christmas retailers survey

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Deloitte: Retailers expect sales to rise this Christmas

Though profit margins will be squeezed

  • 80% of retailers expect 2015 Christmas sales to exceed 2014, though profit margin rises will be modest at best
  • 59% anticipate discounting their products this Christmas, 27% in early December
  • Product choice and customer service the top two key focus areas to boost sales
  • Retailers optimistic for 2016.

16 November 2015: Eighty per cent of Australia’s retailers expect 2015 Christmas sales to exceed those achieved in 2014, according to the findings of the latest Deloitte Retailers’ Christmas Survey. 18% expect sales growth in excess of 5%, compared to no retailers in 2014, and 35% are expecting 2-5% growth this Christmas.

But away from the top line, retailers are less optimistic about their profit margins. 43% of the survey respondents anticipate increased margins over Christmas, but these are expected to be modest at best. Just 6% of retailers are envisaging margins to grow by greater than 2% compared to the 2014 festive period. And over a quarter expect margins to decline, 12% more than last year.

David White, partner and national leader of Deloitte’s Retail, Wholesale & Distribution Group, explained: “A key concern is the impact of the falling Australian dollar. Whilst currency hedges have helped shelter the effect of higher import prices to some extent earlier in the year, there is concern higher product costs will no longer be avoidable come Christmas. As competition intensifies, businesses face having to absorb some or all of these cost increases for fear of losing customers.

“So, whilst on the surface the numbers look good, dig just below and there’s a question mark over profitability.”

However, the apparently eternal retailer optimism is set to extend into 2016 as 41% predict sales growth of 5% or more in earnings over the course of the year. The roll out of new stores (31%), the introduction of new products (31%), online offerings (12%) and price increases (12%) have been identified by retailers as the key sources of sales growth in 2016.

Discounting – who will blink first?

The annual waiting game on when to pull the trigger and introduce discounting will have many retailers nervously monitoring early Christmas trading. Some 59% anticipate discounting their products this Christmas. And we can expect the discounts to come early with 27% planning to begin discounting in early December, the highest since the survey began four years ago. That said 20% of retailers are still undecided on when to discount and by how much.

“With one in five yet to decide if and when they’ll start discounting, it could be the case of who will blink first,” said White. “This may be both indicative of uncertainty around the strength of consumer sentiment, but also the greater levels of sophistication of retailers. Increasingly, ‘real time’ pricing decisions give retailers the ability to change prices at short notice across specific products in specific locations at specific times of the day. So, based on our survey, the majority of retailers will discount their products at some point over the Christmas period. The question is when and by how much.”

Customer service and product choice back in the spotlight

A third of retailers cite product choice and 23% highlight customer service as the top two key focus areas to boost sales this Christmas.

White commented: “Getting the product range and mix right is always front of mind for retailers, but never more so than at Christmas. Coupled with customer service, it’s critical for all retailers to be asking what their different customers want and deliver services and products that genuinely meet their expectations. The fact more and more retailers are recognising this can only be positive for retailers and consumers."

Let’s get digital

Four years ago, a staggering two thirds of retailers were expecting their online sales over Christmas to be 2% or less of their total Christmas sales. Fast forward to 2015 and that figure has halved to, a still not insignificant, 34% of retailers. Tellingly though, nearly 50% of retailers expect their online sales to make up 6% or more of their total sales this Christmas, compared to just 18% of retailers in 2012 and 21% last year. Whilst this is still low compared to the likes of the US and UK, Australian retailers are starting to invest in online in response to an ever more demanding consumer.

“The key for retailers is to understand how customers are using digital devices, such as smartphones, tablets and laptops, to make decisions and shop,” said White. “The recent Deloitte report ‘Navigating the New Digital Divide’ showed 40% of in-store visits in Australia are influenced by digital – higher than the UK, Netherlands and Germany – with 65% of customers using a digital device before their shopping trip and nearly 31% while shopping.

“Far from being digital dinosaurs, Australian consumers are actually highly connected when it comes to the use of digital whether it is for researching a product, comparing prices and checking availability or purchasing with click and collect. Australian retailers are potentially underestimating the appetite of consumers for digital engagement through the end-to-end shopping journey.”

Will the grass be greener overseas?

Retailers’ global intentions are gaining a foothold as an increasing number (45% versus 31% in 2014) see expanding their operations overseas as an opportunity to grow their business over the next 12 months. Though just 6% see this as being their most significant driver of sales, there is a gradually increasing number of retailers looking to venture overseas. Any overseas expansion at this stage is likely to be on a relatively small scale to begin with.

“Whilst the risks of overseas expansion are higher, so are the rewards and with the continued growth in the Asian markets in particular, the opportunities remain significant. But a broken business model in Australia is a broken business model overseas too. A key message for retailers to understand is if you can’t be successful on your home turf, then the chances of being successful overseas are even slimmer. The strategy and timing must be right,” concluded White.

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About the report

The Deloitte Retailers’ Christmas Survey 2015, Wrapping up the festive season, is based on a survey of 55 senior executives of leading retailers operating in the Australian market. The research took place during September and October 2015.

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