ed trading environment in the second half, with group sales falling by seven per cent between weeks 27 to 48 of FY23 compared to the previous fiscal year, while a leaked David Jones report showed that sales in certain city, suburban and regional stores had significantly declined year on year.  Baby Bunting has also reported “unprecedentedly low” sales figures, causing its share price to fall by 25 per cent. Meanwhile, Jarden Australia, a leading investment and advisory group, is forecasting a more than 25 per cent reduction in discretionary cash flow among certain Australia and New Zealand households. With rising interest rates and inflation hitting home, consumers are expected to become even more value-conscious, and place a greater emphasis on sales, discounts and promotions. As a result, winners and losers are expected to emerge along category lines in this year’s reporting season, depending on a variety of factors, including their positioning in the market, and the manner in which they’re able to cope with cost of living pressures.  Haves and have nots Jarden’s head of Australian research Ben Gilbert told Inside Retail that consumers are becoming more discerning with regard to their spending habits. With a younger audience in particular feeling the pinch, they are increasingly focusing on their needs rather than wants. Whereas the prevailing message in last year’s reporting season was around caution, Gilbert expects the emphasis now to be on how retailers navigate existing pressures, and emerge stronger in FY24 and beyond. “It will be a bit of the haves and have nots with certain categories outperforming others,” Gilbert said. “Grocery, pharmacy and travel are expected to hold up comparatively well, while fashion [is a category] that is likely to be challenged by softer sales and reduced purchasing activity.” He added that this trend was expected to have occurred earlier on. However, a widespread deceleration in sales has only occurred over the last few months.  “If you look to the end of 2022 and earlier this year, there was evidence of sales softening. You saw weak updates coming through for categories like furniture and large appliances,” Gilbert said. “The question was [always] around when it would occur, and how widespread it was going to be.” Susceptible to headwinds Gilbert attributed the resilience of the grocery industry to a few factors. He explained that the category benefits from the fact that everybody has to eat, with consumers reliant on major supermarkets for basic goods and necessities.  And, while hospitality and dining has remained strong, Gilbert believes it will moderate in the coming months, with grocery spending to increase as a consequence. Population growth and inflationary pressures will likely drive up prices – supporting the stability of this category – with discount focused retailers including Aldi and Costco set to benefit as customers look for the lowest prices available.  However, Gilbert predicts that increased costs relating to wages and logistics will create challenges for the sector in the coming months.  Meanwhile, discretionary categories such as fashion, electronics and homewares are more vulnerable to macroeconomic headwinds. Gilbert noted that many of these retailers enjoyed elevated margins prior to the Covid-19 pandemic, but they have been affected by reduced promotional intensity, higher costs and decreased government support. Overseas markets Ahead of the FY23 reporting season, Gilbert is paying close attention to the retailers that are outperforming on a relative basis, and are effectively managing their costs. He said that it will be interesting to see which retailers perform well among demographics which are less affected by cost of living pressures. For instance, the travel industry is expected to benefit from an older demographic, who have stronger cash positions compared to their peers. Gilbert also said that it will be worth monitoring retailers with exposure to the US and European markets. This is in line with commentary that the Australian market is tracking six to nine months behind countries located in these regions. “The commentary from US retailers has been more optimistic about their recovery in the second half of this calendar year. So retailers with a presence in these markets would be interesting to follow as well,” he said.