Retailers who survive the early challenges of 2024 stand to reap the rewards by year’s end

As we roll into the second quarter of 2024, it is becoming more apparent that retail spending is higher than last year, but only incrementally with the experts agreeing this is expected to stay the case until the end of the year.

While it is not the news the retail sector was hoping to hear, the good news is a recovery is expected to start from as early as the pre-Christmas shopping season of 2024.

The message here being: HOLD ON!

Data from the Australian Bureau of Statistics (ABS) reveals retail turnover in January increased 1.1% year-on-year and month-on-month.

This is in line with the forecast from the Roy Morgan Retail Sales outlook for 2024  which has a preliminary forecast for retail growth of 1.2% for the year.

“In line with the usual seasonal trend, an uptick of $20 billion is forecast for the second half of the year which is driven by Christmas sales and now Black Friday sales in November,” the Roy Morgan report states.

“However, the second half of the year may see further growth thanks to some factors that could potentially boost the spending power of consumers.

“These include a continued drop in inflation, likely interest rate cuts, stage 3 tax cuts (even as modified, now set to boost middle income earners), a drop in electricity prices (thanks to the 50% drop in the wholesale cost of energy finally flowing down to retail prices from July.”

KPMG’s Australian retail Outlook 2024, agreed this would be a “subdued” year in terms of spending but believes a recovery was not too far around the corner.

“The KPMG December Retail Health Index (RHI) from KPMG Chief Economist, Brendan Rynne, suggests that while retail spending is likely to remain subdued during most of 2024, a spending recovery is likely to happen quicker than expected,” the report states. “The RHI may return to positive territory as early as Christmas 2024.

“In short, despite some serious anchors, population growth, slowing interest rate increases and the wealth effect of rising house prices are likely to tip the balance of retail spending drivers into positive territory sooner than expected.

This suggests the blue sky is coming, just not yet. In the interim, we expect food and non-discretionary retail to weather the storm and discretionary retail to lack momentum and be vulnerable to a more cautious consumer.”

Rising interest rates and inflation have been two of the key factors feeding low consumer sentiment, but these are both expected to level out or reduce as the year progresses and should be reflected in retail spending as consumer confidence returns.

And it is important to remember, as the Roy Morgan report points out, that around 34% of Australia’s population owns their home and has not had their spending power significantly impacted by interest rate fluctuations.

This is borne out, in part, by the increase in holiday and leisure spending, estimated by the Roy Morgan Holiday & Travel Survey, to have been $52 billion in the year to September 2023, “close to the annual pre-Covid spend of $63 billion”.

While the retail sector may continue to feel pressure until the end of the year, there is light at the end of the tunnel with many experts predicting a strong return to spending in time for the Black Friday and pre-Christmas sales.

Retailers who can position themselves as strong competition with a unique point of difference, offering great customer service will be in the best position to withstand the retail headwinds of early 2024 to reap the rewards.