Christmas splurge expected to be last hoorah as consumers close their wallets

Deloitte Access Economics partner and principal report author, David Rumbens, said despite increases in the cost of living, retail remained buoyant through the September quarter, with nominal retail turnover increasing by 2.3 per cent, but cracks are beginning to appear with growth in sales volumes slowing to just 0.2 per cent.

“The domestic and global economic environment is souring as retailers face strong headwinds. Rising inflation and interest rates are increasing cost of living pressures, causing consumer confidence to plummet,” Mr Rumbens said.

“While the poor sentiment hasn’t been fully reflected in spending yet, it will only be a matter of time before spending growth moderates further. Internationally, spending has already dipped, with nominal retail spending in the US decreasing by 1.3 per cent and UK sales volumes decreasing by 3.0 per cent over the September quarter.

“For now, we’re expecting the holiday season and end-of-year events to throw the retail sector a lifeline. Year-to December growth in nominal retail sales is expected to grow by 10.4 per cent. But most of this is expected to be driven by prices, as retailers try to maintain their margins by passing on rising costs. Retail prices are anticipated to grow by 7.6 per cent over the year to December.”

Mr Rumbens said retailers are likely to face a difficult six months as they ring in the new year.

“With cost of living pressures and a mortgage rate squeeze clouding the horizon, retailers are growing pessimistic about the state of the consumer in 2023,” he said.

“Some 58 per cent of respondents to the recent Deloitte Retailers’ Holiday Survey for 2022 expect that consumer confidence will deteriorate through 2023.”

The report forecasts that sales are expected to curtail at the start of 2023 and could see the sector entering a short and shallow ‘retail recession’.

Sales volumes are anticipated to decrease by 0.2 per cent and 0.4 per cent over the March and June quarters of 2023, respectively, and few retail categories are expected to be spared, with a wide sweeping reduction in demand expected.

“Sales are likely to pick up through the second half of 2023, but result in a bottoming at zero real growth over the year to December 2023. So a more sombre 2023 after a sprint to Christmas in 2022,” Mr Rumbens said.