The 2014/15 financial year saw solid retail sales growth, however in the year ahead retailers are faced with something of a mixed bag of economic positives and negatives, according to Deloitte Access Economics, which has noted retail spending may suffer some collateral damage as housing market risks take hold.Deloitte noted while 2014/15 saw retail sales growth of 4.7 per cent over the year to June, the economy is faced with a number of pressures, including mining investment and commodity prices declining, in turn limiting jobs and income growth.
With interest rates reduced to a record low in May, Deloitte noted factors have combined to the favour of the housing market, with household goods retailers, where growth has been running in the double digits, among the beneficiaries.
“Rate cuts, a shortage of housing supply, and increasing foreign investment from China directed at property have turned out to be just the right fuel to again fire up the housing market,” Deloitte stated.
“The biggest impact has been seen in Sydney and Melbourne where house prices jumped to new highs in winter. Those housing gains are one important factor that has supported stronger retail spending growth of late.”
Low interest rates and the housing market, however, won’t be able to support retail spending indefinitely, with Deloitte noting the longer housing prices climb, the more likely the eventuality of a correction or levelling off in prices as underlying fundamentals kick in.
“In particular, as the support provided by low interest rates and rising asset prices begins to subside and the labour market remains patchy as a driver of household income growth, retail growth may moderate from its current level,” Deloitte stated.
“Extreme share market volatility over recent weeks won’t help, both by undoing some of the wealth gains seen earlier, and in keeping consumer confidence in pessimism territory. The fall in retail sales seen in the month of July reflects these pressures.”
Inflation-adjusted retail sales growth came in at 3.3 per cent for 2014-15, the best financial year retail outcome since 2007-08, however Deloitte sees 2014-15 as the peak of the cycle for retail, with sales growth moving down to 2.7 per cent in 2015-16 and 2.4 per cent in 2016-17.