1 in 2 retailers expect decline in margins for Christmas period
Around half of all retailers are expecting margins to decline this holiday trading period as consumers cutting back on discretionary spending.
The latest Deloitte 2023 Retail Holiday Report has revealed that 52 per cent of retailers are expecting a decline in margins this holiday period compared with the previous year.
With consumers increasingly spending-conscious, 71 per cent of respondents also expect the level of discounting will be higher this holiday period.
“As mortgages put pressure on discretionary spending, consumers look for value. Clearly, inflation will be taking a bite out of profits for Australian retailers, who will be looking for more cost-efficient ways to engage sales over this critically important period,” the Deloitte report stated.
“With volumes down and costs up, retailers should be wary of overstocked positions in 2023. 43 per cent of retailers believe it unlikely that consumers will pay full price these holidays – a warning for those that want to maintain profit margins.”
There are also fewer retailers expecting an increase in online sales this year compared with last year.
“With customers returning to in-store experiences, the proportion of online sales over the holiday period have declined heavily since the COVID-impacted years,” the report said.
“Despite expectations of a permanent shift in customer behaviour driven by lockdowns, retail sales have continued to lean towards in-store purchases this year. Online channels have declined from the past two years, but they remain higher than pre-COVID with 42% of retailers expecting online sales above 10 per cent.”
To entice customers to the store, 38 per cent of retailers are focusing on personalising the retail experience to strengthen relationships. Pricing remains front of mind for 29 per cent of retailers this year compared to 18 per cent last year.
“Retailers are dropping prices to clear stock with one third discounting significantly more than a year ago. History demonstrates the danger of perma-discounting, and retailers will be hoping this activity is only temporary,” the report said.
Most retailers remain focused on December to deliver overall profitability, the report said, so getting the strategy right remains critical for sales and margins.
“In challenging economic times, it can get more and more difficult to entice customers to spend, and a sustained period of spending will be even more important for retail,” the report said.
Economic factors the greatest threat to retailers
Around six in ten respondents said macroeconomic factors are the greatest risk to retailers.
“Coupled with the fact that all our respondents expect inflation and interest rates to have a higher impact on sales this year, retailers should expect some pullback on demand over the holiday period and start considering what strategies will be needed to engage customers,” the report said.
“Just 10 per cent of respondents expect consumer confidence to improve as interest rates continue to rise and consumer belts tighten. Despite this, strong employment and high immigration rates are supporting the overall economy, which may see sales hold up over the next 12 months.”
Data privacy still an important issue
The report said that while fewer high-profile data breaches have been reported this year than in 2022, retailers must remain vigilant.
“Data privacy is a continuously evolving area, and staying ahead of threats is critical to keep customer data secure,” it stated.
“With 95 per cent of respondents highlighting some level of digital enablement of sales, retailers should understand they are only one data breach away from having their reputation challenged.”
The removal of unnecessary data from systems is becoming a bigger focus with several respondents in the survey highlighting this was just as important as protecting what data is held.
Research by Deloitte reveals there has been a shift in consumer sentiment in relation to sharing personal information.
“Consumers are particularly concerned about the collection of identity documents, with 74 per cent expressing strong preference against organisations collecting or retaining this type of personal information,” the report said.
“As a result, consumers are increasingly restricting the personal information they share: 52 per cent have chosen not to complete non-mandatory form fields. More importantly for retailers, 35 per cent have chosen not to buy a product or service because an organisation asked to collect personal information they weren’t comfortable sharing.”
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