Australia’s cost squeeze is turning shoppers into value hunters

MELBOURNE – Melbourne plumber Myles Gollant and his wife purchased a house in the city before their wedding in 2025, but have furnished it almost entirely second-hand.

Rising living costs have also led the couple to budget more carefully for necessities such as fuel and groceries, where they often choose cheaper home-brand alternatives.

“The only thing we bought brand new at the time was a bed,” said Gollant, 26. “We’re definitely budgeting. It’s not a strict figure, obviously things pop up, but you are definitely conscious of your spending.”

The Gollants represent the new era of consumer spending in Australia, where rising inflation and a property market slump are boosting budget brands and discount retailers while dealing a blow to some restaurant chains and home goods retailers.

Companies’ earnings for the fiscal year of 2026 reflect the contrast between winners and losers.

Sales at Wesfarmers’s budget-friendly Kmart remained resilient and competitor Big W, owned by Woolworths Group, returned to profitability.

Woolworths’ supermarket chain reported a 5.5 per cent rise in own and exclusive brand sales.

Rival grocer Coles Group saw sales of its own labels grow 6.1 per cent, outpacing overall growth – roughly one in three Coles shoppers now buy the products.

Meanwhile, furniture retailer Nick Scali said in August that store traffic had fallen up to 15 per cent in the previous quarter, as the housing slowdown weighed on new orders.

Australian same-store sales growth at Harvey Norman, the country’s largest seller of furniture and consumer electronics, declined 3.4 per cent.

Shares of electronics retailer JB Hi-Fi saw their biggest drop since 2020 after sales missed estimates.  

The country’s biggest multi-brand retail food franchise manager Retail Food Group, owner of chains including Gloria Jean’s and Donut King, posted a roughly 3 per cent annual drop in domestic network sales.

“You’ve got a battered consumer, I think, at the moment,” managing director and chief executive Anthony J. Scali told an earnings call, citing falling house prices, higher interest rates, inflation and the cost of living.

Australian households are being squeezed by a cost-of-living crunch, with inflation remaining sticky at more than 3 per cent since 2025, while wages grew just 3.2 per cent in the three months through June.

At the same time, higher borrowing costs are weighing on family budgets and tax changes targeting property investors are cooling the once-booming housing market.

Some 75 per cent of Australians surveyed by Finder said they were financially stressed, the comparison site said in August, while consumer confidence dropped to “deeply pessimistic” levels in June.

About 60 per cent of Australians’ household wealth is tied to property, according to Commerzbank AG, indicating that consumer malaise may not lift until housing values recover.

Value focused

Retailers are leaning hard into their moment as Australians switch to cheaper house labels and some buy more groceries to spend less on dining out.

They have launched promotions, including through rewards programmes, and pledged more predictable prices.

They are also touting loyalty perks and steering customers towards payment plans that make bigger purchases easier to swallow. 

The tactics range from an A$75 (S$69) loyalty-member offer at Ikea to sales tied to events such as Afterpay Day at Harvey Norman.

Most recently, Woolworths’ Disney Ooshies campaign boosted its sales growth.

Woolworths expects customers “to remain value-focused in the year ahead”, CEO Amanda Bardwell said in its earnings report, promising “low and dependable prices”.

Coles CEO Leah Weckert said cost-of-living pressures are “very, very front of mind” for households that have a “high expectation around what you’re going to deliver on the value front”.

Chief commercial and sustainability officer Anna Croft said the company’s home brands – ranging from toilet paper to baby products – were helping drive performance, with budget household products range Coles Ultra delivering double-digit sales growth.

Said Matthew Ross, an Australian equity strategist for Goldman Sachs, in a Sept 3 webinar: “With people substituting going out, supermarkets are in a bit of a purple patch.”

But the initial boost may be fading: Bardwell said Big W’s sales declined modestly in the first eight weeks of fiscal 2027, “reflecting ongoing cost-of-living pressures on households, particularly budget customers”.

Some other big-ticket items that can be deferred have also come under pressure.

ARB, which makes auto accessories and parts, saw Australian after-market sales fall 3.3 per cent.

Chairman Robert Fraser said inflationary pressures had weighed on discretionary spending. 

Australia’s used-car market weakened in the first half of 2026, with sales down 6.6 per cent from 2025 and the decline accelerating to 16.2 per cent in June.

New car sales remained buoyant in August, though demand skewed towards more affordable brands, with Hyundai and a growing crop of Chinese automakers winning a greater share of the market.

Consumers do appear willing to spend on experiences even as they cut back on items, in line with a global trend fuelled by Gen Z’s shifting attitudes towards consumption.

Recreation and culture spending rose 1.5 per cent in July, driven by gambling, major sporting events and trips to cinemas, according to the Australian Bureau of Statistics.

Still, “nobody is looking to splurge on a lounger right now, especially if they aren’t moving”, said Josh Gilbert, an eToro market analyst specialising in Australian and US equities.

“The pullback is hitting these businesses where consumers can put off spending, not the ones where they can’t. The Australian consumer is just becoming a lot choosier about where they turn up.” BLOOMBERG