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Consequently, household budgets are being altered across the country to tighten spending and temporarily alleviate financial pressures. This can also be seen in the business environment, with redundancies and the cut back of discretionary spending.
The recent Federal and State Budgets have focused on how cost-of-living pressures can be eased for Australians, with strategies such as Stage 3 Tax Cuts, energy rebates, and lower public transport costs to name a few. The focus on cost-of-living relief for Australians means there is potential for more discretionary spending in households across the country.
So, how will these announcements affect the retail sector and impact the industry? Retailers need to be agile and adapt to consumer spending patterns through implementing innovative strategies and focus on customer-centric and personalised approaches as we navigate uncertain economic currents.
In Australia, the current economic impacts of rising costs have seen the retail sector slow down. According to MST Marquee, the tax cuts announced in the Federal Budget could lead to a $25.6b injection into households as they’ll pay lower taxes on their income each week.
While some of this money will be put towards increased costs such as higher rent or insurance bills, retailers should expect a gradual improvement in sales through FY25 depending on overall sentiment throughout Australian households. Retailers can cautiously anticipate a recovery in sales.
The changes in spending will be gradual and retailers may expect to see the impacts of those changes. Tax cuts work like interest rates, taking time for the money to flow through to the economy. Unlike payments such a JobKeeper that we saw during COVID-19, tax cuts take some time to translate into discretionary spending within the economy.
Currently, the retail sector is slowing – only modestly growing at about 1 per cent. The tax cuts from 1 July are proposed to increase spending to 1.4 per cent and despite the tax cuts being higher for people earning $135,000 or more, every household is likely to see some positive effects.
With the above knowledge, retailers should try and optimise their sales strategy. For retailers to make the most of this period they should look at strategies for inventory management, promotional tactics, and the trend towards value shopping particularly in the following areas:
Additionally, they should consider leveraging data analytics for customer insights, fostering loyalty programs, and exploring omnichannel retailing to further capitalise on the anticipated uplift in consumer spending.
Grant Thornton has the expertise to help retail businesses navigate headwinds in the industry – from supply chain and logistics to digital transformation – retail is in our DNA. Our Management Consulting team can provide hands-on support with regards to strategy and sustainable growth. If you’d like to discuss your retail business with the team, please reach out today.
Grant Thornton Partner Richard Bycroft and Senior Analyst at MST Marquee Craig Woolford explore this topic in more detail here:
