Missed opportunity for a $360 billion retail sector

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Smaller retailers such as Leslie, who lack the pricing power and heavy balance sheets of large chains and lack the clout to stand up to landlords, are struggling the most.

Consumers are cashed in, house prices have risen and unemployment has fallen to its lowest level in 14 years, thanks in part to the fact that borders have been closed for two years.

more pessimistic

However, consumer confidence has fallen in recent weeks and shoppers are more pessimistic ahead of the election than they have been since 1990.

According to the latest ANZ-Roy Morgan survey, consumer confidence around financial conditions has fallen to its lowest level since May 2020, at the height of the first wave of the pandemic.

ANZ’s Australian economics chief, David Plank, believes weak consumer confidence is directly attributable to the rising cost of living. Household inflation expectations hit an almost ten-year high of 6.4%.

Leslie was counting on the budget to find measures that would give consumers the confidence to spend, stimulate the economy over the long term, especially in the regions, and ease the burden on small businesses struggling with rising costs and shortages. labor.

Modest one-time payments of $250 to retirees and welfare recipients, a temporary 22 cents per liter fuel cut and up to $420 in additional tax offsets for low- and middle-income workers this year will help stimulate short-term discretionary spending.

Citi analysts estimate that if the $8.6 billion in donations and savings are spent entirely in retail (doubtful given declining consumer confidence), the splash of cash will increase spending by retail by approximately 1.6% over the next 12 months.

However, these measures are unlikely to fully offset the rising cost of living. If the excise duty cut is passed on in full, gasoline will still be more than 30% higher than it was before Christmas, while the $250 cash handout will barely cover the grocery bill. a week for most families.

Economists have warned that the stimulus, which will boost household budgets by around $11 billion, is likely to fuel further inflation and therefore pressure on interest rates.

Given the temporary nature of cost-of-living assistance, spending is expected to decline in 2023/24 unless the economy is booming and wages eventually start to rise faster than inflation.

“While the cost of living support included in the budget is clearly positive for the consumer, it is probably not sufficient to make a significant difference given the significant cost of living pressures that are building up with the prospect of rate hikes,” Jarden Group chief economist Carlos Cacho said in a post-budget report.

“These pressures could pose a downside risk to consumer discretionary later this year, especially given the expected shift to services spending.”

Digital Technologies

Citi has estimated that households will be $12 billion worse off by 2024 unless new supports and concessions are introduced.

“Combined with the expected reallocation of spending toward travel, this would present challenges for retail,” said Citi analysts Adrian Lemme and James Wang.

The government has also promised $1.6 billion in tax relief to help small businesses go digital and upskill their staff. Small businesses will be eligible for $120 in tax relief for every $100 they spend on training and development or every $100 they invest in digital technologies, such as portable payment devices, cybersecurity systems or subscriptions to cloud-based services.

But if cash flow remains tight, smaller retailers like Leslie, who already sell online and actively market on social media, will be reluctant to shell out more money upfront for digital investments with questionable returns.

Surprisingly, there was nothing in the budget to help retailers deal with some of the biggest challenges in 2021/22 – massive supply chain disruption, the disastrous effects of climate change, chronic labor shortages -skilled labor and declining foot traffic in shopping malls and CBD areas, which have yet to fully recover.

Unfortunately, the government’s much-vaunted $27 billion comprehensive expense program, which allowed businesses to instantly deduct the full cost of eligible capital assets and was intended to stimulate long-term investment to boost productivity and reduce costs, was not extended.

Other key initiatives sought by the Australian Retailers Association in its pre-budget submission, including targeted support for small, at-risk retailers through the reintroduction of programs like JobSaver and the reintroduction of the National Leasing Code of Conduct, also fell into line. deaf ear.

While retailers will no doubt welcome the short-term impact of sugar on spending, the 2022 budget will be widely seen as a missed opportunity for the retail sector. The Morrison government had their eyes on another award.

Sue Mitchell has been covering retail for over 30 years and writes the bi-monthly Window Shopping column. Connect with Mitchell at: [email protected]

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