More than half of Australian retailers (58%) admitted to passing the majority of the higher costs of doing business onto consumers, with close to one-quarter (23%) passing on all costs, as the retail industry grapples with inflation, worker shortages, and softening consumer demand, according to new research from Shopify.

The Shopify Australian Retail Report, conducted in partnership with YouGov, unpacks the tactics retailers are employing to manage the current economic environment, investment priorities for the next 12 months, and plans to connect to Australian consumers. Almost all (99%) Australian retailers have been impacted by macroeconomic pressures with the higher costs of wages (45%) being the biggest strain, followed by the increased cost of servicing debt (43%), and surging operational costs, including energy bills and rent (41%). 

For 95% of Australian retailers, the immediate response to manage these pressures has been to pass at least some of the increased cost of doing business onto consumers. The one group bucking this trend is direct-to-consumer retailers (DTC), with 62% absorbing the majority of costs. However, three in four (75%) Australian consumers say they have opted to cut back spending to save money and 82% of Australians have changed their spending habits due to increased cost of living. 

“Australian retailers are in a precarious position, as they are facing growing price-sensitivity among consumers dealing with the higher cost of living, while having to overcome those same inflationary pressures themselves. In such a competitive environment, many of the retailers we’re speaking with are doubling down on customer-focused initiatives, whether that’s expanding their product offering to appeal to a broader range of consumers, or investments in customer experience, personalisation, and loyalty programs,” Shopify director of technology services and enterprise for APAC, James Johnson said.

More than nine in 10 (93%) Australian retailers cite customer experience as either important or critical. In fact, the retailers most likely to view customer experience as critical for business survival were also those that may be considered the most successful by measures – 50% of businesses with over $500 million annual revenue, 41% of retailers in operation for more than 20 years, and 34% of retailers with over 500 employees.

Australia’s largest and most successful businesses are betting on personalisation to improve their customer experience, adopting methods such as data-driven recommendations and personal touches like handwritten notes with delivery. DTC businesses are also making personalisation a top priority when it comes to customer experience with 62% saying this will be their focus. 41% of B2C retailers are looking to invest in additional customer insights such as qualitative and quantitative data as their number one priority.

Almost all (98%) of Australian businesses are investing in different technology measures over the next 12 months, with nearly half (44%) investing in real-time data analysis. Almost two thirds (64%) of respondents will be using technology to improve their customer experience through automation. Second to this, over half (55%) are planning to enhance the online experience such as automatic refunds.