Consumer goods retailers set for tough year ahead: Report

Consumer goods retailers can expect revenue to decline by 0.6% in 2012-13, according to a new IBISWorld report, amid rising unemployment and unstable consumer sentiment levels.


The report, titled Consumer Goods Retail in Australia, said consumer goods retailers have faced a “mixed market” over the five years through 2012-13.


According to the report, consumer goods retailers were initially aided by growth in disposable incomes, low interest rates and declining unemployment.


“However, the later part of the period has presented a volatile market for operators, characterised by fluctuating income, rising unemployment and unstable consumer sentiment levels,” it said.


“Growth in interest rates and a downturn in the domestic economy, following the collapse of global financial markets in 2008, led to a tense time for players.”


“Overall, revenue is expected to decline by 0.9% per annum over the five years through 2012-13. This includes a decline of 0.6% in 2012-13 to a total of $123.9 billion.”


In addition to subdued trading conditions, the report said consumer goods retailers will face a tough market due to uncertainty surrounding future trends in unemployment and interest rates.


“Retail spending will also be affected by debate over the full effect of the carbon pricing scheme,” the report warned.


Not surprisingly, the report said the consumer goods market will also be negatively affected by a rise in the number of consumers choosing to shop online.


Forecast growth in disposable income will be the “backbone of the recovery” of the consumer goods market in the next five years, the report said.


“Incomes will follow an upward trajectory over this period, supported by solid economic growth. Disposable incomes will also be boosted by rising wages,” it said.


“The retirement of baby boomers and resulting demand for new skilled workers will place upward pressure on wages, which is expected to extend to at least 2025.”


“Growth in disposable incomes will aid demand for higher priced merchandise and broaden the range of goods available to consumers on limited budgets.”


However, the report said overall demand for consumers goods will be affected by fluctuations in the consumer sentiment index, and an expected upward trend in the national unemployment rate.


“Consumer sentiment is forecast to increase in the two years through 2013-14 before trending downwards,” it said.


“An expected upward trend in the national unemployment rate, from 5.2% in 2012-13 to 6.2% in 2017-18, will have a notable effect on demand for consumer goods over the next five years.”


“The rise in unemployment will spell trouble for retailers as more consumers will be living on reduced incomes.”


The report comes on the back of the latest Commonwealth Bank Aussie Dollar Barometer, prepared every three months and based on a survey conducted by East & Partners.


For the August 2012 edition of the barometer, East & Partners interviewed almost 900 businesses turning over at least $5 million per year.


According to the barometer, businesses expect the Australian dollar to slowly depreciate next year, but predict some strength over the coming months before the 2013 downward drift.


Importers are more optimistic about the Australian dollar than exporters, the barometer shows.


“The average importer expects AUD/USD to be at $1.06 by December 2012. By contrast, exporters expect the AUD/USD to be at $1.04 by the end of December.”


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