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1 in 2 retailers expect decline in margins over Christmas

Business

As consumers cut discretionary spending almost three-quarters think discounting will be higher too, Deloitte report reveals.

By Miranda Brownlee 10 minute read

More than half of retailers expect a decline in margins this Christmas period compared with the previous year, the Deloitte 2023 Retail Holiday Report reveals, and 71 per cent believe discounting will be higher.

“As mortgages put pressure on discretionary spending, consumers look for value,” the Deloitte report said.

“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.”

“With volumes down and costs up, retailers should be wary of overstocked positions in 2023. Forty-three 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.”

In addition, fewer retailers expect an increase in online sales this year compared with last.

“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 per cent 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 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,” the report said. “History demonstrates the danger of perma-discounting, and retailers will be hoping this activity is only temporary.”

Most retailers remained focused on December to deliver overall profitability, the report said, so getting the strategy right was 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.

Around six in 10 respondents said macroeconomic factors were 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.”

Deloitte research had found data privacy was an increasingly important issue for consumers and there had been a shift in sentiment against 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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