Retail growth hits 20-year low but tipped to recover

A new report reveals the retail sector is set to recovery slightly over the next year, after recording its worst level of growth in 20 years.

According to a report by Deloitte Access Economics, titled Retail Forecasts, retail sales are expected to grow by just 1.3% by the end of the financial year.

However, that figure is expected to double next year as high levels of household savings give consumers more confidence to spend.

Deloitte partner David Rumbens says this financial year has been extremely tough for retailers for a range of reasons.

“In part, it’s the lift in interest rates that we saw last year that has both cut into incomes and cut confidence,” he says.

“In part, it’s due to house prices having peaked and now are starting to turn down, [which] has also cut confidence and the willingness to spend. So those factors are contributing to what is a pretty weak retail environment.”

The report states that if consumers were to start “throwing caution to the wind” – and started saving less as income growth picks up – then retail growth could suddenly look “very handsome” again.

“But let’s not get ahead of ourselves. For now, saving has become a habit,” it says.

However, the report indicates the outlook is not all bad news, with the resources boom seen as a major generator of jobs, wage growth, profits and government revenues.

“By financial year, we expect real retail sales to record 1.3% growth in 2010-11, which would be its worst financial year result in two decades,” the report says.

“However, job and real wage gains, along with a levelling out in the household savings rate, is expected to help real retail growth lift to 2.2% in 2011-12 and 3.3% growth in 2012-13.”

On a state-by-state basis, resource-rich WA now tops the retail growth ladder, led by a surge of retail sales in the March quarter, “when much of the rest of the country was subdued.”

Victoria has moved down into second place, with sales growth far more modest as housing prices fall. Other states are also showing modest growth, except for South Australia and Tasmania where retail sales are in freefall.

“Looking forward, Queensland may well see a retail rebound later in 2011, linked to flood reconstruction and as domestic tourism resumes,” the report says.

“The high Australian dollar will continue to make life interesting for those retailers exposed to international tourists, while higher interest rates will keep retail spending in check through the mortgage belts of Sydney and Melbourne.”

“All up, while retail should lift in most states over the next two years, it is Western Australia and Queensland, which look [like] the standout prospects given they have the strongest exposure to the resources boom.”