The link provides a presentation associated with a webinar we held. The webinar addressed our retail sales forecasts for 2026. We addressed the outlook for the Australian retail sector in 2026 and beyond. The sector had a strong finish to 2025 but the outlook is more hazy with risks to both sales momentum and gross margins emerging. 

In our view, the Australian retail sales cycle just passed its peak in the December 2025 quarter at 6% growth. We forecast retail sales growth of 4.5% in 2026. While a moderation from the recent peak, without further house price growth, households will be less willing to use their savings to drive retail spending. Our forecast of 4.5% growth is just below long-term trends. While interest rate movements will be topical, unless there are multiple rises, the shift in the Australian dollar and house prices will be more impactful on retail spending than any rate rise itself.

Australian retail sales growth has been on an improvement path since March 2024. Retail sales growth for FY25 was 3.3%, better than the 1.8% in FY24. We see retail spending accelerating further to 3.9% in FY26e. Why not a stronger improvement given interest rate cuts? Given tax cuts and strong wages growth during FY25, income growth will actually slow in FY26e making it hard to see much acceleration in retail sales. If retail growth is stronger than our forecast in FY26e, it is likely driven by households dipping into savings if house prices rise substantially.

Australian retail sales growth finished 2024 better than where it started, and the good news is we are likely to see a stronger growth rate for 2025. We forecast 3.6% retail sales growth this year, up from 2.6% in 2024. We see a stronger recovery in non-food retail, particularly household goods. While a good year, much of the support to spending comes from tax cuts and rate cuts, making it hard to see further gains beyond June 2026. Moreover, geopolitical risks (both positive and negative) feel larger this year. Both retailers and investors should have contingency plans.

We have updated our retail sales forecasts, which are modestly higher in FY25e and slightly lower in FY26e. We forecast FY25e retail sales growth of 3.2% (prev 2.9%) and the largest driver of our revisions is stronger non-food online sales growth. A retail recovery is underway, because this year has unquestionably strong household income growth, which sets a solid base for retail spending. However, households have a low savings rate, which detracts from the upswing. We expect a more notable pick up in household goods and online with softer sales in dining out for FY25e.

Our view on retail sales is more positive over the next six months, but more cautious on calendar 2023. While the “fear” of higher interest rates makes headlines, the reality is the impact takes more than a year to show through as weaker spending. Near-term, higher wages, stored up savings and retail price inflation will support sales growth. We forecast retail sales to rise 3% in FY23e, down from 6% growth in FY22e. We expect FY23e household goods sales to fall 2%. Electronics, furniture, hardware will find it most difficult given the high baseline. Supermarkets should do well with food inflation driving 6% growth in FY23e. Two important swing factors are savings and inflation. A drop in savings to pre-COVID levels will help spending and inflation will partly offset lower volumes.

Australian households and companies have not dealt with an interest rate increase for more than 10 years. However, higher rates are imminent. In Issue 3 of The Retail Mosaic, we assess the impact that higher rates may have on spending, company earnings and share prices. It takes, on average, 18 months for a rate hike to impact spending, but for furniture it can be in as little as six months. We expect housing churn will slow as rates rise, placing further downside risk on household goods. Retailers have limited debt and some hedging that will moderate the earnings risk from higher rates. However, PE ratios could derate by 10-20%, particularly for high PE defensive stocks such as supermarkets and conglomerates.