The latest KPMG Retail Health Index (RHI) indicates a slowdown in economic recovery, hindered by rising production costs and dampened consumer confidence. When persistent inflation contributes to cost of living challenges, and the promise of rate cuts fade into the distance, it is unsurprising that shoppers continue to be cautious with their spending hunkering down to focus on household ‘needs’ vs ‘wants’.
Key challenges for the retail sector
Consumer sentiment turned down during the quarter largely because of concerns over prolonged high cash rates, as inflation returns to target at an uncomfortably slow pace maintaining the pressure on household expenses and the cost of living.
Overall consumer spending on discretionary items continued to weaken despite strong population growth, with per capita retail sales having declined in the last eight quarters since 2022.
Profitability for the retail sector is continuing to get squeezed, as discounting-led sales activity is leading to reduced margins given operating constraints and wages continuing to escalate (albeit at slower rates than the experienced in 2022 and 2023).
What factors are affecting the retail market?
Is the retail market being disrupted (again)?
The drive to social commerce
In the last few years, consumers adoption of social media platforms as their primary retail discovery channel accelerated hitting 50% for the first time according to market data. This means the online retail journey for many has pivoted to social media as the front door to ecommerce.
Generational wealth impacts spending
Recent reports show up to $5trillion will be transferred across generations in the next 10 years, causing a massive shift in wealth and spending power, reframing existing consumer dynamics in the medium term and challenging retailers to focus on where the spending power is now vs where it will be in the future.
The use of AI
Generative AI is threating to completely reframe retail supply chains, product development and customer experience within the next three to five years, challenging retailers to rethink their business model, value chain and customer engagement strategies.
Read more about the future health of the Retail sector in the Retail Health Index for September 2024.
Download: Retail Health Index – September2024
Quarterly insights on the future health of Australia’s retail sector.
Download report (PDF 3.9MB)Previous editions
Why KPMG
The KPMG Retail Health Index (RHI) is based on a calculation that seeks to incorporate the revenue and cost drivers of a retail and consumer-focused business operating in the Australian economy, with an element of future expectations through incorporating a measure of consumer confidence.
If KPMG can help your business in any way navigate the current business environment and plan for any future developments that are facing the industry, please contact us.
