Retailers hoping for a lucrative festive season are set to be disappointed as cost-of-living pressures and the prospect of another interest rate hike threaten to put a major damper on Australian families’ Christmas spending.
Businesses are offering significant discounts in the run-up to the Black Friday sales period in a bid to attract customers looking for a Christmas bargain.
But economists warn that high inflation, deeply pessimistic consumer confidence and the prospect of a possible fourteenth rate hike in December could impact spending just before Christmas.
David Jones’ former boss Paul Zahra, who now heads the Australian Retailers Association (ARA), said shoppers’ preferences have changed under the weight of the ongoing cost of living.
“What we are finding is that consumers have become a very budget-conscious consumer, driven by value,” Mr Zahra said, adding that “consumers of course still want the joy of Christmas, but they are shopping on a budget.”
Retailers are hoping for a lucrative festive season, but the prospect of a possible 14th rate hike in December could dampen spending just in time for Christmas
More than 70 percent of Australians are hoping to reduce their spending this Christmas compared to last year, according to new data from Westpac
The ARA and research partner Roy Morgan predict that consumers will spend $66.8 billion between early November and Christmas Eve. Billions more will be spent during the Boxing Day sales period.
But while overall spending is essentially the same as during the 2022 festive season, it has remained constant due to a rise in population, up 2 per cent, and high inflation, which the RBA expects to remain high by the end will always be 4.5 percent. of December.
Relieving supply chain blockages, which have been slowly resolved since their peaks during the pandemic and war in Ukraine, have also lifted retail inventories.
According to ARA forecasts, food spending in the run-up to Christmas will be at 2022 levels, as will spending on other items such as books and cosmetics. But shoppers will spend less on household items, catering and clothing.
However, according to Westpac data, more than 70 percent of Australians are hoping to reduce their spending this Christmas compared to last year.
The data suggests the the average budget per person for the entire holiday season will be nearly $863, not including gift cards and loyalty programs that many will likely rely on.
That figure includes all the purchases families are likely to make, including food, decorations, events and gifts.
The all-important holidays are a make or break affair for many retailers, as they account for almost two-thirds of annual profits.
“For small business owners, if they don’t make it through Christmas, they won’t have enough money to get through the winter months… It’s a really important, crucial time for trading,” Mr Zahra added.
Businesses without an online presence are also likely to bear the burden of budget-conscious shoppers, with 32 percent likely to save with Black Friday sales and order many of their essentials online.
David Jones’ former boss Paul Zahra (pictured) said shoppers’ preferences have changed under the weight of the ongoing cost of living.
The Australian Retailers Association and research partner Roy Morgan predict consumers will spend $66.8 billion between early November and Christmas Eve
Zahra acknowledged that another rate hike in December would be “severely damaging” to the retail sector and said retailers started selling early in an effort to sell shares as quickly as possible to minimize the impact of another possible hike.
“Retailers are trying to get the money out of the market as quickly as possible because they don’t know what December will look like… they are bound by the RBA decision,” he said.
‘Retailers are doing it very, very hard. While there is a cost of living crisis, there are also costs associated with a business crisis…We have very limited discretionary spending.”
The warning from retailers comes as new figures show household spending growth is weakening under the weight of the ongoing cost of living crisis.
Ahead of the holiday sales period, Commonwealth Bank’s monthly household expenditure indicator, which collects payment data from the CBA’s seven million customers, reveals the increasing financial pressures facing Australian families.
Acknowledging that another rate hike would be “very damaging”, Mr Zahra said retailers started selling early in a bid to sell off shares as quickly as possible.
While the indicator shows spending rose 2 percent in the year to October, spending fell 1 percent last month as households were forced to forgo discretionary purchases as inflation weighs on household budgets.
The data shows that spending on recreation fell by 4.7 percent, while going out to cafes, bars and restaurants fell by 4.5 percent.
However, this weakness was offset by increases in spending on essential categories, with utilities increasing by 2.2 percent, transportation by 2.0 percent and education by 1.3 percent.
Within retail spending, consumers are also opting for cheaper options, including online outlets and second-hand stores, while turning to jewelers, boutiques and higher-priced products such as appliances and furniture.
With sales set to start soon, separate consumer confidence data released by Westpac earlier this week shows that despite a rent increase in October, confidence has fallen following the RBA’s most recent rate hike on November 7.
The bank’s senior economist Matthew Hassan said the Cup Day decision, which saw the RBA increase the official cash rate to 4.35 percent for the thirteenth time since May last year, put new pressure on family finances.
Businesses without a strong online presence are likely to suffer, as 32 percent of shoppers are likely to save the Black Friday sales and order many of their holiday essentials online
“Recent months have shown some tentative signs that sentiment has begun to move away from the deep pessimism that has prevailed since the middle of last year,” Hassan said.
“That rally seems to have been cut short before it even really started.”
At 80 points, the index is now at recession levels, and in the nearly fifty-year history of the survey, the index has only been lower during the economic downturn of the early 1990s and during the Covid-19 pandemic.
The drop in sentiment was driven by a sharp deterioration in expectations for family finances over the next 12 months, a result that Hassan said signaled a new Christmas season.
Crucially for retailers, four in ten households plan to spend less on gifts than in 2022, the data shows.
Money markets are pricing in a less than one in ten chance that the RBA will raise rates again when it meets in just over a fortnight, although stronger-than-expected wages and jobs data released earlier this week will put pressure on the central bank to reach a final decision. increase before Christmas.
While a move in December is uncertain, another rate hike will undoubtedly mean more pain for shoppers and retailers alike.