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      Retail's medium-term outlook is improving

      The KPMG Retail Health Index (RHI) recorded its first non-negative reading in the September quarter in nearly four years, marking a clear break from an extended period of of subdued retail activity. Supported by softer cost-of-living pressures and three interest rate cuts in 2025, consumer sentiment has rebounded, and household spending volumes have posted their strongest annual growth since early 2024. While cost and margin pressures persist, the medium-term outlook is improving, with resilient demand and stabilising supply chains expected to support further recovery.

      Current state of the retail sector

      Australia’s retail sector is showing early signs of recovery, with the KPMG Retail Health Index rising by 0.14 points to 0.03 in the September quarter 2025 – the first non-negative result in almost four years. Consumer sentiment, measured by the Westpac–Melbourne Institute, has entered the favourable zone for the first time since early 2022, buoyed by interest rate cuts and a catch-up in real wages. Household spending volumes grew 2.7% year-on-year, the strongest since March 2024, and retail turnover per capita is forecast to rise moderately.

      Online retail continues to expand, with 8.1 million households shopping online and quarterly spend reaching $20.7 billion, a 15% year-on-year increase. Profitability remains under pressure, but retail insolvencies have stabilised, accounting for 6% of total industry cases in the September quarter. Supply chain pressures are easing, though global trade and tariff risks remain. 

      What factors are affecting the retail market?

      • Economic conditions

        Global uncertainty and slower GDP growth have weighed on momentum and interest rate cuts are supporting demand.

      • Consumer sentiment

        Sentiment is improving, with the Westpac–Melbourne Institute Index moving into favourable territory for the first time in nearly four years.

      • Cost pressures

        Producer price growth and wage increases remain above historical averages, but are moderating, helping to ease margin pressures.

      • Online spending

        E-commerce is surging, with strong growth in online marketplaces, food and liquor, and department stores.

      • Labour market

        The retail sector's vacancy rates remain below the all-industry averages, suggesting that retail employers face relatively fewer hiring challenges compared to the broader economy.

      • Geopolitical and trade risks

        Tariff changes and global disruptions continue to impact supply chains and pricing strategies.

      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, then please contact us. 

      Contact us

      Retail

      KPMG’s Retail group offers audit, tax and advisory services geared to the unique needs of the retailing industry.
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