‘Taking full advantage’: Sales galore as spending grinds to a halt

Consumers are pulling back on discretionary spending, forcing retailers to discount more.

Consumers are pulling back on discretionary spending, forcing retailers to discount more. Photo: AAP

Household spending growth ground to a halt over the past year as families gave up optionals like fashion and accessories, sparking a wave of discounting across Australia’s shopping centres.

Figures published on Friday by the Australian Bureau of Statistics showed the household sector spent just 0.1 per cent more over the year to May than the prior 12 months, despite strong population growth.

The spending flatline comes as consumers deal with stubborn inflation and rapid interest rate hikes, with the cost-of-living crisis causing discretionary spending to plunge 1.9 per cent annually.

Other ABS data earlier this week showed families are pulling back on purchases such as clothing, footwear and accessories – particularly at department stores like Myer and David Jones – and are spending more on food to cook at home.

Retailers are responding by slashing prices, with economists pointing to a surge in discounting as end-of-financial-year sales began much earlier than usual in May rather than June.

“Cost-of-living pressure means that households are taking full advantage of sales events when they arise,” Commonwealth Bank’s head of Australian economics Gareth Aird said on Friday.

Sales galore as Aussies pull back

As the graph demonstrates, the consumer spending pullback has been evident throughout 2024 and reflects the immense budget pressures households are feeling as essential bills soar.

But there is a silver lining; because as experts have been predicting for some time, retailers have responded by dropping their prices – a trend that aids the Reserve Bank’s battle against inflation.

The discounting has been so substantial that retail sales were actually stronger than economists anticipated in May as consumers were enticed to move their EOFY spending a month earlier.

“Retailers are reporting that consumers remain very price-sensitive, and that discounting activity is needed to spur discretionary spending,” BIS Oxford’s Sean Langcake said of the sales data.

“To the extent that sales activity has been pulled forward, turnover will be softer [next month].”

Not even discounts are enough to reverse the grim outlook for retail sales in 2024 though, with experts already predicting a “retail recession” that is increasingly evident in the official figures.

Spending patterns shift

The below graphs show how shoppers have reduced spending on optionals like household goods and fashion over the year to May, while growth in essential categories like food is up.

In other words, there are fewer people walking around the shopping centre or dining out with friends, and many more families who are hunkering down and cooking much more at home.

Indeed APAC economist Callam Pickering said the average household is buying “considerably fewer” retail goods than they were this time last year.

“Cost-of-living pressures continue to weigh on many households, with many trying to curtail their spending, particularly on discretionary items,” he said.

Things could be about to change though, with the financial burden on many families easing somewhat with a mix of tax cuts, energy bill support and wage increases hitting budgets.

It’s unclear how much of that boost households will spend and how many will instead opt to save the windfall, however, with earlier survey data indicating most won’t go on a shopping spree.

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