2019 is shaping up to be a ‘gap year’ for Australian retail, according to Deloitte’s latest Retail Forecast for the year ahead.
Retail turnover is expected to slip from 2.2 per cent during 2018 to a more modest 1.6 per cent, before lifting back up to 2.2 per cent in 2020, according to Deloitte Access Economics partner David Rumbens.
“It’s fair to say retailers have only survived the last few years because [consumers] have lived beyond their means. But that ship has now sailed,” Rumbens said.
“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.”
This isn’t likely to affect every facet of the retail sector equally, with businesses that offer more essential items, such as supermarkets, unlikely to feel the downturn in the same way as those that offer bigger ticket items such as furniture.
Retailers that have some flexibility in the stock that they carry, such as department stores, may wish to re-evaluate and refocus on more essential items, as discretionary spend continues to tighten.
However, it doesn’t have to be all doom and gloom for retailers, as such a year affords the opportunity to make calculated changes to prepare for a predicted upturn in sales in 2020.
One of the key things retailers can do over this ‘gap year’ is to analyse and improve the link they have with their customers, as well as the relationship they have with their employees and supply chains.
“There has been… an increase in focus on payments to staff and suppliers, are there issues there that retailers need to investigate to put themselves on a more sound footing going forward?” Rumbens told IR.
“[Retailers should investigate] activities which will support the business so that it’s better able to react when sales growth does move back up to a faster pace.”
One way retailers can offset some of the strain of operating in the Australian retail environment is to utilise a digital international expansion into other markets.
“With digital commerce, we’ve clearly seen a lot of great overseas presence in Australia, and I think there’s a lot that [Australian retailers] can explore there,” Rumbens said.
“You’ve got quite strong economic and consumer spending growth through China, and a significant market in India. These are not activities to be undertaken lightly, but if you consider the 700 million internet users in China… is it time to start considering that market?”
Rumbens also believes the Federal Government could offer a stimulus to the Australian public, which could provide support for retailers at a time when growth is slow.
“There is a strong prospect of some government stimulus coming through and supporting the sector mid-year,” he said.
“It’s likely to happen, but we’ll have a fair idea in the next couple of weeks when the Federal Budget is handed down.”
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