Deloitte Retailers’ Christmas Survey: caution reigns this season

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Deloitte Retailers’ Christmas Survey: caution reigns this season

  • 70% of retailers expect Christmas 2017 sales to exceed 2016, under half expect over 2% growth
  • Discounting strategy sees a reverse with post-Christmas sales back in vogue 
  • Over half predict online sales above 6% during the Christmas period 
  • 64% say Amazon will have a negative impact on the Australian retail marketplace
  • Paradoxically, 40% see Amazon as a positive influence on their businesses.

20 November 2017: 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% last year and strikingly only 42% expect growth over 2% compared to 54% in 2016.

Despite, or perhaps because of the nervousness around sales, retailers are holding steady on margins. 42% expect consistent margins to last year (39%). 15% anticipate decreased margins, compared to 13%, while 43% expect to see an increase in margins compared to 48% in 2016.

David White, National leader of Deloitte’s Retail, Wholesale & Distribution Group, says 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 amongst 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 providing a boost to margins.”

When will the sales start?

Over the past few years, there has been a consistent shift to discounting earlier and earlier in December. This year, not only has that trend reversed, but the percentage of retailers committed to no discounting (21%) has increased back to 2015 levels. For those that will discount, post-Christmas sales look to be back in vogue with another 21% planning to use this period to clear Christmas stock.

“During Christmas 2016 we saw many retailers pay the price for heavy and early discounting, with first quarter sales in 2017 proving to be a challenge for many. There seems to be a clear determination not to fall into the same trap this year,” explains White. “Traditionally, specialist retailers have taken their cues from the major department stores in hitting the discount button. With department stores rebuilding after a number of difficult years perhaps the hope is the trend of early and deep discounts will begin to reverse this year. Time will tell whether retailers stick to their guns.”

The digital tipping point

The online share of sales has consistently increased in every survey since 2012, and 2017 is no different. The number of retailers expecting online sales above 6% has increased from 36% to 52%, with 31% of those respondents (versus 14% in 2016) believing their online sales will be more than 10% of their total sales for the period.

“There is an ever increasing sales proportion made up of online,” says White. “The relationship between bricks-and-mortar operators and online is an ever strengthening one as the value of an effective digital strategy continues to bear fruit for traditional retailers. Retailers are getting it; over 80% of respondents consider an effective digital strategy to be critical or very important to the performance of their businesses.

“We see the market waking up to the digital tipping point, where digital becomes not just a complementary sales channel, but the core of the experience. Retailers are embracing true omnichannel, with the reinvention of the store experience, consolidation of store networks and shifting of large portions of sales onto digital storefronts.”

Welcome to the (retail) jungle

As Amazon prepares to officially launch in Australia, there is both hope and trepidation for what the impact may be. 17% of survey respondents cited Amazon as their biggest source of new competition, and undoubtedly they will have an immediate as well as long lasting impact on the Australian retail sector.

But it’s not all doom and gloom – far from it. Whilst 33% of respondents believe Amazon will have a negative impact on their business, 40% believe Amazon will be positive for them.

White comments: “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.

“Amazon presents both a challenge and an opportunity for local operators. Overseas, its domination of online retail has forced many retailers to adapt and find innovative ways to connect and build two-way communication with customers. The Australian market is not isolated; retailers have been quietly innovating as the competition heats up locally.”

Will retailers become masters of their own destiny in 2018?

Despite the cautious expectations for retailers this Christmas, they remain optimistic about their growth prospects in 2018. Some 51% expect to grow their earnings by more than 5% next year which, whilst down from 60% in last year’s survey, remains a lofty aspiration. With the total retail market forecast to grow at 3.6% next year, where will this growth come from?

White says: “Undoubtedly, the fight for market share looks set to be fiercer than ever. 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.”

True to form, retailers expect new stores will again be the driving force behind sales growth in the next 12 months (43%), followed by new products (24%) and online offerings (15%). By contrast and consistent with expectations of price inflation in 2018, just 3% of retailers are expecting price increases to drive sales growth.

White continues: “The recent increase in the Australian dollar will flow through into price deflation if levels remain elevated, requiring volume growth and new stores to drive sales.”

Overseas expansion has not been a major focus of local retailers over the past few years, and again this year 58% of retailers do not consider a foray overseas as an opportunity next year.

White adds: “It is important not to forget the longer term opportunities establishing a beachhead overseas can provide. The Australian market is competitive and largely saturated, and local brands will need to look offshore in order to continue growing and building global brand recognition.”

About the report

This is the 6th annual edition of the Deloitte Retailers’ Christmas Survey. It 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.

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