Retail turnover for apparel is expected to remain subdued over the coming year as year-to-date growth for the category lifted by just 0.3 per cent in the March 2024 quarter.
This is according to Deloitte Access Economics’ Retail Forecasts report, which also showed that fashion sales volumes are only anticipated to grow by 0.5 per cent in 2024 – with Deloitte calling this a far cry from the highs of 2022 when annual sales growth hit 21.3 per cent.
“At 0.3 per cent for the quarter – 0.3 pp lower than total retail - price growth for apparel has remained subdued,” a Deloitte report read. “This reflects a more general trend (occurring for five consecutive quarters) with quarterly growth in retail prices dwarfing those in apparel.
“Keeping with this trend, price growth over the year is expected to moderate to 1.0 per cent in 2024 before rebounding slightly to 1.5 per cent in 2025 – noting this still sits below overall retail price growth.”
Despite the bleak picture, Deloitte noted that many consumers are choosing to splurge on apparel, with its ConsumerSignals research showing that 18 per cent of those who are splurging across retail are choosing clothing and accessories.
“For retailers in this sector, consumers aged 35-54 on medium and high incomes may be a market worth targeting, with 26 per cent and 23 per cent splurging on clothing and accessories respectively.”
Department and discount department stores are in no better shape, with the category recording a 0.4 per cent quarter-on-quarter fall in March, and a 0.5 per cent fall in year-to-date.
Much of this fall, according to Deloitte, is tipped towards department stores, as consumers seek out value-based propositions from low-price department stores.
Deloitte cited a recent NAB Consumer Sentiment survey, which showed that discount department stores were among the top performing categories in terms of consumer satisfaction, specifically on meeting price expectations.
“Additionally, discount department stores are reaping the benefits of value conscious consumers,” Deloitte reported. “Research conducted by Monash University’s Australian Consumer and Retail Studies found 54 per cent of consumers were shopping for lower priced brands/versions of usually bought items more than they did last year.”
Meanwhile, department stores are competing with the likes of specialist apparel and household goods more directly, according to Deloitte.
“Over the next quarter, the decline in department store sales volumes may continue to outweigh the gains from discount department stores, with overall sales growth anticipated to stagnate,” Deloitte reported. “However, as economic conditions improve, sales volumes are expected to pick up. Prices are also expected to pick up after stagnating over the most recent quarter.
“However, overall department and discount department store prices are only expected to grow 0.7 per cent over the 2024 calendar year, down from 2.4 per cent in 2023.”
The challenges in apparel and department stores is reflected in overall retail sales, which have stagnated.
Deloitte Access Economics partner and principal report author David Rumbens said real spending across retail has contracted by 0.4 per cent in the March quarter, adding that many retailers have lost the gains achieved over the Black Friday sales in 2023 as consumer frugality comes back in vogue.
“A key driver of this has been the persistently high levels of price growth seen in essential spending outside of retail (rents, insurance, utilities) causing consumers to cut back on spending on discretionary retail,” Rumbens said.
“The latest monthly retail trade figures released last week continue the sombre story with nominal retail turnover only increasing by 0.1 per cent over the month of April.”
Rumbens said the immediate road ahead is looking rocky, particularly as unemployment rises further, but highlighted that there is positive news.
“Real wage growth, stage 3 tax cuts and interest rate cuts (eventually) will spur consumer spending later in 2024 and into 2025,” he said. “Throwing a spanner in the works is the slowdown in population growth working through – mostly as the post-COVID catch up runs its course.
“With per capita spending stagnating or contracting for the last seven consecutive quarters, more moderate population growth risks dampening the retail recovery.”
Speaking on the minimum wage hike this week, lifting by 3.75 per cent, Rumbens called it both a blessing and a curse.
“On the one hand this will provide a modest further boost to real wage growth for consumers, supporting the economy’s capacity to spend,” he said. “On the other hand, the increase is higher than the retail sector wanted, and will place some businesses under further financial pressure, at a time when retail and hospitality insolvencies are already rising.
“However, retailers should be expecting some lift in consumer spending this year –the key question will be when, and to what extent.”
Real retail turnover is expected to increase from 0.0 per cent in calendar 2024 to 2.3 per cent in 2025. Deloitte also noted that household goods turnover should pick up more with better economic conditions and with an uplift in national building activity, supported by the Government’s ambitious housing targets.
The additional dollars from tax cuts later this year may bump up spending at cafes, restaurants and takeaway in the September and December quarters.