23 March 2018: Population ageing will be (and probably has already been) a drag on retail spending. As the overall population gets older, the average Australian will be a lower spender than they used to be. The overall impact on retail spending, though, will be partly offset by the rising number of people in the 65+ age group. And that provides some opportunity – growing numbers of people in the 65+ age cohort, which has historically complained it is ignored by retailers.
All major categories of spending lose out as people get into their senior years, yet some do relatively better than others. Not surprisingly, health spending holds up pretty well as people age, although only a small portion of this is retail-related. From a retail perspective, the biggest losers from population ageing are food and clothing retailers.
The silver lining is that retirees are richer than they used to be, so the market for retiree retail spending is getting bigger – in terms of both the number of consumers and their wallet size. We can expect that to continue, with retiring baby boomers having done very well out of the share market, and especially the housing market, over their lifetime.
Key changes since last issue
Retailers report that business conditions remained below average in late 2017 and into early 2018. This is in stark contrast to most other industries, where conditions are strong. And little wonder. Consumers have been wearing very low growth in incomes for the past few years, and have had to reduce the amount they save from their weekly salary to fund growth in their spending. And retailers’ pricing power has been low – which is reflected in very low consumer price inflation in discretionary goods and services.
Wage growth may have stopped falling, but it is still weak. Wage price growth is currently sitting just above record lows at 2.1% over the year to December.
Consumer prices are growing slowly as well, at just 1.9% over the year. But in the retail sector, price growth actually went backwards over the course of 2017. The prices of household goods and services fell 0.8% over the year to December, clothing and footwear prices tumbled by 3%, and food prices were broadly flat, dipping by a slight 0.2%.