Christmas cheer and caution

Seventy percent of Australian retailers expect Christmas sales in 2017 to exceed those in 2016, according to the 2017 Deloitte Retailers’ Christmas Survey. That’s down from 76 per cent last year and, strikingly, only 42 per cent expect growth over two per cent compared with 54 per cent in 2016.

Despite, or perhaps because of, the nervousness around sales, retailers are holding steady on margins. Forty-two per cent expect consistent margins to last year, 15 per cent anticipate decreased margins, while 43 per cent expect to see an increase in margins.

The sixth annual edition of the Deloitte Retailers’ Christmas Survey is based on a survey of 52 executives and senior management from leading retailers operating in the Australian market, about their expectations for the 2017 Christmas period and beyond.

National leader of Deloitte’s Retail, Wholesale & Distribution Group, David White, says that despite the relatively stable economic environment and consumer spending throughout the year, the competition for share of wallet has been intense.

“A number of retailers haven’t survived the year and there is a concern among respondents that weakness may continue throughout Christmas 2017,” he says.

“With so many new and expanding competitors in the market, combined with price deflation and rising electricity costs, it will be a challenge for retailers in the apparel, footwear and department-store sectors to maintain margins over Christmas in the face of these headwinds. Food and grocery may find the going easier with price inflation giving a boost to margins.”

According to the survey, the number of retailers expecting online sales above six per cent has increased from 36 per cent to 52 per cent, with 31 per cent of those respondents (versus 14 per cent in 2016) believing their online sales will be more than 10 per cent of their total sales for the period.

As Amazon prepares to launch in Australia, there is both hope and trepidation for what the impact may be. Seventeen per cent of survey respondents cited Amazon as their biggest source of new competition, but while 33 per cent of respondents believe Amazon will have a negative impact on their business, 39 per cent believe Amazon will be positive for them.

“With the greater channels to market created by Amazon, together with opportunities for retailers to work with them, there are undoubtedly a number of retailers who will stand to benefit from the global retail giant’s arrival,” Mr White said.

Despite the cautious expectations for retailers this Christmas, they remain optimistic about their growth prospects in 2018. Some 51 per cent expect to grow their earnings by more than five per cent next year.

“Undoubtedly, the fight for market share looks set to be fiercer than ever,” Mr White said. “The process for some may be painful, and we expect to see further consolidation throughout the year, but for those retailers that get the model right, there is a big prize in store.”

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