As we approach the busiest time in the retail calendar year, one question looms: How can retailers revive sales in a landscape of unstable inflation and changing consumer habits?
The latest Consumer Price Index (CPI) figures show inflation has fallen to within the RBA’s target band at 2.8 per cent – the lowest in 3.5 years. This number, predominantly impacted by energy rebates and lower fuel prices, is likely to create a mild sense of relief for many but has also raised eyebrows as Australians feel their day-to-day expense pressures tell a different story.
Many consumers and retailers are holding their breath for an interest rate cut. Analysts suggest that while a cut seems probable in the first quarter of next year (hopefully before Easter anyway), it’s uncertain how quickly any rate reduction will trickle down to impact retail sales.
Despite this, consumer sentiment appears to be cautiously optimistic for some. The consumer confidence index is on the rise, increasing another 0.2 points in September.
According to Charlie Nelson, director of Foreseechange, a forecasting and insights company, many retailers believe shoppers still have some discretionary spending power, a sentiment that is expected to continue through the last quarter of the year. The feeling is that as long as interest rates and bill prices remain stable, there shouldn’t be a decrease in people’s willingness to spend.
But the reality of rising costs, particularly for essentials like insurance and rent, means many shoppers are still feeling the pinch. This disconnect is evident in conversations at weekend barbecues all around Australia, where scepticism toward any tangible signs of economic relief is evident, regardless of what the latest statistics might suggest.
The great season of savings
Enter “The great season of savings”, the period from Halloween through to New Year, where we expect spending patterns to be a little more cautious as consumers focus on essentials and value brands over big-ticket items.
With more than 12 million Australians now purchasing second-hand goods, motivated by the desire for quality at a lower price, discount retailers and resellers are poised to benefit from this shift.
Industry forecasts for the holiday season look cautiously optimistic, too. Pre-Christmas sales are projected to rise by 2.7 per cent compared to last year, while Black Friday and Cyber Monday are expected to see a 5.5 per cent increase on last year – impressive given Australia achieved its biggest Black Friday to date in 2023. These numbers suggest a willingness to spend, albeit in a more measured manner.
Despite the positive forecast for the holiday season, concerns about inflation and interest rates will likely persist into the new year, casting a shadow over discretionary spending. Retailers will need to adapt by promoting products that resonate with consumers seeking value.
Changing seasonal trends
Traditionally, the final quarter sees spikes in categories like apparel and electronics. However, this year, spending is expected to be more evenly distributed rather than peaking in November and December.
Events like Black Friday have already pulled forward holiday spending, leading to a longer, more consistent sales period, including the Halloween shopping event, which now exceeds more than $450 million in sales in Australia.
Online shopping continues to grow, with Australians increasingly planning their purchases earlier than their in-store counterparts. Retailers need to leverage this trend to prepare for an earlier holiday season.
Promotions and discounts: A new strategy
As competition heats up, retailers are exploring new promotional and ‘touch point’ strategies. Instead of relying on less frequent deep discounts or bulk buys, many are shifting toward more frequent, smaller-value offers across multiple channels. This approach not only fosters customer loyalty but also ensures sales momentum continues well into the new year.
A path forward
The path forward requires retailers to navigate a complex landscape marked by cautious consumer sentiment and economic uncertainty.
While significant boosts may be elusive, there’s an opportunity for retailers to adapt quickly to changing behaviours and preferences.
By understanding that consumers are still spending, just in new and varied ways, retailers can position themselves to turn ‘interest’ into action and, ultimately, sales.
