This quarter's Australian Retailing conclude finds that there has been a retail revival thanks to tax cuts and jobs.

Our analysts forecase a broad rebound in retail spending from fiscal 2025 - and that is owing to a larger workforce, higher wages and meaningful tax cuts. 

The Reserve Bank of Australia's next moves and households' consumption restraint are the key wildcards to our analysts' forecasts. Significant interest rate cuts could support consumer sentiment and present upside risk to their near-term outlook. By contrast, an uptick in the savings rate - as forcase by the Reserve Bank of Australia but not by Morningstar - is a key downside risk. 

Trading momentum for nonessential goods is already picking up. So far in fiscal 2025, sales growth is improving at Super Retail's SUL chains and Woolworth's Big W discount department stores. Sales momentum is also strengthening at electronic goods retailers JB Hi-Fi JBH, Harvey Norman HVN and Kogan KGN. 

However, an outlier is Wesfarmers-owned WES Bunnings due to sluggish housing construction. Inflation is no longer boosting food sales of defensive grocers, with growth mostly relying on higher volumes. Rising costs at supermarkets are also weighing on operating margins. Hourly wages are up 4%, and supermarkets are investing heavily in modernising logistics and online fulfillment. Supermarkets also face heightened public scrutiny. The Australian Competition and Consumer Commission (ACCC) alleges that Woolworths WOW and Coles COL breached consumer law by misleading claims about discounts. However, we don’t expect a material impact on our valuations from potential fines.

Retail report graph

Source: Company filings, Morningstar. Note: Kogan, JB Hi-Fi, The Good Guys, and Harvey Norman second half fiscal 2024 sales growth compared with July 2024 trading; BCF, Rebel, Supercheap Auto, Myer, and Accent compared with first seven weeks of fiscal 2025; Big W, Officeworks, Kmart, and Bunnings compared with first 8 weeks (top). Data as of Oct. 1, 2024. Note: P/FVE<1 is undervalued, and P/FVE>1 is overvalued (bottom).

The rest of the Australian Retailing report explores the online outperformance of retail, lower rates being the next catalyst and Morningstar's top picks and industry coverage. The full report can be found on Morningstar Investor by subscribers, or taking out a free, four week trial.^

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