Retail sales on course for worst year on record: Deloitte

Deloitte predicts that retail will experience its worst annual sales result on record this calendar year.

Deloitte predicts that retail will experience its worst annual sales result on record this calendar year. Photo: TND

“Australian retailers are facing the fight of their life in 2020,” according to a new report from Deloitte.

As wages growth flatlined and the economic outlook soured in 2019, consumers closed their wallets and businesses went to the wall.

Italian restaurant chain Criniti’s, fashion retailer Karen Millen, and supplement store Muscle Coach either shut down stores or went into voluntary administration.

And then 2020 picked up where 2019 left off – with Bardot, Harris Scarfe and McWilliam’s Wines all calling in the administrators before most Australians had even heard of “coronavirus”.

Since then, hundreds of thousands have lost their jobs and “spending behaviour has been tipped on its head,” according to Deloitte Access Economics partner David Rumbens.

Although some retailers profited from hoarding and greater online shopping during the lockdown, Mr Rumbens said the overall industry faces a “long recovery path ahead”.

Closed borders mean less consumer spending growth from growing populations, he said.

And the end of key support measures in September, combined with rising unemployment and a reduced willingness to spend, could tip many retailers over the edge.

As a result, Deloitte predicts that retail will experience its worst annual sales result on record this calendar year, with turnover forecast to drop by 1.4 per cent.

After surging in the March quarter, retail spending is expected to plunge 4 per cent in the June quarter, before briefly rebounding as restrictions ease, and then returning to an anaemic “post-JobKeeper slog”.

Cafes, restaurants and bars were particularly hard hit during the lockdown and will continue struggling due to weak household budgets and ongoing social distancing constraints.

And apparel and department stores will suffer a similar fate.

Both sub-sectors rely on discretionary spending, which always takes a hit when households tighten their belts during recessions.

But supermarkets will continue performing well, as budget-conscious households swap eating out for eating in. 

“We’re going through a period in May and into June where overall retail spend is again lifting – not so much for apparel and department stores – but it is lifting in response to [the easing of restrictions],” Mr Rumbens told The New Daily.

“So, overall we’re probably going to see reasonable sales growth through May and June and into the next financial year.”

But it might not last, he said.

“As we go on through the year, some of what’s supporting that spending growth – JobKeeper, other government supports – as that starts to get pulled away, then we might start to see some of that discretionary spending also pull away,” Mr Rumbens said.

“More worrying is the longer-term risk from weak population growth,” he adds in the report.

Migration has been an important support for retail spending over the past decade, but with borders closed there is potential for this tailwind for growth to turn into a headwind.”

Meanwhile, Chapel Street Precinct Association president Justin O’Donnell said the most pressing concern for retailers in his precinct is how long the state government is taking to ease restrictions.

Mr O’Donnell said he would like the Victorian government to abandon arbitrary capacity limits on venues and adopt the one-person-per-four-square-metre rule championed by Prime Minister Scott Morrison.

He’s also calling on the federal government to extend the JobKeeper scheme beyond September, as “we’re not going to come out of this fast”.

“[Ending JobKeeper abruptly] could start a domino effect,” Mr O’Donnell told The New Daily.

“For every business that closes, that’s less money in our local economy … and if we end up with too many vacancies, then you also have an issue with drawing people to the area.”

CORRECTION, JUNE 18: An earlier version of this article incorrectly stated that fast food chain Red Rooster had also shut stores or entered voluntary administration.

A sole Franchise Partner placed his business into voluntary administration last year, but Red Rooster was able to re-open all seven stores affected.

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