Retail Economic Snapshot
This is a Retail Economic Snapshot that will assist with your planning Q4 and beyond. In sharing these insights it’ll ideally provide you another lens to look through and hopefully allow greater understanding of the environment we’re trading in. Also it should to some degree influence your business making decisions on what product your brand is trying to sell and to who it’s targeting. Plus, it’ll set realistic benchmarks and provide an opportunity for early planning against the next two quarters into January – March 2025 that are assumed to be tough.
The Eleven Cheat Notes
- The Business Confidence Index has declined for the second straight quarter, dropping from -59.7 to -67.8. However, one in four businesses, on average, is not as downbeat about the outlook for the next quarter.
- The average self-rated business prospects score for the financial year 2024-25 is 5.1 (out of 10). While about two-thirds of survey respondents consider themselves to have at least ‘just enough business to survive’, 4% consider business shutdown highly likely.
- The cost of doing business is the most common barrier to business expansion, followed by a lack of customer demand, taxes and government charges, and skills shortage.
- The three cost categories that businesses are most concerned about are insurance costs; taxes, levies and other government charges; and energy costs. About one in four businesses reported an increase in general insurance costs of more than 30% in the past 12 months.
- As a result of the increase in general insurance costs, 22% of businesses have insured below their desired level and 12% of businesses have gone without non-mandatory insurance.
- Amongst the businesses that consider supply chain issues as a barrier to expansion, the key issues are high freight costs, rapidly rising product prices, and long delivery times.
- Despite the recent rebound in inflation readings and an unclear interest rate outlook, business concerns about interest rates have been generally steady from the previous quarter. The key concern remains the impact on customer spending.
- 28% of businesses have applied for at least one business loan from a bank in the last 12 months, with just over half of them successful for the full amount.
- The majority (59%) of businesses intend to maintain the same headcount in the next three months, while 24% plan to cut staff and 17% plan to hire additional staff.
- 68% of businesses have actively managed energy use in the last 12 months, with 43% having sought a new energy deal, 21% having implemented energy efficiency upgrades, and 21% having modified existing products or services to reduce energy use.
- 64% of businesses have identified barriers to winning government contracts, with the most common barrier being the high cost or time involved in preparing applications, affecting one in three businesses.
Insights
- We’ve been trading in a retail recession for 18 months.
- The outlook looks stable with less volatility – though with very little growth.
- Consumers are spending though not across multiple categories (ie: still buying food).
- Retail spending has fallen in six of the last seven quarters.
Forecast
- Trade to be positive, though very slow.
- The upcoming Christmas period will likely see consumers push their spending into the BFCM (BlackFriday) sales period, doubling down on last years trend.
- The upcoming post-Christmas sales period will likely under perform. Consumers unlikely to be stimulated by small price discounts.
- Consumers to continue to push their spending into previously slow categories as inflation decreases ie: travel
- From the BFCM sales period through to 2025 expect the broader retail market to be driving some sort of sale campaign.
Recommended Reading
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“The evidence shows that Australia’s retail sector has effectively been in recession for the last 18 months. A retail recession sequel doesn’t necessarily come as a surprise. In six of the last seven quarters, real retail spending has declined. And the numbers only look worse on a per capita basis. Real per capita retail spending has contracted for the last eight quarters and is now 2.5% lower than June 2023 and 6.3% lower than June 2022“.
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Strategic Path Forward
In our opinion it’s a good time to –
- retract the growth efforts from proven weak categories
- allocate sufficient planning towards new initiatives (already in motion)
- cease or abandon investment in new categories and/or initiatives (not yet in motion)
- look inwardly towards the brands positioning and optimise it
- take a forensic assessment of the product offering and optimise it
- take advantage of new existing category growth and remain active in it
Brand Positioning
I believe in coming months the continued trend of brands racing to the bottom on price will continue (to simply survive), thus eroding their brand equity, skewing their purpose and compromising their value set. To combat this and not fall into a similar pattern, brands need to truly understand where their Brand Equity exists. When we nurture brand equity and maintain the delivery of value where the consumer has determined it exists – success will be easier (ie: trading at volume at full price off the strength of the product that sells).
I believe if a brand joins the anxiety race-to-the-bottom behaviours in coming months and attempts to compete on price to maintain sales (or growth) in the forecasted flat market, you’ll further damage the brand and its true north. When the market shifts to positive territory it’s likely new market entrants may challenge and prove a good option for full price paying consumers looking for authenticity within brand story and value within product.
To note, marketing initiatives will only amplify brand positioning and placement, not determine it. The ideal sequence would see a robust Business Strategy and Planning function feeding the Marketing Strategy as to allow a Marketing Plan to take flight with charged Advertising.
Thanks for reading. Enjoy the rest of 2024!
