Cost pressures and global uncertainty temper retail outlook

According to the Westpac–Melbourne Institute survey, consumer sentiment increased 0.5% from 92.1 to 92.6 in June 2025. The slight increase was supported by positive news around inflation; however, this was largely offset by ongoing concerns around international trade uncertainty and softer domestic growth. This effectively continues the trend seen through the second half of 2024, where consumer sentiment remained subdued, bouncing around the early-to-mid 90’s range and firmly in pessimistic territory. While financial markets have largely priced in an interest rate cut, offering some short-term optimism, any meaningful recovery in sentiment is likely contingent on further easing in the second half of 2025.

For retailers, trading conditions remain challenging. Cost pressures are persistent while revenue growth remains sluggish, as consumers balance a desire to spend with ongoing caution about external economic impacts. In this context, the upcoming EOFY sales period may present an opportunity for retailers who are able to offer highly targeted and bespoke product offerings. Leveraging analytics to better understand consumers will likely be critical to unlocking discretionary spending in the current environment.

The most recent ABS retail sales data recorded a slight 0.1% decline in April 2025, with the warmer-than-average start to the month delaying seasonal winter clothing sales. On a year-on-year basis, April 2025 sales were up 3.9% compared to April 2024. Meanwhile, NAB Online Retail Sales reported a 1.1% increase to April 2025. Seasonally adjusted online sales increased by 13.2% between April 2024 and April 2025.

Source: Westpac – Melbourne Institute Consumer Sentiment Index

According to the Westpac–Melbourne Institute Index, consumer sentiment increased 0.5% from 92.1 to 92.6 in June 2025. The result reflects a push-pull dynamic: optimism spurred by easing inflation and the May rate cut compared to persistent concerns around sluggish domestic growth and escalating global trade tensions. At 92.6, the index remains in pessimistic territory, with sentiment still below the neutral level of 100.

Although the overall index increased, only two of the five subindexes increased in June 2025:

• ‘time to buy a major household item’ up 7.5% to 100.2;

• ‘family finances vs a year ago’ up 0.5% to 75.4;

• ‘economic conditions next 12mths’ down 0.7% to 92.4;

• ‘family finances next 12mths’ down 1.9% to 98.8; and

• ‘economic conditions next 5yrs’ down 2.4% to 96.2.

The 7.5% increase in the ‘time to buy a major household item’ index, now sitting at a neutral level of 100.2, suggests consumers are starting to become more willing to spend on discretionary goods. This is likely influenced by the combination of lower inflation and the approaching EOFY sales. However, the narrow margin above neutral indicates that cost-of-living pressures are still weighing heavily on households. All forward-looking indicators declined in June, highlighting consumer concerns that rising global trade frictions may negatively impact their wealth and/or household budgets. Retailers can expect a promotion-driven boost to spending in the near term, but should continue to focus on margin discipline and inventory management until the broader economic and trade outlook becomes clearer.

Source: Australian Bureau of Statistics

The most recent ABS retail sales data recorded a 0.1% decrease (seasonally adjusted) in April 2025, representing a c. 3.9% or $1.4bn increase in sales from April 2024. The decline in April marks only the second month-on-month decline since March 2024 and was driven by decreases in food and clothing retailing in April.

Three out of the six sub-categories experienced growth across the month, led by:

• ‘cafes, restaurants, and takeaway food services’ up 1.1%

• ‘other retailing’ up 0.7%

• ‘household goods retailing’ up 0.6%

• ‘food retailing’ down 0.3%

• ‘clothing, footwear and personal accessory retailing’ down 2.5%

• ‘department stores’ down 2.5%

For the first time in 11 months, ‘food retailing’ declined by 0.3%. Being the largest sub-category, the decline drove the overall decrease across the month. However, spending on ‘cafes, restaurants, and takeaway food services’ increased by 1.1% in March 2025, which partially offset the broader decline in food-related spending. ‘Clothing, footwear and personal accessory retailing’ declined by 2.5% in April 2025. Clothing retailers point to warmer-than-usual weather for April which delayed the purchase of winter clothes by consumers.

On a regional basis, all states aside from Queensland (+1.4%) and Western Australia (+0.4%) recorded decreases in retail spending. The uplift in Queensland was attributed to a rebound in food related spending following the impact of tropical cyclone Alfred on cafe, restaurant, and takeaway food retailing.

The ABS Household Spending Indicator (ABS HSI) increased 0.1% in April 2025 (seasonally adjusted). The month-on-month increase was driven by a 0.6% increase in non-discretionary spending, while discretionary spending declined by 0.2% for the second consecutive month. On an annual basis, non-discretionary spending grew 4.9% above April 2024, while discretionary spending was 3% above April 2024.

Source: NAB Online Retail Sales Index

The NAB Online Retail Sales in April 2025 increased by 1.1%, following a revised increase of 0.5% in March 2025 (previously 0.4%). Growth remained high in year-on-year terms, with seasonally adjusted sales increasing 13.2% between April 2024 and April 2025. Food categories (+4.1%) led monthly growth and accelerated on year-on-year terms. The return to growth in Queensland (8.9% for ‘grocery and liquor’), after Cyclone Alfred, attributed to its recovery from March and assisted in counteracting the weakness in Victoria (1.2% for ‘grocery and liquor’). NAB data estimates Australians spent $62.55 billion on online retailing, making up 14.2% of total retail spend.