Targeted promotions and discounting to increase as retailers respond to challenging economic times.
Just as Australian retailers ready themselves for another all-important holiday trading season, they are confronting challenging economic conditions and related low consumer confidence. But retailers are also being advised to plan ahead for a recovery phase that may be closer than they think.
According to the 2023 edition of Deloitte’s annual ‘Retailers’ Holiday Report’, pre-Christmas competition for consumer dollars is already heating up, with businesses strongly focused on a time of year that can be make or break for so many.
The report assesses retailer sentiment towards the approaching holiday trading period, and identifies key trends, expectations and priorities for Australian retailers for Christmas 2023 and beyond. Key themes this year are protecting customer data privacy and security, reshaping retail with generative AI as well as mandatory sustainabilty and climate disclosures looming for retailers in 2024.
Key retailer findings include:
- 62% of retailers believe macroeconomic factors are the greatest risk to their businesses, and just 10% of retailers expect consumer confidence to improve.
- 14% still expect sales growth of 5% or more over the period (up from 6% last year), while 57% are expecting at least some growth in sales.
- 71% expect levels of discounting to increase over the last holiday period to help clear stock, and more than half (52%) expect a decline in margins.
- 39% expect an increase in online sales this year, down from 58% in 2022, and 38% of retailers are focusing on personalising the retail in-store experience to strengthen relationships with customers.
- 41% have adopted Gen AI in some capacity, and 71% believe it has value in attracting and serving customers this holiday season.
Deloitte National Leader, Retail, Wholesale and Distribution Melissa Dean says: “In 2021 and 2022, retailers thrived as economic conditions favoured them. With easily accessible funds and consumers tapping into their pandemic savings, it was a period of opportunity for the retail sector.
“But as interest rates have risen and inflation remains uncomfortably high, we’ve hit a retail recession. Retailers are navigating some of the toughest economic conditions in over a decade. Consumer confidence has taken a hit, retail customers are taking a more measured approach to their discretionary spending, and retail businesses are also managing higher costs, including increases to the minimum wage, superannuation guarantee, and payroll tax.”
According to the Deloitte Global State of the Consumer Tracker across 24 economies, Australians are the second most anxious about their financial wellbeing, with 74% of local consumers surveyed concerned that prices for everyday products will go up, and 47% believing their financial situation worsened over the last year.
“This is a huge change in pace for retailers: it’s the first time Australia has seen three consecutive falls in real retail growth since 2008. Against this less than ideal backdrop, retailers have already survived the worst of the retail recession. It’s encouraging to see that more retailers than not remain confident they will see sales growth these holidays compared to last year,” Ms Dean said.
“With volumes down and costs up, discounting and promotional activity will be the key to enticing customers this season, alongside doubling down on omnichannel strategies such as online, delivery options, click-and-collect, and enhanced in-store experiences.
“With so many retailers focused on November and December to deliver overall profitability, getting the strategy right remains critical for sales and margins, and that includes optimising supply chains and using technology to meet customer demand more efficiently,” she said.
“Inflation will likely be taking a bite out of profits for many, and with ‘perma-discounting’ clear and present, cost-efficient ways to engage sales and offer value will be so important. Doing the simple things well will be critical in cutting through the noise and engaging customers and influencing their purchasing decisions.”
And what might 2024 have in store?
“The wave of Gen AI adoption has captured our imagination with its human-like responses to questions and tasks and created a future full of potential. However, it remains consistent that personal touch, customer insight and ongoing support make all the difference in retail. Gen AI enables brands to enhance these elements, delivering an immediate and closely integrated service where human experiences are enriched like never before,” Ms Dean said.
“Importantly, today’s retail challenges won’t last forever as retailers become more strategic and focus on experience, innovation and effortless experiences no matter how customers engage.
“Cost control is rightly a strong focus for most retailers now, which could put growth strategies on the backburner. This may leave retailers in a difficult position when sales likely pick up in 2024. By the end of 2023, we could be back to positive real retail growth. The coming recovery phase may be closer than we think.”