Australian retailers enter festive season with a mixed outlook

A tough year is set to tone down the Christmas spirit amongst Australian retailers, with just over half expecting an increase in sales over the holiday season. This is according to a new Deloitte report, which further highlights that the online landscape – yet again – faces a brighter outlook.

The global accounting and consulting firm surveyed executives and senior managers in the Australian retail sector, gauging their overall sentiment on retail spending and in particular their expectations on the nearing Christmas period.

The research found that, across the board, market conditions are bleak. Nearly half of the retailers surveyed reported that the last year had brought either no growth or negative growth in their sales, indicating a spending crunch amongst Australian consumers. The crunch is particularly conspicuous in light of the lack of the federal tax cuts that took full effect in September this year, with no spending improvement seen since.

Analysis shows that the money saved from these benefits has been put away for a rainy day by Australian consumers, spelling more gloom for the retail industry. The only plus in this scenario has been the impact of price inflation, which has driven up revenues for retailers to a certain extent. 

Summarising the conditions, the Deloitte report states “Retailers started off the year with high expectations. This optimism has slowly faded, with a combination of weak consumer spending, higher input prices and a subdued economy resulting in some of the toughest trading conditions in recent history.”

A merry Christmas for retailers?

According to the researchers, the damp outlook has affected retailers’ expectations for the Christmas period. Where 80% of Australian retailers were expecting an increase in their Christmas sales last year, the figure has dropped to just over half of the total this year, while a similar outlook exists for margins.

Nearly 40% of retail executives and managers expect their margins to drop this Christmas, which is a dramatic increase from 13% in 2018. Competition is the main reason for this development, as competition restricts further price inflation despite rising costs. Retailers who compete on price will be most exposed to these pressures as consumers shop around for the cheapest option. Overall, the report describes the overall sentiment as the most pessimistic in over half a decade.

Let’s go online

The one saving grace, however, is the online commerce space. A recent Bain & Company report described online sales as the bright spot in Australia’s retail sector, and Deloitte’s analysis adds more weight to this. The Big Four firm found that 40% of Australian retailers expect their online sales to grow anywhere between 10% and 30% over this financial year, with a boom anticipated in the Christmas period.

The percentage expecting online growth is a touch lower than previous years, although Deloitte reports that an overall increase in baseline rates among online products means that the online space should ultimately be satisfied with their ecommerce revenues.

In a bid to capitalise on the online boom, many Australian retailers are drawing up their digital sales strategies, and beefing up their investments in technology and platformisation. Equally, as the lines between brick and mortar increasingly are blurred as the customer decision-making process evolves, retailers are also focusing on enhancing their omnichannel footprint.

Today, a customer journey may involve research online, price comparisons on a mobile device, reviews from social media before a click-and-collect purchase from the retail store. This unification of strategy between the digital and the physical is regarded as one of the major trends in the retail space.

Focusing on customer experience is another trend impacting retailers and ecommerce players. In an increasingly digitalised retail and service landscape, the modern consumer is on the lookout for a holistic customer experience. Shoppers further seek convenience, efficiency and a little bit of excitement, with retailers that get this mix right in their offerings most likely to persuade the customer.

A third factor that according to the report is a growing factor in drawing modern customers, is a demonstrated commitment to responsible retail. Examples include ethical sourcing, sustainable materials and packaging, reduced CO2 emissions, fair treatment of employees and making a meaningful contribution to the broader community. “Australian retailers need to be responding rapidly to this in a considered but meaningful manner which aligns their strategy and operations with their purpose,” said the report.