by Retail Doctor Group (Staff Writer)
The retail landscape in Australia has faced numerous challenges in the 2023-2024 financial year, but the outlook for 2024-2025 appears more promising, according to Craig Woolford, Senior Research Analyst with MST Marquis. In a recent podcast discussion with Brian Walker, CEO and Founder of Retail Doctor Group, Woolford shared valuable insights into the current state and future state of global and Australian retail economic performance.
Watch this podcast on YouTube:
Economic Overview and Sales Growth
Despite negative headlines and low consumer sentiment, Woolford suggests that fears about the retail sector may have been overplayed. While overall retail spending in Australia grew by only 1.8% for the 12 months to June 2024, this needs to be viewed in context.
“You had the mortgage cliff that was going to hit around September, October last year that never really eventuated,” Woolford noted, indicating that some predicted challenges didn’t materialise as expected.
Interest Rates and Tax Cuts
Interestingly, Woolford considers interest rates to be less of a concern going forward. He points out that the upcoming tax cuts will provide significant stimulus:
“The tax cuts that will kick in are equivalent to about 100 basis point rate cut.”
This, combined with good population growth and wage increases, sets a positive foundation for the 2024-2025 fiscal year.
Shifting Consumer Behaviour
The retail sector has faced a “double whammy” of higher living costs and a shift in consumer spending towards experiences like travel and events. However, Woolford believes this shift is largely stabilising:
“The good news is that a lot of that sort of shift of the wallet has largely run its course.”
Profitability and Margins
While profit margins have decreased slightly, they remain above pre-COVID levels for many retailers, particularly larger ones. Woolford shared that profit margins are sitting at 6.1% at EBIT (Earnings Before Interest and Taxes), which is higher than in fiscal years 2017-2019.
However, smaller retailers and certain sectors like quick-service restaurants are facing more significant challenges due to wage pressures and limited flexibility in their cost structures.
Productivity Initiatives
Retailers are implementing various productivity measures to maintain profitability. These include:
- Sophisticated labour rostering systems
- Self-checkouts and kiosks
- Electronic shelf labelling
- Focus on floor space productivity
Online Retail and Competition
Online retail is re-accelerating after a post-COVID slump. Major players like Amazon, Shein, and Temu are seeing significant growth. Woolford emphasised the importance of an online presence:
“If you don’t have an online presence, you’re knocking one percentage point off your growth potential.”
Category Performance
Different retail categories are experiencing varied levels of growth. Supermarkets, furniture, electronics, and hardware have seen a drop in cumulative volume growth over the last five years. In contrast, clothing, department stores, footwear, and liquor are still above long-term trends.
The cafe and restaurant sector is facing particular challenges due to “weakening sales trends, affordability challenges, as well as wage cost pressures,” according to Woolford.
Looking Ahead
Woolford emphasises the importance of product innovation and understanding consumer trends. He notes that while older and wealthier demographics are spending more, there’s still growth potential in younger markets.
“Product, product, product. It’s getting back to what is the appeal of the offer that you have as a retailer,” Woolford stressed.
While challenges remain, the Australian retail sector shows signs of resilience and potential growth. Retailers who focus on product innovation, embrace online channels, and implement effective productivity measures are likely to fare better in the coming fiscal year.