Consumers to spend big this Christmas, but cost of living crisis will bite

Consumers are set to break spending records on Christmas presents, but they are being forced to start buying earlier than usual.

Natasha Colli with her daughter Javita, 21, shopping in The Strand Arcade, Sydney, as data shows people are returning to bricks-and-mortar stores. Picture: Jane Dempster

Australian consumers are set to break spending records on Christmas presents this year, but rises in the cost of living and inflation has forced shoppers to start purchasing earlier than usual and make the most of sales, such as Black Friday and Cyber Monday.

The Australian Retailers Association reported on Monday that pre-Christmas spending forecasts had reached $66bn, $2bn more than forecast in September, and was up by 6.4 per cent, compared with last year.

Retailers Association chief Paul Zahra said this Christmas would be the first in three years people would have a “sense of freedom” from Covid-19 restrictions.

“(Cost-of-living) is the biggest issue on consumers’ minds … They are trying to make that household dollar go as far as possible,” he said.

Mr Zahra said consumers were taking advantage of discount events, including on Black Friday, when they spent $7.1bn, compared with about $6bn last year.

Alcohol and food are set to top the list of intended gift purchases this year, followed by gift cards and toys according to the association.

NSW, Victoria and Queensland have driven most of the projected spike in spending. NSW is set to record a $20.8bn spend (up 7.7 per cent), Victoria $17.1bn (up 5.2 per cent), and Queensland $13.5bn (up 6.8 per cent).

Further data released by Monash University’s business school on Monday also supported analysis by the Retailers Association that consumers planned to give gift cards and cash to avoid waste, retail expert Eloise Zoppos said.

“(They) are really thinking about what they are buying … more than ever before. Partly due to cost of living and party due to wanting to be sustainable,” she said.

Clothing, footwear and accessory gift purchases fell from 58 per cent in 2021 to 47 per cent in 2022. Toys and games were at 38 per cent this year, down from 47 per cent in 2021. Fifty-nine per cent of shoppers plan to use debit cards to buy gifts, followed by 40 per cent of shoppers who intend to use credit cards, according to the research.

Mr Zahra said low unemployment, rising wages and a Covid-induced savings buffer would help consumers to purchase gifts.

But an economic insights report by AMP found those positives would be outweighed by high retail inflation, which was up by 7.1 per cent in the year to September, rising mortgage repayments and a decline in household wealth, which was reflected in a decrease in the value of property.

After the release of a report by the Australian Council of Trade Unions that found 56 per cent of Australians had to cut back on essential items and 24 per cent skipped meals, assistant secretary Liam O’Brien said the cost-of-living crisis should be more of a concern to retailers.

“It is staggering how out of touch some business lobbyists have become. A quarter of Australians not being able to afford three meals a day is clearly a crisis and should be of particular concern to retailers who rely on workers having disposable income.”

Natasha Colli, who flew from Perth to Sydney to visit her daughter Javita and to do some Christmas shopping, said she had noticed the cost of most goods and services had increased.

“This year I said (to my family) I will buy you one nice gift instead of lots of little things,” she said.

“You have to be mindful … It’s nice to stop and think before we choose and to be selective.”