for the choppy market conditions ahead. Government subsidies such as the JobKeeper payment scheme and rent relief regulations for retail and commercial tenants has kept some Australian retailers afloat and provided support to retain staff. Omnichannel retailers benefited from an increase in online sales with non-food online sales alone increasing by 29 per cent in the last 12 months ending June 2022.  However, online channels usually have lower profitability margins compared with traditional brick and mortar stores. Ongoing supply chain issues compound current challenges Despite the government subsidies, the ongoing global supply chain crisis has resulted in delays in inventory orders and a significant increase in freight costs. In response, many retailers pre-ordered inventory, which resulted in some retailers now carrying significantly large amounts of excess inventory, which is already exacerbated by stores holding excess inventory following the 2021 lockdowns. On a positive note, the Shanghai containerised freight index, which measures worldwide sea freight rates for imports from China, has been declining over the last few months and may provide some cost relief to retailers soon.  Additionally, congestion at the Port of Shanghai, the largest port in the world, appears to be easing. Recent data showed there are approximately 130 vessels awaiting berth compared to more than 300 vessels only a few months ago. The average waiting time across all vessel types, including tankers, bulkers and containers, at Shanghai has reduced to 28 hours, which is down considerably from its peak average waiting time of 66 hours during the lockdown in China. Macroeconomic factors signal trouble ahead As stores are reopening, many retailers are experiencing manpower shortages. Workers are seeking new challenges, creating both a labour and a skills shortage. Additionally, the wage increases established by the Fair Work Commission as of July 1 are affecting retailer operations and costs. With landlord abatements now coming to an end, some retailers are also reporting rental increases of around 5 per cent for specialty stores and 4 per cent for large store chains. Household savings were 7 per cent of disposable income at the end of 2019. This savings rate peaked at 23.7 per cent in June 2020. By March 2022, the savings rate had fallen back to 11.4 per cent, although it is still much higher than pre-Covid-19 levels. This is expected to decline further through the remainder of the year as revenge spending continues, particularly as the borders open for travel.  With the annual inflation rate in Australia surging to 6.1 per cent in June because of new dwellings and rising fuel costs, many expect inflation to continue and potentially peak at around 8 per cent in the coming months. A look at consumer sentiment and spending  Consumer sentiment fell by 3 per cent to 81.2 in August, the ninth consecutive monthly decline, and remains well below the long-term average. A significant plunge in consumer confidence can be a sign of weaker spending to come.  The ANZ-Roy Morgan Australian Consumer Confidence reported a slight decline of 0.6 points to 85 in the weekly consumer confidence report released August 29, which is now 16.8 points down from the same week a year ago. Overall consumer confidence also remains in deeply negative territory. Retail sales increased by 1.3 per cent month on month in July and are 16.5 per cent higher than July 2021, driven by a 3.8 per cent increase in department stores and a 3.3 per cent increase in clothing, footwear and personal accessories. Retail sales are still well ahead by 16.5 per cent  from the prior year. Overall household spending increased 10.2 per cent through June. Non-discretionary household spending rose 9.8 per cent in June driven by spending on transportation, while discretionary household spending was up 10.8 per cent driven by spending in recreation and culture.  With inflation and operating costs increases, online channel growth, lower demand and excess inventory, retailers may choose to discount their inventory, sacrificing margin to maintain or increase working capital. Many retailers will face liquidity issues as working capital is tied up in inventory.  Gordon Brothers expects mid-sized retailers will be hit first, creating mergers and acquisitions opportunities for larger organisations. We predict retailers in the fast-fashion apparel and footwear sectors within consumer discretionary goods could face significant headwinds over the next few months. Considerations for retailers Retailers will need to look at ways to lower costs, streamline operations and reduce disruptions to avoid losing their competitiveness. With increased wage costs, lack of manpower, and continued investment in digital platforms and data infrastructure with the growth in online shopping, retailers must act. Despite some retailers reporting strong sales because of the growth in online sales, net profits declined. Total sales for the Super Retail Group, one of Australia and New Zealand’s largest retailers, increased by 2.8 per cent in the 2022 fiscal year supported by record online sales, which increased by 44 per cent while net profit fell by 20 per cent.  Wesfarmers, one of Australia’s largest employers, recently announced plans to renew its portfolio, which include optimising its store network following a 2.9 per cent decline in net profit after tax. Retailers that deliver a remarkable consumer experience and have purpose in their product or company, regardless of channel, are closing very few stores. In fact, some are expanding their bricks-and-mortar footprint, but it is about rightsizing the portfolio whether internationally or locally by way of location, size and footprint.  We have already seen major national retailers like David Jones and Myer reducing their store occupancy space, while other retailers like the Super Retail Group are expanding their store network to create brand scale and awareness. Time will tell what the coming months will bring for retailers facing a perfect storm of challenges never seen before. The only certainty is change, and retailers will need to adapt to weather the storm.