Aussie Discretionary Retailers: A Brighter 2025 as Rate Cut Nears

As the Reserve Bank of Australia (RBA) inches closer to a rate cut in 2025, Aussie discretionary retailers are poised for a brighter outlook. The expected policy shift will boost consumer spending and drive growth in key sectors, as households benefit from increased disposable income and savings. This article explores the potential impact of the rate cut on the retail sector, focusing on specific sectors expected to see significant growth and the evolution of consumer behavior.

The RBA is anticipated to hit the brakes on policy at 3.35% by the end of 2025, creating a more favorable borrowing environment for both businesses and households. This shift is likely to stimulate consumer demand, benefiting discretionary retailers. According to Devika Shivadekar, an economist at RSM Global, the rate cut will boost consumer spending power and encourage households to rebuild savings, further boosting consumer confidence and driving retail sales.



Among the specific sectors expected to see significant growth in 2025 are:

1. Apparel and Footwear: This sector is projected to grow by 4.5% in 2025, driven by increased consumer confidence and a shift towards more sustainable and ethical fashion choices. The rise of fast fashion and the growing demand for affordable, trendy clothing will also contribute to this growth.
2. Electronics and Appliances: With the rollout of 5G networks and advancements in technology, this sector is expected to grow by 3.8% in 2025. The demand for smart home devices, wearable technology, and gaming consoles will drive this growth, as consumers seek to upgrade their gadgets and appliances.
3. Home Improvement and Furniture: This sector is expected to grow by 3.5% in 2025, fueled by the housing market recovery and increased consumer spending on home renovations and improvements. The growing trend of remote work and the desire to create comfortable, functional home spaces will also contribute to this growth.

These growth projections are based on the KPMG Australia Retail Health Index (RHI) and the Australian Bureau of Statistics (ABS) retail trade data. The key drivers for this growth include increased consumer confidence, a shift towards sustainable and ethical products, technological advancements, and the housing market recovery.



However, the evolution of consumer behavior and preferences will significantly influence the performance of different sectors. According to the KPMG Australia Retail Health Index (RHI), recovery in the retail sector is stalling, with positive health not expected until September 2025. This is due to low consumer confidence and ongoing financial strain on households (Dynamic Business, 2024). Retailers must adapt to these changing dynamics by focusing on value, sustainability, and omnichannel experiences. In-store shopping will remain popular, but consumers will prioritize brands offering flexible payment options, clear returns policies, and sustainable practices (Retailbiz, 2024). Retailers that successfully navigate these trends and address consumer concerns will thrive in 2025.

In conclusion, the nearing rate cut by the RBA in 2025 presents a promising outlook for Aussie discretionary retailers. As consumer spending and confidence grow, key sectors such as apparel and footwear, electronics and appliances, and home improvement and furniture are expected to see significant growth. Retailers must adapt to evolving consumer preferences and prioritize value, sustainability, and omnichannel experiences to capitalize on this growth potential.