Australian retailers are facing tougher times, with a slowdown in spending growth as well as structural changes occurring in the sector.

The slowdown facing the retail industry was acknowledged by the Reserve Bank governor, Glenn Stevens, in a speech given yesterday (26 July) in Sydney. He noted that, despite the fact that increase in household income has sped up over the past three years, Australian household spending has in fact slowed down.

“In per capita terms, real consumption today is no higher than three years ago. It’s no wonder that people are talking about consumer caution, and no wonder that retailers are finding things very tough indeed. Coming after a period in which real consumption had risen by 2.8% a year for a decade, and had outpaced income growth for two decades, no net growth in consumption for three years is quite a big change.”

Meanwhile, separate research has shown a strong structural trend towards growth in online shopping sales, which is having a structural impact on the retail sector. The research, conducted recently by Frost & Sullivan and PricewaterhouseCoopers on Australian and New Zealand online shopping, found that online retail is expected to grow at least twice as fast as the growth rate for the total retail market in the next four years. Incentivised by lower prices, convenience and the strength of the Australian dollar, Australians are expected to expend over A$13.6bn (US$14.9bn) on online shopping in 2011, a growth of 13% from the expenditure in 2010.

The research did acknowledge that non-food retail sectors – clothing, footwear, electronics and gaming, cosmetics and books – are more vulnerable to offshore online retailing than the food sector.

However, the food retail sector is also expected to experience a slowdown in growth. Yesterday, the Australian Food and Grocery Council (AFGC) released its quarterly CHEP Retail Index on the performance of the Australian retail market. The index provided an indication of retail activity and forecast trends in the retail sector based on the physical movement of products throughout Australian supply chains.

The AFGC CHEP Retail Index forecast 1.5% growth in retail trade year-on-year for the quarter ending 30 September.

The index estimated that growth would slow in August, falling to 1.9%. In June, the index increased 3.2% year-on-year.

AFGC chief executive Kate Carnell said the latest index reflected weaker consumer confidence.

“A fall in retail spending translates to fewer movements through Australia’s long supply chain, impacting upon the food and grocery manufacturing sector, which is already under pressure from a perfect storm, such as rising input costs from wages, water and energy power prices, higher transport costs, including fuel, and near record high global commodity prices.”

The Australian retail sector is also awaiting the release of the draft report by the Productivity Commission on its public inquiry into the “Economic Structure and Performance of the Australian Retail Industry”, which is due in next month.

The report is expected to address the current competitiveness of the Australian retail sector in light of the structural changes brought about by the rise of online shopping. It is expected that the Productivity Commission will also review the appropriateness of current tax arrangements and explore the option of introducing a Goods and Services Tax on online retail imports.