On Tuesday, the Reserve Bank of Australia (RBA) announced a much-anticipated interest rate cut of 0.25 per cent – the third interest rate cut of 2025, and one that has been welcomed by the retail industry.
With the rate cut taking the cash rate to 3.6 per cent, the Australian Retailers Association (ARA) has described the decision as a vital confidence boost for the sector’s recovery, and expects the lower interest rates to encourage much-needed discretionary spending.
ARA Chief Executive Officer, Chris Rodwell, says: “While the interest rate cuts have taken time to land, every reduction helps nudge us towards a brighter outlook for retail. This rate cut will help bolster confidence in the lead-in to the peak season.
“There are two clear messages that stem from this decision. First, given retail growth and consumer confidence remain subdued, it’s vital the RBA remain open to further cuts in 2025. Second, it’s critical the banks act now to pass on the full rate cut.
“With one-in-10 Australians employed in retail, we need our $430 billion sector to lift. A stronger Australian economic trajectory can’t happen without a retail recovery.”
Paul Hinds, MD APAC for Circana, agrees that the RBA’s rate cut creates a more positive outlook for retailers, stating: “While the broader macro-economic outlook remains difficult to predict, this decision will add confidence to the market that whilst slow, the economy is recovering.”
The latest insights from Circana have revealed the changing ways in which Australian consumers are shopping, and although spending is driven largely by essential purchases, it is showing positive growth.
As expected, essential sectors such as grocery and pharmacy have maintained strong sales and growth, particularly as Australian consumers prioritise health and wellness, but Circana also highlights modest growth in the liquor sector. Year on year, liquor sales have grown by 1.3 per cent, and by three per cent over two years.
Alistair Leathwood, Circana’s Head of Media Analytics and Insights, said: “The current global economic outlook is the most uncertain it’s been since the pandemic, and we are seeing the direct effects in how Australians are shopping.
“Whilst there is growth, it is largely moderate and focused on essentials, as Australians try to balance slow income growth and increased costs.
“There are two ways to look at the current situation – glass-half-full or glass-half-empty. Brands that meet consumers where they’re at today, while taking active steps towards the future, will ultimately emerge stronger.”
Circana forecasts a more positive economic outlook for the retail sector in 2025-2026 as businesses respond to evolving consumer needs, and as a result of lower interest rates, but Rodwell says this is only part of a bigger picture.
“Retailers have been battling higher costs of doing business across the board – rents have spiked, we’ve seen significant wage rises, along with higher energy, insurance and supply chain costs and unfortunately an intense retail crime wave,” says Rodwell, and he also noted increased global ecommerce competition.
“On top of these challenges, businesses are tied up in regulatory reform, navigating the biggest set of workplace changes in decades. Many small businesses simply don’t have the resources to cope.
“That’s why Australia needs to see a bold agenda on productivity and red-tape reduction. It’s vital we remove barriers to growth and strengthen the resilience of our local retailers who contribute almost one fifth of our national gross domestic product.
“Retail plays a critical role in employment, providing jobs for 1.4 million Australians. As the country’s largest private sector employer, retailers need confidence to invest in their businesses in the months ahead,” he said.
“We stand ready to support the Federal Government with its productivity and economic reform agenda. And we urge the RBA to stay vigilant to opportunities to provide further relief and help ignite the economic recovery Australians so desperately need,” Rodwell concluded.