Retailers feel pinch as shoppers stay home, spend less

There has been a noticeable decline in retail sales in Australia as shoppers opted to stay home and cut back on non-vital spending in March. According to the official Australian Bureau of Statistics count, retail sales slid by 0.4 per cent, a figure lower than the 0.2 per cent increase predicted by analysts.

Factors contributing to the decrease in retail sales include higher mortgage repayment costs, a growing tax burden, and elevated prices impacting Australian consumers. Weakness in retail sales has particularly affected discretionary goods and services, with clothing, footwear, and personal accessory retailing falling by 4.3 per cent, and department store sales declining by 1.6 per cent.

The only segment to see growth in March was food retailing, which saw a modest increase of 0.9 per cent. Other industries, such as household goods retailing, other retailing, and cafes, restaurants, and takeaway food services, experienced decreases in sales for the month.

ABS head of retail statistics, Ben Dorber, noted that the 0.8 per cent increase in yearly spending compared to the previous year was the weakest growth on record outside of pandemic and GST-related fluctuations. Dorber attributed the decline in retail spending to ongoing cost of living pressures impacting consumers.

Following the release of the retail sales data, economists have expressed concerns about the impact of financial pressures on consumer demand. Sean Langcake, from Oxford Economics Australia, highlighted that vital inflation for items like health, education, rent, and mortgage costs is squeezing household budgets, leading to restrained discretionary spending.

The subdued retail sales figures come on the heels of unexpectedly high inflation data, which has dampened hopes for interest rate cuts in the near future. With price inflation affecting vital items, such as housing-related components, banks like the Commonwealth Bank have pushed back their projections for interest rate cuts from September to November.

CBA’s head of Australian economics, Gareth Aird, emphasized that while the Reserve Bank of Australia has succeeded in reducing inflation for non-vital items, vital components are proving more challenging. Aird suggested that strong population growth, driven by net overseas immigration, is contributing to upward pressure on the consumer price index basket, prolonging the decline in inflation rates.

As retailers face the impact of subdued consumer spending, analysts are closely monitoring economic indicators to gauge the health of the retail sector and the broader Australian economy.