The first week of December retail spending patterns in both Australia and New Zealand point to a more subdued holiday shopping season than retailers had hoped for, with credit card transaction data showing year-on-year declines in most discretionary categories.

Australian retail spending through the first five days of December is tracking 3.2% below the same period in 2024, according to preliminary data from the major banks’ transaction monitoring systems. This is a significant deterioration from November, when spending was roughly flat year-on-year.

The category breakdown reveals consumers are being highly selective. Grocery spending is actually up 1.8% compared to early December 2024, suggesting people are still hosting gatherings and preparing holiday meals. But clothing and footwear spending is down 8.4%, and homewares are down 6.1%. These are classic discretionary categories that get cut when household budgets are tight.

Electronics and appliances showed surprising resilience, down just 1.2% year-on-year. This likely reflects the replacement cycle for devices purchased during the 2020-2021 period, which are now 4-5 years old and due for upgrades. Consumers appear willing to spend on necessary technology replacements even as they cut back elsewhere.

New Zealand’s pattern is similar but slightly more pronounced. Overall retail spending for the first week of December is down 4.1% compared to December 2024. The same categories that are weak in Australia are weak in New Zealand—apparel down 9.2%, homewares down 7.3%, with groceries providing the only bright spot at +2.1% growth.

What’s particularly notable is the shift in shopping patterns toward promotional periods. Both countries saw spending spikes during Black Friday week that were stronger than in previous years, but the post-Black Friday period has been exceptionally quiet. This suggests consumers are being more strategic, concentrating purchases during sale periods and avoiding full-price buying.

Online retail continues taking share from physical stores, but the growth rate has slowed dramatically. Australian online retail spending in early December is up just 2.1% year-on-year, compared to the 15-20% annual growth rates seen in 2020-2022. The online channel is no longer the growth driver it once was; it’s simply becoming the normal way many people shop.

Department stores are experiencing particular difficulty. Both David Jones and Myer in Australia have reported December sales tracking below internal forecasts, while New Zealand department stores face similar challenges. The department store format itself seems to be struggling regardless of economic conditions, suggesting structural challenges beyond cyclical spending weakness.

Smaller retailers report an even tougher environment than the chains. Independent boutiques in Sydney and Melbourne report foot traffic down 15-20% compared to last December, though conversion rates among those who do visit are holding up reasonably well. This suggests the core customer base is still purchasing, but the casual browser traffic has evaporated.

Restaurant and hospitality spending patterns are mixed. Fine dining reservations are well down year-on-year, particularly for corporate functions and large group bookings. But casual dining and quick service restaurants are holding steady, suggesting consumers are trading down rather than eliminating dining out entirely.

The tourism retail segment is performing better than domestic retail in both countries. Australian retailers in tourism hotspots report international visitor spending up 7% compared to December 2024, while domestic visitor spending is roughly flat. New Zealand sees a similar pattern with international tourists, particularly from Australia and the United States, spending freely while domestic tourists economise.

Looking at payment method trends, there’s been a notable shift toward debit cards and away from credit cards compared to previous December periods. Debit card transaction volumes are up 4% year-on-year while credit card volumes are down 2%. This suggests consumers are more conscious of taking on holiday season debt than in previous years.

Buy now, pay later services are seeing strong growth but from a relatively small base. BNPL transaction volumes are up approximately 18% compared to December 2024, particularly for purchases in the $200-800 range. Younger consumers seem to view BNPL as a budgeting tool rather than as debt, using it to spread payments for purchases they would make anyway.

Gift card sales provide an interesting indicator of consumer sentiment. Both countries are seeing gift card sales down approximately 5% year-on-year, suggesting people are either giving fewer gifts or giving non-retail gifts. The gift card category had been remarkably stable through previous economic cycles, so the decline is noteworthy.

Retailers are responding to weak trading conditions by extending promotional periods and deepening discounts. Boxing Day sales that traditionally began on December 26 are now starting before Christmas at many chains. This may boost short-term volumes but further compresses margins in an already challenging environment.

The outlook for the remainder of December doesn’t inspire confidence. Weather patterns aren’t helping—cooler, wetter conditions in parts of Australia are keeping people at home during what should be peak shopping weeks. New Zealand’s weather has been more favourable but hasn’t translated into stronger foot traffic.

What remains unclear is whether this December weakness represents a temporary bout of consumer caution or a more fundamental shift in holiday spending patterns. The next two weeks will provide clarity, but the early indicators suggest retailers should brace for one of the more challenging December trading periods in recent memory.