a lifeline,” Mr Rumbens said.

“Looking ahead, retailers are likely to face a difficult six months as they ring in the new year. 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,” he said.

In the US, nominal retail spending has decreased by 1.3 per cent and in the UK, sales volumes decreased by three per cent over the September quarter.

This slowdown is expected to reach Australia as well, with about 58 per cent of respondents to Deloitte’s Retailers’ Holiday Survey expecting consumer confidence to go down in 2023.

David Rumbens from Deloitte Access Economics.

Over 2022-23, supermarkets, speciality food and liquor have seen negative growth with global factors and weather conditions attributed to the hiked prices while cafes and restaurants saw significant 19 per cent growth in the same period.

Over March and June quarters next year, sales volumes are forecast to decrease by 0.2 per cent and 0.4 per cent.

“Sales are expected to curtail at the start of 2023. The result could see the sector entering a short and shallow ‘retail recession’” Mr Rumbens said.

“Sales are likely to pick up through the second half of 2023, but result in a bottoming at zero real growth over the year to December 2023. So a more sombre 2023 after a sprint to Christmas in 2022.”