Retailers are counting on Christmas
Digital deniers continue to ignore online opportunitiesDOWNLOAD
21 October 2013: The second annual Deloitte Christmas Retailers’ Survey found that 65 per cent of retailers are positive about the upcoming Christmas trading period, slightly down from the 69 per cent who shared this view last year.
The outlook for sales volume and margins amongst Australian retailers is somewhat muted with two out of five (40 per cent) retailers anticipating comparable sales growth of just 0 to 2 per cent year on year. The same percentage is predicting that there will be little or no opportunity to increase margins this year.
Deloitte lead retail partner, David White said, “After a challenging first nine months of the year, retailers appear somewhat optimistic for the holiday period. Many are predicting higher sales volume, although margins remain consistent with last year.”
The greatest threat to Australian retailers this year is seen as the derailing of consumer confidence by macro-economic factors; the percentage of retailers who share this view has more than doubled in the last 12 months, from 19 per cent to 40 per cent this year.
White continued, “Retailers are banking on the economic ‘feel-good factor’ brought about by the end of a minority federal government, record low interest rates and signs of a strengthening housing market. As ever, retailers are somewhat hostage to consumer confidence over this critical Christmas trading period. However, the strongest operators will continue to prosper at the expense of weaker competitors, irrespective of economic conditions.”
Last year, early discounting was a key feature of the festive period and this trend looks set to continue with nearly a quarter (24 per cent) of respondents expecting to start discounting by early December – slightly higher than last year.
White commented, “We are expecting a far more discrete approach to discounting this Christmas, with selected stores or specific items being discounted to target specific consumers and attract greater footfall into key locations. This won’t be a Christmas of discounting whole product lines to try and steal market share.”
“Retailers have cut margins as far as they are prepared to go and with upward pressure on wages and rents, the two biggest fixed costs for most retailers, the strongest performers will be those who take a more sophisticated approach to their in-store and online customer experience. With very little volume or margin growth on the cards, this will be the most-effective way for retailers to increase their share of wallet,” said White.
According to 38 per cent of survey respondents, online competition from overseas or local retailers is their greatest source of competition.
Although 76 per cent of respondents predict their online sales will increase this Christmas compared to last year, a quarter of Australian retailers expect no online sales at all. Over half (54 per cent), expect just 2 per cent or less of their total sales to originate online over the festive period.
White commented, “Despite the admission that they are being digitally disrupted from home and abroad, there remains a hard core of respondents who continue to ignore the growth and efficiency opportunities offered by an omni-channel strategy that includes the ability for customers to interact and transact with brands and products digitally.”
Commenting on overseas competition, White said, “Last year 58 per cent of respondents cited overseas retailers as their greatest source of competitive pressure. This has fallen to 40 per cent in 2013, perhaps signalling that these competitors are now entrenched in the Australian market.”
More than half (53 per cent), of those surveyed believe that consumer confidence will increase in the next 12 months compared to just 21 per cent who had this positive outlook last year. When asked about the Australian economy, 38 per cent expected it to strengthen in the coming year, up from just 20 per cent who shared this view last year. However, nearly half (48 per cent) believe the economy will remain broadly unchanged.
Although down somewhat on last year, store expansion continued to be the primary growth driver for Australian retailers with 55 per cent planning to increase net stores, down from 73 per cent last year. Meanwhile, only 4 per cent expect price increases to be a significant driver of sales growth in 2014, reflecting the continued price pressure faced by retailers.
White concluded, “Although many retailers believe that the worst times are behind them, the new reality of a fiercely competitive marketplace, with digitally savvy consumers, is here to stay.”
The Deloitte Christmas Retailers’ survey 2013, Counting on Christmas, is based on a survey of 60 senior executives of leading retailers operating in the Australian market. The research took place between 29 August and 25 September 2013.
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