The road to recovery for Australia’s retail sector has stalled, with positive health not forecast until September 2025, according to the latest KPMG Australia Retail Health Index (RHI).

Between the December quarter 2023 and the March quarter 2024, the KPMG RHI had a rise of just 0.09 index points from -1.57 to -1.48, reflecting a similar small rate of improvement achieved during the final quarter of last year. 

The relative profitability of the retail sector is now well below its long-term average, representing 4.7% of total industry profitability compared to its long-term average of 6.4%. 

Retail turnover at current prices increased by 0.1% month-on-month between March and April 2024 and recorded no growth on a rolling three-month basis for the same period. Once inflation and immigration are considered, sales activity associated with discretionary spending remains well below levels seen 12 months ago. 

This decline in volumes is occurring in a period of extremely high population growth, suggesting spending on an established per household basis is down by approximately 6 to 7% on a year-on-year basis.  

KPMG head of retail and consumer, James Stewart said, “It’s no surprise that retailers have been suffering at the hands of low levels of consumer confidence but, until now high immigration levels had been papering over the cracks.”  

Discretionary categories like clothing, footwear and personal accessories, as well as department stores are all experiencing weak, but albeit still positive, growth in nominal sales revenue for the same period, up 0.4% and 0.2% respectively compared to the same time last year. 

Despite a stabilised wage environment, the recent decision by the Fair Work Commission to increase the minimum wage will put cost pressure back on retailers.  

“The 3.75% increase to the minimum wage will lump pressure back on retailers after a brief period of stabilisation. The flow on effects to award wages will mean the retail sector will be impacted at a time where sales are slow, and half year results for major retailers have been soft,” Stewart said.   

The Westpac Melbourne Institute survey found that half (51%) of consumers consider their family finances to be worse than one year ago and only 31% expecting their financial situation to improve in the next year. 

Some of the government’s budget measures may alleviate some pain and provide a short-term boost for consumers and retailers. 

“Cost-of-living relief measures including the stage three tax cuts and $300 electricity will create some household spending breathing room and ultimately provide some confidence to both consumers and retailers,” Stewart added.