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      Retail's medium-term outlook is improving

      KPMG’s Retail Health Index (RHI) has lost momentum this quarter, slipping back into negative territory after a brief period of improvement. An increase in the cash rate and subsequent adjustment in interest rate expectations has tempered consumer sentiment, playing a key role in slowing the sector’s momentum towards a favourable performance environment.  While some cost pressures are stabilising, ongoing volatility across global trade, supply chains and confidence means the retail recovery is likely to remain uneven. Based on current trends, a return to healthier retail conditions is not expected before late 2027. 

      Current state of the retail sector

      Australia’s retail sector has experienced a setback, with the Retail Health Index falling from slightly positive in the September quarter to -0.39 in the December quarter 2025. Household spending volumes remained resilient, growing 0.9% over the quarter and recording the strongest annual growth since mid-2023.

      However, this was not enough to offset a sharp slowdown in consumer sentiment following the February interest rate increase. Retail turnover strengthened during the December quarter, supported by promotional activity and strong demand in household goods, apparel and food services.

      Retail conditions remain weaker than normal, with elevated insolvencies highlighting ongoing pressure on mid-market retailers.

      What factors are affecting the retail market?

      • Consumer sentiment

        Confidence weakened again in early 2026 as households reassessed their financial position following higher interest rate expectations, becoming the largest drag on retail performance.

      • Household spending

        Spending volumes continued to grow, supported by population growth, earlier tax cuts and promotional activity, with gains across most discretionary and non-discretionary categories.

      • Cost pressures

        Producer prices and wages remain elevated but are showing signs of stabilisation, easing some margin pressure for retailers.

      • Global trade and supply chains

        Ongoing geopolitical tensions, renewed trade uncertainty and supply chain disruptions are adding volatility and increasing operational risk for retailers.

      • Insolvencies

        Retail insolvencies rose sharply in 2025, particularly among discretionary and fashion retailers, reflecting sustained pressure from high costs, weak confidence and intense competition.

      Why KPMG

      The KPMG Retail Health Index (RHI) is based on a calculation that seeks to incorporate the revenue and cost drivers of a retail and consumer-focused business operating in the Australian economy, with an element of future expectations through incorporating a measure of consumer confidence. 

      If KPMG can help your business in any way navigate the current business environment and plan for any future developments that are facing the industry, then please contact us. 

      Contact us

      Retail

      KPMG’s Retail group offers audit, tax and advisory services geared to the unique needs of the retailing industry.
      Retail industry
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