Australian consumers are increasingly cautious in their spending, with a larger percentage of their wallets going toward essential items.
Macquarie's 1Q CY25 retail sales performance report reveals Australian consumers are spending more at large-format discount retailers.
These retailers include Kmart, owned by Wesfarmers Ltd (ASX: WES), BIG W, owned by Woolworths Group Ltd (ASX: WOW), and Chemist Warehouse, owned by Sigma Healthcare Ltd (ASX: SIG).
Australian consumers are also spending more with online international retailers selling low-cost non-discretionary products that make them feel good.
Top 5 brands for spending growth among Australian consumers
These trends are reflected in the top five brands for spending growth in 1Q CY25 vs 1Q CY24.
According to Macquarie, they were Temu, up 25.3%, Chemist Warehouse, up 17.5%, Amazon, up 15.4%, Drakes, up 14.2%, and Shein, up 13.5%.
Australian consumers are also shopping around between the major supermarkets, hunting for the best deals.
Aldi and Costco were the fastest-growing retailers in the grocery sector in 1Q CY25, with spending up 7% and 6%, respectively.
Macquarie says discounts are now "considered a way of life and not a budget tool" to help retailers retain customers.
The broker says:
Aldi exploits its "less is more" private label offer while creating interest with "Aldi Finds" through its treasure hunt.
Costco delivers lower prices with large expandable packs.
In terms of product categories, Australian consumers spent more on clothing and footwear, up 6.6%, fitness, up 4.7%, and home entertainment, up 4.2%, in 1Q CY25.
By contrast, consumers reduced their spending on automotive, down 7.1%, jewellery, down 4.4%, and dining out, down 4.2%.
Which ASX 200 retail shares are a buy?
Macquarie has an outperform rating on Coles Group Ltd (ASX: COL) shares with a 12-month target share price of $22. At the time of writing, the Coles share price is $21.42, up 0.16%.
The broker also has an outperform rating on Woolworths shares with a price target of $30.80. Currently, the Woolworths share price is $31.73, down 0.047%.
In the discretionary retail space, Macquarie has an outperform rating on JB Hi-Fi Ltd (ASX: JBH) with a share price target of $111. The JB Hi-Fi share price is currently $102.55, up 0.85%.
Macquarie is also backing Harvey Norman Holdings Ltd (ASX: HVN) shares with an outperform rating and a $5.50 price target. The ASX 200 retail stock is currently trading at $5.23, up 1.16%.
The broker also likes Treasury Wine Estates Ltd (ASX: TWE). It has an outperform rating on the ASX 200 wine share with a $11.70 price target. The Treasury Wine share price is currently $8.90, up 0.68%.
Macquarie says Chemist Warehouse is increasingly popular with Australian consumers and "remains one of the fastest growing brands in the country". However, the broker has an underperform rating on Sigma shares because it views the current valuation as full.
