Time for retail to shine as it takes centre stage
The year ahead will be a defining act for the retail sector with winners and losers. Policy support is more important than ever.
As the curtain rises on 2024, the Australian retail sector stands at the brink of its mainstage moment.
This is not just another year showcasing the ongoing ebbs and flows of retail; it’s a defining act with winners and losers. The winners will continue to look for ways to grow and for struggling businesses they will need to seek new ways to turn around their fortunes or shut up shop.
The backdrop is set. The past few years have been a relentless rehearsal, with the pandemic changing up everything we thought we knew about the sector. Throughout 2023, retailers found themselves at the coalface of fierce economic headwinds – a discretionary spending slowdown, coupled with the unparalleled rising cost of doing business. They have also struggled against a tidal wave of complex unprecedented government industrial relations reforms and a persistent retail crime crisis.
If that wasn’t enough to contend with, the industry was also at the mercy of seismic shifts in consumer spending behaviours and the rapid emergence of new technology.
Supply chains remained vulnerable as geopolitical tensions continue to mount abroad and industrial action takes hold at freight lines.
After a year that has tested the mettle of retailers across the nation, the stakes are higher in 2024 – but it shouldn’t be quite as tumultuous as what the sector has already overcome.
We salute the stoicism displayed by the industry, having again weathered a perfect storm of issues in 2023. While we are cautiously optimistic that things may start to turn in 2024, the question is when? Unfortunately, the industry is preparing for another intense year with many
of 2023’s challenges carrying across into at least the first half of the new year.
Different sectors of retail will be affected in different ways. Small businesses will continue to be more challenged by the continued discretionary spending slowdown, with rising costs nipping away at their viability. It’s a fact that already many small business owners earn less than the staff they employ.
Success in challenging times demands adaptability, but also government support, innovation, and a helping hand from lady luck.
There is typically a six-month lag effect on consumer spending when it comes to interest rate rises, so we very much believe the consumer spending slowdown will be with us for the substantial part of 2024.
A notable development on the horizon is the Reserve Bank of Australia’s move to scale back cash rate decisions to eight times annually.
Interest rates are the heartbeat of economic influence and hold significant sway over the retail landscape.
Several cash rate decisions next year will have heightened consequences, with decisions taking effect for two months instead of just one. It adds another spectre of importance to an already crucial role the RBA has.
Cash rate decisions carry influence that reaches far beyond mortgage holders. They persuade consumer confidence, dictate the rental market, impact business viability and have significant sway over the rate of employment.
For an industry that, mostly, relies on Australians having spare cash – the RBA are the unseen hands shaping the pace of retail sales.
This year’s interest rate decisions will define the success stories of businesses across the retail spectrum.
On a policy front, last year was characterised by debate around the largest set of workplace relations reforms this country has seen in decades. The federal government has already introduced around 60 individual changes to Australia’s industrial relation system, culminating with the highly contentious Closing Loopholes legislation.
To close out the year, the federal government split its Closing Loopholes Bill, expediting
several reasonable measures, but also counter-productive components such as changes to labour hire regulations and union delegate access rights.
Retailers are already navigating the implementation of the largest set of workplace reforms in decades – many of them are small businesses without sufficient in-house resources, expertise or legal support.
In the face of so many challenges, aggressive policy change without adequate consultation with industry can serve as the straw that breaks the camel’s back.
Together, we must work towards a balance where the needs of our industry align with the broader economic goals of the country.
Some of our strongest recommendations to government focus on shifting the sector from survival into growth and resilience.
For example, investment into strengthening our supply chain resilience, support for resilience planning and measures to mitigate the impacts of natural disasters which will be more prevalent in the future.
With the impending federal budget, we will be calling for incentives to invest deeply into innovation opportunities such as artificial intelligence and sustainability – particularly for small business who lack the resources to take full advantage of these opportunities. These will help set our sector up to thrive and can also help ensure deeper levels of collaboration between government and industry in the future.
The integration of technology will also be a priority for retailers in 2024, but their capacity to innovate is diminished by the perfect storm of crises they are contending with. Striking the right balance between the trading issues of the day with the need to innovate to stay relevant remains the biggest challenge.
The challenges of the past year have been formidable and have once again demonstrated the ability for the industry to continue to reinvent itself.
At the end of 2022 — heading into 2023 – it was a similar story, except retailers had relished in a record-breaking holiday season to sustain themselves throughout the adversity to come.
Thankfully, in 2024, there are triumphs to balance out the trials and tribulations.
While the consumer spending slowdown is real, there remains a lot of resilience in our Australian economy. While a large percentage of Australian consumers remain affected by the interest rate pressures, we’ve also seen the country’s population increase by over one million people in the past year.
As a result, we’re seeing more overseas arrivals, many who are not as affected by interest rate rises and have spending power.
The government’s Stage 3 tax cuts – taking effect mid-year – will also stimulate discretionary spending.
It’s never been more important for retailers to deeply understand their customers and try to identify ways to not only win their loyalty but to also appeal to the customer segments that are less affected by the cost-of-living crisis and willing to spend.
As the country’s largest private employer, there is a lot at stake for the industry and the broader economy.
Retail takes centre stage this year, with the government and the Reserve Bank who will serve as the vital support acts that shape the performance.
Paul Zahra is Chief Executive Officer of the Australian Retailers Association (ARA).
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