Retailers across the country have had a tough time, and while the Australian Retailers Association’s (ARA) latest outlook hints at brighter days ahead, the sector still has a few hurdles to clear.

The ARA Retail FY25 Industry Performance Report paints a picture of cautious recovery for Aussie reatilers. Inflation’s cooling, wages are rising, and the cash rate could finally start to ease. But don’t pop the champagne just yet. Growth is still lagging behind long-term trends, and business competition is heating up.

Retail is doing better, but not brilliantly

Looking at the figures for he past twelve months, retail turnover grew just 1.4 per cent in the March quarter of FY24, before lifting to 4.0 per cent by December. Sounds good. Not quite. That uptick was driven mainly by lower inflation, an increase in the country’s population, and a jump in online shopping. Strip that away, and underlying consumer demand is still sluggish.

Retail expert Craig Woolford from MST Marquee suggests the uplift could be an anomaly.

“The recent lift in retail turnover is unlikely to be sustained, with growth expected to slow in FY25 before gradually recovering in FY26.”

Retail price inflation fell from 7.8 per cent in December 2022 to 2.4 per cent by late 2024, offering some relief to shoppers and businesses alike. However, with margins still squeezed, industry experts suggest the pressure is far from over.

“Whilst this is within target levels, ongoing pressure continues from input costs, wages and supply chains,” says ARA CEO Chris Rodwell.

Winners, losers, and everything in between

Still, it wasn’t all doom and gloom. Electronics retail had a better December quarter, growing 6.7 per cent, while online retail made a strong comeback, rising from 3.7 per cent to 14.3 per cent growth over the year. Pharmacies also outperformed the long-term trend.

Supermarkets were weak (+3 per cent), department stores were flat, and cafes, restaurants and takeaways took a hit. In fact, real volumes were mostly down across the board.

Wages up, rents rising, and costs biting

Wages in the retail sector are on the rise by 4.25 per cent per hour in FY25, with a slight moderation expected in FY26. While that’s good news for workers, it puts added pressure on already tight margins. The average Earnings Before Interest, Taxes, Depreciation, and Amortisation (EBITDA) margin for retail was just 5.5 per cent in 2024, well below the 12.4 per cent average across all industries.

And then there’s rent. Shopping centre vacancy rates are at record lows, and specialty retailers are seeing increases of 4–6 per cent, often with fewer incentives thrown in. Not ideal when every dollar counts.

The workforce: flexible but under strain

Retail boasts one of the most diverse and flexible workforces in Australia. Over 56 per cent are women, and 44 per cent are under 30. Casual and part-time roles dominate, accounting for 64 per cent of the workforce, compared to 42 per cent across all industries.

However, flexibility doesn’t always equal satisfaction. 26 per cent of retail workers say they want more (or fewer) hours than they currently have. With automation and AI on the rise, expectations are shifting rapidly.

Forty-four per cent of retailers are investing in automation, with many seeing it as a way to make life easier for staff, not just to reduce headcount. But the report warns:

“Automation is not the answer to every challenge. It works best when it solves problems for both customers and employees.”

Overseas marketplaces dominate

Temu and Amazon are changing the game. Temu racked up $1.7 billion in Aussie sales in its first 12 months. Amazon? It’s doing $3.1 billion a year here now.

That means even the smallest local retailer is now up against global giants with deep pockets and slick tech.

Recovery: slow and steady

So, what’s the good news? Aussie workers are finally seeing real wages rise faster than inflation, and consumer sentiment is picking up.

But don’t expect miracles. Deloitte’s Chris Richardson explains:

“The outlook is improving, but rate cuts will have a long lag—12 months or more—before they really flow through to retail spending.”

Retail growth is expected to remain below trend for the next couple of years. Small businesses need to focus on what they can control: cutting costs, boosting efficiency, and sharpening their customer offering.

“Retail success isn’t guaranteed. The sector is fiercely competitive, with low margins and high volatility. Businesses need to be efficient, agile and in tune with what customers really want,” says Rumben.

Small businesses make up 51 per cent of retail jobs in Australia and employ 76 per cent of retail workers on awards. You’re the engine room of the sector, but with thinner margins and less buffer, so be sure to pay attention to the trends and adjust your tactics to capitalise on growth opportunities.

Want more? Get our newsletter delivered straight to your inbox!  Follow Business Builders on Facebook , X , Instagram , and LinkedIn.