The latest KPMG Retail Health Index (RHI) shows promising growth, driven by reduced wage pressures and boosted consumer confidence following the first RBA cash rate cut in over four years. Our latest forecasts suggest a gradual reduction of short-term challenges, projecting that retail conditions will begin to normalise by mid-2025. Although the medium-term outlook appears healthier than it has been in some time, it still falls short of pre-pandemic levels.
Key challenges for the retail sector
Although consumer sentiment has improved following a rate cut in February 2025, it remains below neutral territory as geopolitical uncertainty impacts confidence levels and household savings rates remain low, resulting in cautious spending behaviour.
While global supply chain conditions have returned to pre-pandemic levels, cost pressures remain a critical challenge. Geopolitical concerns and evolving trade policies add to these pressures, pushing retailers to invest in AI, automation, and digitalisation to navigate and mitigate supply chain risks.
The relatively weak Australian dollar increases the costs of imported goods and services, posing a challenge for retailers, who may struggle to pass on the costs to consumers amidst sensitivities to cost of living pressures.
What factors are affecting the retail market?
Supply chain conditions
Following severe disruptions caused by the COVID-19 pandemic, global supply chain conditions have normalised, with the index now firmly within pre-pandemic ranges. Sentiment among Australian industry leaders, however, remains pessimistic.
Household spending shifts
Household spending has risen for the first time in almost two-years as cost-of-living measures spur on retail sales and inflationary pressures continue to ease. Household goods recorded the strongest growth in Q4, marking the third consecutive quarter of expansion above 1%.
Employment in retail
Total employment in the retail sector saw a slight increase in the three months leading up to November 2024. However, the retail sector remains tighter than the broader labour market, with its vacancy rate running below the all-industry level for four consecutive quarters.
Read more about the future health of the Retail sector in the Retail Health Index for March 2025.
Download: Retail Health Index – March 2025
Quarterly insights on the future health of Australia’s retail sector.
Download report (PDF 1.6MB)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, then please contact us.
