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Retailers optimistic about Christmas and New Year
Deloitte Retail Review survey
75% see seasonal sales higher than last year
6 November 2014: Three quarters (75%) of retailers are expecting Christmas sales to be higher than last year, according to the latest Deloitte Retail Review survey. However, the gains are expected to be modest, with no retailers expecting more than 5% sales growth, and 38% expecting 2-5% growth.
The National Leader of Deloitte’s Retail, Wholesale & Distribution Group, partner David White, said, “Despite relatively flat consumer sentiment, low interest rates and cheap credit are helping to boost consumer spending and retailer confidence in the lead up to Christmas.
“However, macroeconomic factors – such as weak wages and jobs growth and the slow-down in China – remain the number one perceived risk to retailers, which is why they are expecting a solid Christmas period, but not a spectacular one.
“On a positive note, there appears to be genuine optimism about 2015. Compared to last year, there has been a 15% fall in the number of retailers concentrating on efficiency and cost control. Instead we are seeing a greater focus on organic growth, particularly through bricks and mortar stores and a greater investment in multi-channel offerings.”
Bargains harder to find
Whilst expectations around sales growth are relatively cautious, retailers are more confident in their ability to increase margins this Christmas. This year, 49% of survey respondents expect to grow margins during the Christmas period, suggesting that the slash and burn discounting seen in previous years is less likely, as retailers fight to protect their margins.
“There will still be bargains to be found, as two thirds of retailers have said they plan to discount at some point over the Christmas period,” said White. “But consumers will need to hunt harder for those bargains or be well connected to what retailers have planned, in order to make the most of the opportunities on offer.”
Steady investment in digital, but further growth opportunities remain
Australian retailers are becoming more focused on developing digital strategies and driving online sales, but progress still appears to be slow for many. 83% of retailers are predicting higher online sales than last Christmas and over half (51%) of these are expecting 10% growth in digital sales. Yet this is still off a low base, with digital representing only 2% or less of total Christmas sales for nearly half (46%) of those surveyed.
“Harnessing the benefits of online retailing remains a significant opportunity for many Australian retailers,” said David White. “Adapting business models to better service consumers means considering everything from how to use social media as a sales channel, boosting data analytics capabilities and strengthening cyber security measures.
“We are also seeing retailers recognise the power of digital and cloud technologies to create and empower a connected workforce, better able to serve and adapt to the needs of the connected consumer.
Taking the fight to global competitors
The relative attractiveness of Australia in the global marketplace has seen an influx of international retailers heading to our shores. The survey reinforces that the strength of these competitors remains a strong source of anxiety for local retailers. Over half (55%) said that foreign retailers were their biggest source of competition, with foreign owned bricks and mortar stores (versus online) causing the greatest concern.
However, as a perceived barrier to sustainable growth, overseas competition pales into comparison against low consumer demand, with only 6% of respondents seeing it as their primary threat, versus 49% for poor consumer demand (the greatest growth impediment), followed by property costs at 21%.
Many Australian retailers appear to be considering taking the fight to the back yard of their global competitors, with almost a third (31%) saying they see overseas expansion as an opportunity to grow their business in the next 12 months.
Confidence in uncertain times
Despite the concerns around economic conditions and consumer sentiment, retailers seem increasingly confident about their ability to manage ongoing uncertainty. Domestically, 70% say they expect to increase store numbers (compared to 55% last year) and 84% expect an increase in earnings in FY15. Almost a third (27%) nominated new sales channels and online as the most significant driver of sales (up from 17% last year).
“Despite the challenges, retailers appear determined to take positive steps in order to grow their businesses put as they look to the New Year and beyond,” concluded David White.
The Deloitte Retail Review 2014, Making sense of the silly season, is based on a survey of 63 senior executives of leading retailers operating in the Australian market. The research took place during September and October 2014.
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