Roy Morgan’s recently released business address presentation, The Future of Retail, has provided insights for the retail industry in 2023.
The presentation detailed that many expected 2022 to define the conditions of the post-COVID economy, after the end of the large-scale lockdowns.
Laura Demasi, Roy Morgan’s Retail and Consumer Trends Expert, explained: “2022 was supposed to be the beginning of this new normal, but turned out to be anything but, thanks to a set of unprecedented conditions, good and bad.”
2023 is projected to be yet another transition year, with the economy still adjusting to the after-effects of the pandemic. Roy Morgan has undertaken a detailed analysis of the retail industry in the past 12 months, in order to predict just what this means for the retail sector overall in 2023. The situation for retail appears promising, with retail spending up – but population changes and the increased role of the internet are altering the landscape.
Roy Morgan’s presentation noted that retail spending massively increased over the last year, surpassing pre-pandemic spending. Compared to mid-2019, retail spending has risen 25 per cent. Overall spending has also seen an upward trend, driven by people going out after a period of deprivation during the pandemic.
Population growth has meanwhile returned to pre-pandemic levels, with migrants able to enter the country once again. Domestic migration has also increased, with more people moving to regional areas due to rising housing costs. Interestingly, young professionals are settling further away from the city centre than before.
“These are our metro-tech and aspirational helix communities, who are most typically found in urban high density areas, living in apartments. So to see them moving to the suburbs is new, and this will have a lot of implications, including for the type of retail in these areas,” Demasi said.
Another trend came from strong employment, government stimulus payments and lack of spending on travel during the pandemic, which resulted in increased household savings and more disposable income. Use of ‘buy now, pay later’ platforms such as Afterpay and Zipay also surged, seeing consumers making larger purchases than they would if they were to pay upfront.
Online and in-person sales
The online sphere is becoming more relevant than ever to retailers, as Demasi noted in Roy Morgan’s presentation.
“Most of the changes triggered by COVID stuck. Predictably, COVID ramped up time spent online, and this stuck,” she said.
Around half the population spend more than 25 hours online per week, and more than a quarter spend over eight hours per week on social media. This trend is mostly driven by older people, who adopted new technologies during lockdowns and are continuing to use them.
From this, online shopping overall increased, with spending in 2022 increasing 10 per cent on 2021 figures and six out of 10 people shopping online regularly. Young people are turning to online shopping in greater numbers and more often, while older people also using online shopping avenues in more significiant numbers.
Consumers still made 1.3 billion trips to bricks and mortar retail stores (of all industries) in 2022, returning to pre-COVID levels. Roy Morgan does note that spending in the wider bricks and mortar has steadily decreased over the past decade though.
Additionally, in-person shopping has been affected by working from home, as one third of workers in Sydney and Melbourne still work from home at least some of the time. As a result, retail hubs in the CBD have boomed more on the weekends than they did in the past, with suburban outlets receiving increased weekday traffic.
Businesses that operate both online and in bricks and mortar establishments are therefore proving particularly successful. Omnichannel businesses represent almost half of the total money spent online and are well-trusted by consumers.
Business and consumer confidence
Business confidence is high for medium- and large-scale businesses, as retail sales are currently ahead of inflation. It may seem that rising inflation and the recent rapid increases in retail spending are a recipe for disaster. However, Roy Morgan does not predict a sharp drop in sales. Instead, the analyst believes it is more likely that there will be a gradual decline in retail spending to match inflation, with a slight dip below inflation in the next year.
Conversely, consumer confidence has plummeted, and mortgage stress is on the rise.
“Driven by record inflation and the highest interest rates we’ve seen since 2012, following 10 consecutive monthly rate rises, the Roy Morgan mortgage stress indicator has increased it its highest since April 2012, with 24.9 per cent of mortgage holders now at risk,” Demasi described.
Even so, retail remains the most trusted industry among Australian consumers. In fact, retailers are almost entirely absent from Roy Morgan’s most distrusted brands list. This is likely due to the role that retailers played in keeping consumers fed, clothed, and entertained during the lockdowns.
Doubtlessly, there will be challenges for retail as the economy adjusts to the post-COVID reality. But while there is still a level of uncertainty in this transitional period, Roy Morgan notes that retail has seen success over the last two years that looks likely to continue.