Is 2019 retail’s gap year?

According to Deloitte’s quarterly forecast, retailers this year will be nursing a ‘hangover’ before getting ready to move ahead in a year’s time.

Deloitte Access Economics partner and Retail Forecasts principal author, David Rumbens, says that consumers have been living beyond their means and this is about to change, creating some real challenges for retailers.

“Australia’s retail sector has been sustaining a reasonable rate of sales growth in an unconventional way―not so much from income growth, but leveraging off consumers’ willingness to spend,” he explains.

“That willingness to spend has been supported by very strong asset price growth, creating a massive windfall for one set of consumers. But for another, and largely separate group, they have been associated with a significant lift in debt commitments.”

Indeed, overall consumer spending growth over the past five years has averaged 2.5 per cent per annum, but growth in household disposable income has only averaged 1.9 per cent.

“Housing gains have dried up, and there are question marks over the share market as well. Labour income growth is good, but not good enough yet to avoid some damage to retail growth in the absence of an excuse to run down savings further.

“And when overall net wealth is heading downwards, it provides a fairly strong incentive for people to be more prudent with their cash.”

However, Rumbens says that like all good gap years, retailers can use the opportunity to position themselves for recovery and success.

“It shouldn’t just be about survival. Retailers should ensure they are focused on competitive advantage, strengthening connections with customers and streamlining operations so that, when broader market growth does return, they are in the best possible position to take advantage of it,” he adds.