Although the Deloitte Access Economics Retail Forecasts report found 2012 was a “disappointing” year for the retail industry, it noted some encouraging signs were on the “economic horizon”.
According to the report, by financial year 2012-2013 real retail sales (inflation-adjusted) are expected to increase by 2.2 per cent. Furthermore, retail sales in 2013-2014 are forecast to increase by 2.5 per cent, before improving by 3.6 per cent in 2014-2015.
Last calendar year, total retail sales increased by 2.2 per cent, but Deloitte Access Economics had previously predicted an increase of 3.4 per cent for the 12 months.
Deloitte Access Economics senior economist Neal Sarma told Jeweller that while the beginning of 2013 would still be a difficult trading period for retailers in the luxury and discretionary goods sector – largely due to a weak labour market – the situation would improve.
“Interest rate cuts are starting to stir economic activity. We’ve already seen better news in the share and housing markets, which will provide a flow-on benefit to retail, and consumer sentiment is lifting,” Sarma said.
“So the sales outlook for discretionary goods later this year and into 2014 is a bit more positive.”
Poor trading for 2012
The report noted that although retail sales were strong during the first half of 2012, momentum was lost in the second half and many retailers continue to struggle in a highly competitive environment.
“It’s no secret that luxury and discretionary goods retailers faced a tough sales environment during 2012,” Sarma said.
He believed the underlying reason for this was Australia’s low employment growth.
“In that sort of environment, people tend to keep spending on necessities and put off more discretionary spending. The only really bright light has been Western Australia where the mining boom has been powering economic activity and incomes, helping to support spending on more discretionary goods.”
He said keeping costs under control was really important in order for retailers to be able to ride out a prolonged tough sales environment, adding, “Discounting can also help, but it hurts profit margins”.
Labour costs are said to heavily influence a retailer’s ability to control expenditure. According to the report, wage increases in the retail sector have slowed recently to the same pace as they were immediately after the global financial crisis, suggesting retailers are having some success in containing costs.
Better performing retail sectors for the 2012 calendar included food, cafes and restaurants and the “other” retailing category (which incorporated internet retailers).
Those still suffering from slow trading included household goods, clothing retailers – which comprised jewellery retailing – and department stores. Sales in the clothing retail sector increased 2.3 per cent while department stores increased 1.9 per cent.
Mixed fortunes across the country
The report found that retailers across the country received varying performance results.
Western Australia recorded its second year of high retail spending rates, while Queensland, the Northern Territory and the Australian Capital Territory also performed well.
The New South Wales retail market is said to have under-performed for some time, but may be starting to improve due to deep interest rate cuts and an improving state housing market.
According to the report, last year also proved slow for Victoria, South Australia and Tasmania.