We have made modest revisions to our retail sales forecasts. For FY26e, we forecast retail sales growth of 4.0% (prev 3.9%) and for FY27e 4.1% growth (unchanged). Non-food retail spending has been solid in the past six months and the trends are likely to continue into Christmas this year. However, we may see some shift in category performance in the new year as household goods slow, while fashion and takeaway food sales improve. Our upswing in retail sales is muted, which is a function of slowing household income growth and a low savings rates. We continue to monitor house prices closely as a source of upside risk if the wealth effect stimulates the use of previously stored-up savings.

The Australian grocery industry has returned to sluggish growth with challenges in both top-line sales growth and bottom-line cost pressures.  This chart pack addresses the risks and opportunities ahead for the Australian grocery industry. The presentation has three sections. 1) Consumers have more money to spend but will remain budget-conscious. 2) Retailers are struggling to deliver sufficient growth. 3) Volumes are weak, so where are the opportunities?

We have updated our forecasts for the Australian retail sales outlook. Despite significant global uncertainties created by US tariffs, Australian consumers have taken it in their stride. We forecast retail sales growth for 2025 of 3.4% (prev 3.6%). Our downgrade in growth is only for supermarkets and liquor with softer volumes and price inflation. Non-food retail has started the year strongly, particularly in household goods and online. The strength in retail sales is largely attributable to strong household income growth and the drivers of this elevated growth will be difficult to sustain given the magnitude of recent tax cuts and outsized population growth. A better backdrop would require consumers to save even less. We expect sales growth of 4% beyond 2025.