Australian retail growth modest as sector faces challenges

Recent data from the Australian Bureau of Statistics indicates a modest growth in retail turnover by 0.6% for the month of October, reaching AUD $36.7 billion. While this suggests a positive trend, deeper insights reveal that the retail sector faces ongoing challenges, particularly in discretionary spending. Consumers are prioritising essential purchases such as food and household goods, leaving discretionary sectors like clothing and department stores to lag behind.

Zara Tonkin, Chief of Staff at Employment Hero, highlighted that household budgets remain tight, despite the onset of sales events like Black Friday. According to the October SmartMatch Employment Report using real-time payroll data from 1.1 million small and medium-sized enterprises, wages in the retail and hospitality sectors saw an increase of 0.7% month-on-month and 4.5% annually. This wage growth outpaces the annual retail turnover growth of 3.4%. Retail staff, however, are working fewer hours, averaging only 97 hours per month, equivalent to losing a week's full-time work every month. This reduction in hours is attributed to budget constraints and results in decreased earning potential for workers.

Interestingly, despite a slight increase in hiring, with employment figures rising by 1.5% monthly, total employment in the retail sector remains below the levels of the previous year. This underscores the precarious nature of the current economic environment, with retailers, especially small and medium-sized enterprises, facing rising operational costs and cautious consumer spending, making profitability challenging.

Looking towards the future, industry predictions for 2025 suggest some significant trends that could shape the retail landscape in Australia. John-David Klausner, Vice President of Business Development & Strategic Alliances at Loop, predicts that in-store shopping will continue to hold strong appeal among Australian consumers. The trend is anticipated to persist in 2025, especially with Direct-to-Consumer brands opening more physical locations. This contrasts with the US market, where physical storefronts have seen fluctuating success.

Sustainability is expected to gain further momentum, with Australian brands actively seeking ways to reduce environmental impact. Features like "Keep Item" and "Donate" are becoming popular, encouraging consumers to reduce unnecessary returns. Such efforts enhance customer loyalty and align with broader shifts towards greener practices.

However, Klausner warns of a potential rise in returns fraud as online shopping becomes more prevalent and cost-of-living pressures mount. To combat this, Australian retailers are advised to implement robust return policies and invest in technology such as automated checks to mitigate fraudulent activity.

Technological innovations and trends are also set to reshape the retail sector in 2025. Automated returns, AI-driven data analysis, and integration of logistics solutions are expected to streamline processes and improve inventory management. These technologies aim to enhance efficiency and customer experience.

Additionally, the rising average transaction value for returns indicates a shift towards quality over quantity in consumer purchasing behaviour. Shoppers are increasingly investing in high-value items, particularly in fashion and tech categories, which naturally result in higher average transaction costs when returns occur.

As Australian retailers navigate economic pressures, they are likely to continue adapting to both consumer demands and innovations. The focus on sustainability, technological advancements, and strategic management of returns will be key factors influencing their success in the upcoming year.