In the ever-shifting realm of commerce, change is the only constant. While last year’s sales season broke spending records, retailers are preparing for a very different shopping landscape as 2023 draws to a close.
Economic indicators paint a complex portrait, one marked by mounting cost of living pressures, surging inflation and increasingly discerning consumers.
A common theme from a recent event we hosted for retailers is that they are at a bit of a crossroads – the terrain is tough, the competition fierce and the tried-and-tested tactics for survival risk falling short.
Inflationary pressures have led to rising costs for both businesses and consumers, forcing retailers to carefully evaluate their pricing strategies.
The Reserve Bank of Australia has indicated that a return to pre-inflation levels may not occur until mid-2025. That’s a sobering projection for retailers aiming to stabilise their margins during this period of the year which is typically marked by a festive spending frenzy. For many – and this season more than most – these events can make or break their fiscal year.
Historically, retailers could pass on some of these costs to consumers, but this go-to is increasingly becoming a no-go as consumer spending behaviours shift.
It’s not that consumers have stopped spending altogether, but rather, they have become more cautious about where their hard-earned money goes. 75% of Aussie shoppers are consciously reducing their expenditures to save money. However, more than half (52%) are still spending on discretionary items – so opportunities for sales still exist.
As the panellists at our retail summit highlighted, while the challenges for retailers across the remainder of 2023 are real, so too are the opportunities for those who dare to innovate and adapt.
Many modern-day retailers are beholden to an outdated business paradigm. Processing international payments is a great example. Traditional banking providers who facilitate cross-border money transfers subject payments to costly conversion multiple times during transit, diminishing the share that ends up in the pockets of retailers.
These charges used to be an unavoidable cost of doing business, but in this day and age, it’s an unnecessary and avoidable expense. Fintechs have changed the rules of the game, and everyday businesses and consumers are the winners.
Businesses need to take stock of all their costs, right across the board. It’s not just big-ticket items that eat into profits – there are dozens, if not hundreds, of unnecessary everyday costs that are quietly chipping away at the bottom line.
That said, cutting costs needs to be approached with caution.
At that retail summit, one of the key things all of our panellists agreed on – whether it was former Uber CMO Mal Chia, Frank Body’s Jess Hatzis, Rachel Tigel from Threebyone Denim or Kulani Kinis founder Alex Babich – was that Australian shoppers are smart and they’re worldly. They’re used to buying in a global marketplace, with multiple payment options available. They expect products to come quickly, reliably and with an accessible, almost instant, level of recourse if the experience hasn’t quite lived up to what they wanted.
Businesses need to strike the right balance of cutting wasteful or avoidable spending, whilst doubling down on investment in the right tools and technologies that will get customers over the line and returning for more.
Retailers must ensure they’re making the right calls on what tech platforms and plugins will increase their revenue, whilst finding alternative providers who will cost them less to keep the lights on.
2023 has been a gear change from previous years, but there’s every reason for retailers to remain optimistic coming into the sales season. Thoughtful individuals who’ve been holding out, waiting for the right deal and the right product, will be pouncing come the emergence of the click frenzy on Black Friday, Cyber Monday and all the way through to Boxing Day and New Year.
The opportunities are there for those who adapt and innovate. The path forward requires a delicate, but not impossible, dance between adaptation and preservation.
Luke Latham is managing director for ANZ at Airwallex.