Australian Retailers Poised for a Boost in 2025
Interest Rate Cuts Expected to Fuel Consumer Spending
As the Australian economy gears up for an expected interest rate cut in 2025, discretionary retailers are likely to reap the benefits. With shoppers expected to loosen their purse strings, retailers of non-essential items such as electronics and footwear are set to thrive.
Tax Cuts and Consumer Confidence Drive Retail Spending
The latest data reveals a strong uptick in retail spending, driven by tax cuts and robust consumer confidence. This trend is expected to continue in 2025, as the Australian central bank begins to ease interest rates. According to Stella Ong, market analyst at Superhero, “rate cuts will undoubtedly be the largest factor investors will be looking at for the retail sector next year.”
High Inflation and Borrowing Costs Take a Toll
Over the past two years, consumers have been cautious with their spending due to high inflation and 13 cash rate hikes. This has eroded their buying power, hitting retailers hard. However, with interest rates expected to fall, consumers are likely to regain their confidence and start spending again.
Retail Spending Rebounds, Boosting Share Prices
Investment research firm Morningstar notes that Australia’s retail spending is rebounding, reflected in the buoyant share prices of cyclical retailers. This suggests that consumers are engaging in higher discretionary spending, a trend expected to persist in the near term.
Easing Monetary Policy to Support Consumer Spending
Citi analysts are optimistic about the performance of retailers in 2025, citing steady interest rates, tax cuts, and a strong labour market as key drivers of consumer spending. Electronics retailer JB Hi-Fi and clothing retailer Universal Store have already seen significant gains, with their share prices rising by 83% and 88.7%, respectively, over the past year.
Niche Retailers Thrive
Grady Wulff, market analyst at Bell Direct, notes that discretionary stocks with niche target markets, such as Universal Store, have performed exceptionally well. JB Hi-Fi’s strong sales, driven by the booming AI market, have also fuelled expectations of better-than-expected earnings.
Lower Borrowing Costs to Aid Economic Activity
The Reserve Bank of Australia’s potential move to lower borrowing costs is expected to boost economic activity and consumer spending, further supporting the performance of non-essential companies. Wulff predicts that retailers may face subdued earnings growth in the first half of 2025, but an uplift is likely when interest rate cuts enable greater discretionary spend in the latter half of the year.
Attractive Picks for Investors
Non-essential majors such as apparel retailer Accent Group and jewellery brand Lovisa have posted double-digit share price growth this year. Their unique and niche product offerings make them attractive picks for investors, according to Wulff.
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