The KPMG Retail Health Index indicates that the recovery in the retail sector has stalled

KPMG Australia’s latest Retail Health Index (RHI) shows the road to recovery for Australia’s crisis-ridden retail sector has stalled, with no recovery forecast until September 2025.

Between December 2023 and March 2024, the KPMG RHI saw an increase of just 0.09 index points from -1.57 to -1.48, reflecting the similar modest pace of improvement achieved in the final quarter of last year.

The retail sector’s relative profitability is currently well below the long-term average, accounting for 4.7% of the industry’s total profitability compared to the long-term average of 6.4%.

KPMG retail health index, facts and forecast

Immigration is no longer the saving grace for discretionary retailers

Retail turnover at current prices increased by 0.1% month-on-month in the period March to April 2024, and during the same period it recorded no growth on a three-month rolling basis. After adjusting for inflation and immigration, sales activity related to discretionary spending remains well below levels seen 12 months ago.

This decline in volumes comes at a time of exceptionally high population growth, suggesting that spending per household has declined by approximately 6-7% year-on-year.

KPMG’s director of retail and consumer, James Stewart, says: “It’s no surprise that retailers are suffering from low levels of consumer confidence, but until now high levels of immigration have papered over the cracks.”

Discreet retailers suffer losses while food remains resilient

Discretionary categories such as clothing, footwear and personal accessories and department stores are seeing weak, though still positive, growth in nominal sales revenue over the same period, up 0.4% and 0.2% respectively compared to the same period last year year.

Food retailers remain strong, however, as cafes and restaurants and takeaway food retail saw 2% growth and general food retail saw a nominal spend increase of 1.9% compared to the same three-month reference period in 2023.

Wage stabilization is a temporary relief

Both the accommodation and food services and retail sectors saw stabilizing annual increases in total hourly wages excluding bonuses, with each sector seeing annual wage growth of 4.4% and 4%, respectively, in March 2024.

Stabilizing wage growth in both sectors continues to reflect weaker labor demand, although employment in the accommodation and food services and retail sectors increased by 3.5% and 1.7%, respectively, between November 2023 and February 2024 .

Despite an increase in total employment in these two sectors, the number of job vacancies recorded a decline of 8,000 positions to be filled in the three months to February 2024.

KPMG chief economist Dr Brendan Rynne says: “Importantly from a wage growth perspective, there are still around 40,000 fewer people employed in both sectors compared to employment levels in mid-2023.”

Stewart said that despite a stable wage environment, the Fair Work Commission’s recent decision to increase the minimum wage would again put cost pressure on retailers.

“The 3.75% minimum wage increase will again increase the pressure on retailers after a short period of stabilization,” he said. “The impact on the award of salaries will mean an impact on the retail sector at a time when sales are weak and the half-year results of major retailers are weak.”

The key to regaining consumer confidence

The continuation of current financial problems for many households continues to negatively impact consumer confidence, according to a Westpac – Melbourne Institute study, 51% of consumers believe that their family finances are worse than a year ago, and only 31% expect improvement their financial situation in the following year.

Stewart says some of the federal government’s budgetary measures could ease some pain and provide a short-term boost to consumers and retailers.

“Cost of living measures, including Stage 3 tax cuts and $300 electricity, will create some respite in household spending and ultimately provide some confidence for both consumers and retailers,” he said.