While some small and medium-sized Australian retailers are surpassing performance expectations in the face of significant challenge, many say they are failing to meet their financial benchmarks, according to the inaugural Australian Retail Association (ARA) and American Express Small Retail Index.

The report reveals one in six (17%) SMBs have remained resilient in the face of a spending slowdown and rising costs of doing business; performing above (15%) or far above (2%) their expectations for FY23. On the other hand, one in four (41%) SMB retailers are performing below (33%) or far below (8%) their forecasts.

More than 91% of SMBs have seen cost increases in their businesses across the past 12 months, however around one-third (32%) say their costs have increased more than 10% – above the level of inflation.

An equal number of businesses feel ‘somewhat confident’ (23%) or ‘very confident’ (11%) to those who feel ‘somewhat concerned’ (25%) or ‘very concerned’ (9%) about the financial year ahead. Uncertainty is also a key theme with one-third (32%) of SMB’s feeling uncertain about the year ahead.  

Acquiring new customers and encouraging customer loyalty are top SMB priorities for the year ahead. However, SMBs are absorbing cost increases by passing higher costs onto customers (24%), with 19% of SMBs reducing margin and looking for cost savings in the business (16%). Furthermore, 12% have reduced staff and 7% have reduced stores or store hours.

ARA CEO, Paul Zahra said the index highlights the unprecedented pressure small retailers are under.

“I cannot recall a period of more significant challenge for our retail community with our small retailers disproportionately affected by ongoing revenue and resource pressures,” he said.

“2023 ushered in the perfect storm for retail – a spending slowdown, coupled with the rising cost of doing business, all taking place alongside the largest set of government reforms in decades and a retail crime wave that is impacting the wellbeing of workers and the bottom line of companies.

“We are concerned about the outlook for small retailers in these tumultuous economic conditions and the toll these pressures are taking. Small businesses are the cornerstone of our economy and it’s vital that they receive adequate support.”

American Express vice president and general manager of consumer and commercial services, Emily Roberts said the index serves as a vital barometer of the wellbeing of Australia’s small retail sector.

“Following years of consumer uncertainty, supply chain constraints and economic pressures, this research commissioned by the Australian Retailers Association and American Express paints a picture of an industry that is bracing for more challenges ahead,” she said.

“Despite this, history has shown that no industry is more resilient and better positioned to emerge from adversity. Retailers that adapt how they build, market and sell their products to meet new consumer behaviours will be best placed to acquire new customers, secure their loyalty and navigate the challenges to come.”