Industry Insights – The Retail Recovery: Challenges, Prospects, and Preparation for 2025

Industry Insights – The Retail Recovery: Challenges, Prospects, and Preparation for 2025

2024 has been another lacklustre year for retail so far, much to the disappointment of retailers. Cost of living pressures have meant that consumers have made a number of spending trade-offs, mostly at the expense of discretionary retail categories.

What are the biggest challenges for retailers now?

The biggest challenge for retailers has been sluggish consumer demand. Consumer caution when it comes to spending has been around for some time now – since the latter half of 2022 – and there is still considerable uncertainty about when a retail recovery appears on the horizon.

This has undoubtedly hit some retailers more than others. Retailers providing discretionary goods or services have felt the pullback in spending much more strongly (evidenced by exceptionally weak sales in Household goods) while others like food retailers have seen more resilient sales. This has made it hard to appropriately plan business strategy – particularly in an environment when consumers are looking to save where possible.

 

Should retailers be looking forward to a recovery in 2025?

There are a few key factors which is setting up 2025 in better stead than 2024. Real wage growth has finally returned after falling away during the latest inflationary period and should give consumers back more purchasing power next year. Tax cuts this year will also help – though a question remains about how consumers will spend that extra cash when they get it.

And importantly, cost of living pressures should ease towards the end of 2024 and through 2025. Inflation is expected to slowly (but surely) come down, which may provide some confidence to the RBA that it is time to cut rates – particularly if consumer spending remains muted for the rest of the year.  

 

Michelle Shi, Senior Economist, Macroeconomic Policy & Forecasting – Deloitte Access Economics

What can retailers do to prepare for 2025?

Retailers should be going into the home stretch of 2024 with a slightly brighter outlook for 2025 – being prepared for better conditions will make it substantially easier to stay competitive in 2025 than preparing for the worst. 

But, retailers should be prepared for a competitive market in 2025. Even if broad consumer caution starts to fade, consumers will still be picky on what exactly they spend on – particularly with so many options between different types of retail products, and non-retail spending avenues like travel. Retailers will need to continue asking the hard questions about their own offerings, their customers and their strategies to make the most of 2025.


See Michelle speak more about this topic at her session on Sunday 4th August from 10:00am at the Retail Therapy theatre located on the Reed Gift Fairs show floor.