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Seeing Red: Retailers Set to Struggle as Holiday Spending Slows

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by Tom Youl
Dec 10 2019

Industry research company IBISWorld anticipates that consumers will be cautious with their gift shopping this festive season, with Christmas spending only forecast to grow by 1.7% in 2019 compared with 2018.

According to IBISWorld, the rising cost of living and declining household discretionary incomes are likely to weigh on consumer sentiment this Christmas. These trends are driving consumers to become more aware of discounts on the items they plan to purchase as gifts. Consumer awareness of online shopping discounts is dramatically shifting the retail landscape, with a greater share of consumer purchases being driven by sales on Black Friday and Cyber Monday, rather than Boxing Day.

‘Australians love a discount, which is becoming even more prominent due to the transition towards online retail,’ said IBISWorld Senior Industry Analyst Tom Youl.

Weak Christmas boost

The struggling Consumer Goods Retailing subdivision is expected to continue to face challenges over the current holiday period. In 2019, retail expenditure over the Christmas period is anticipated to increase by a modest 1.7% from the previous year. The forecast is even bleaker for the month of December, with growth of only 1.4% expected in 2019.

‘Although November sales may provide a boost to the Online Shopping industry and omnichannel retailers, weak economic conditions are expected to constrain overall growth in Christmas spending,’ said Mr Youl. IBISWorld analysis shows consumer sentiment is expected to fall by 4.6% in 2019-20, while household discretionary income is expected to decline by 0.7%. As a result, IBISWorld expects the consumer goods retail sector will decline in the current financial year.

‘Weak wage growth has severely limited households’ ability to spend on discretionary items over the past five years. Although multiple reductions in the cash rate and federal tax cuts aimed to boost consumer expenditure, most households are using these extra funds to pay off debt or increase savings. The interest rate cuts may have alarmed consumers, prompting a fall in consumer confidence and further depressed retail expenditure,’ said Mr Youl.

Spending trends

IBISWorld analysis indicates that retail expenditure across most consumer goods sectors has been shifting from December toward November. This change has steadily occurred over the past five years, and is expected to continue in 2019-20.

‘Consumers appear to be purchasing Christmas gifts earlier in November, likely to avoid busy outlets leading into the Christmas period. In addition, Black Friday and Cyber Monday have tapped into strong consumer demand for pre-Christmas sales,’ said Mr. Youl.

Data from Australia Post shows consumer purchases rose by 24% in 2018, while retail store traffic declined by over 20%.

‘Consumers have increasingly demonstrated a preference to avoid busy retail stores and shop from the comfort of their own homes. In a worrying sign for store-based retailers, Christmas retail expenditure on consumer goods increased by only 1.8% from 2017 to 2018. This modest growth came despite Black Friday and Cyber Monday online sales growing by 28.7% over the year,’ said Mr Youl.

Outlook

IBISWorld expects negative consumer confidence and changing consumer purchasing habits, such as the shift toward November shopping, to make December 2019 a particularly challenging month for store-based retailers.

‘Store-based operators with online sales channels will likely fare well this holiday season. Although November sales events have been a boon for consumers, Black Friday may contribute to many retailers falling into the red this December,’ said Mr Youl.

IBISWorld reports used to develop this release:

For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647 Email: jason.aravanis@ibisworld.com