With interest rate rises expected to put the clamps on household spending in 2023, Australian retailers need to prepare for two futures, according to the latest retail forecasts from Deloitte Access Economics.

“What was seen as a risk to retail sales in the first half of 2023 became a reality for retailers in the December quarter of 2022,” Deloitte partner and report author David Rumben said. 

“We’re entering a period where higher interest rates will take a chunk out of disposable incomes for consumers and increase the proportion of mortgage holders at risk of mortgage stress. Unsurprisingly, this has stoked consumer caution with sentiment diving with the RBA’s latest rate hike.”

He said one future is here now where consumer sentiment is weak and retail sales in real terms are going backwards. “That was the reality of the final quarter of 2022, and much of 2023 may see a similar environment. However, the other future is a brighter one with migrants and tourists back in big numbers and consumers regaining spending power,” he said.

Non-food sectors are forecast to experience the brunt of the retail slowdown as consumers prioritise non-discretionary items, with real non-food sales expected to see a contraction of around 3.0%.

Further declines in department store sales volumes are anticipated in the first half of 2023 and only very modest growth in the second half, reflecting growing consumer concerns over household budgets. Discount department stores are expected to see some benefit from the shift in consumption patterns as consumers seek cheaper options, Rumben said.