By Aimee Chanthadavong

Retailers are delaying executing some business strategies because difficult economic conditions are polarising business confidence.

The 2012 Sage Business Index results show 12 months ago more than half of Australian retailers (52 per cent) said that risings costs would be a business issue in the year ahead. But the survey indicates the problem was far more widespread than originally anticipated, eventually being experienced by almost three quarters (74 per cent) of the sector. This year retailers appear to have no doubts about the potential for rising costs, with three quarters (74 per cent) stating this will be one of the major challenges of the next 12 months.

Ben Taylor, founder and director of the insight room, listed the strong Australian dollar and the two-speed economy as reasons for the sombre economic conditions which polarised overall weakness.

As such, retailers are more than likely to delay human resources-related decisions. Thirty-six per cent of retailers have deferred pay rises compared to one quarter (27 per cent) of all businesses. Additionally three in ten retailers (31 per cent) report postponing hiring new staff, compared to one quarter of all businesses.

Other growing challenges for the retail sector include increased competition (rising from 28 per cent) of retailers experiencing in last year’s survey to 44 per cent this year) as well as gaining new customers (rising from 20 per cent last year to 31 per cent). This reiterates that retailers have clearly recognised that conditions are tighter and that they have to look for new ways to develop business.

Marketing and sales continue to be key investment priorities for retailers should more budget become available. This is no surprising, as when business confidence decreases, spending stalls and people have to work much harder for ‘scarce’ orders. Conversely, spending on technology or web presence – both of which have a sightly weaker link to sales – declined as priorities for retailers.

Alan Osrin, managing director, Sage Software Australia, said it’s a misconception business have that if they have a website it means they’ll see financial returns but that’s not necessarily the case.

“It’s an assumption that a good turnover will come if you have good web presence. But because businesses didn’t see that last year they’re pulling back in this area and are focusing on more traditional ways to earn money like advertising and marketing,” he said.

“But with saying that, websites have made trading internationally the one important reason to have a web presence.”

Similarly Taylor said: “Business are less aggressive in technology investment is because they’re shifting their focus on sales and marketing, where they’re likely to receive a return”

The Sage business index results suggest this is because, as competitiveness tightens and growth slows, retailers are looking for more urgent and direct ways to grow sales. Given online shopping represents a potential major competitive force for retailers going forward, this may have implications on future growth for the sector.

The two areas of technology that are gaining attention for business owners. Interestingly, retailers placed mobile technology in second place following investment in computer hardware such as PCs and laptops.

The second area of technology is social networking due the perfection that it could be an effective way of generating customer demand. Almost six in ten (59 per cent) retailers agree that organisations, which use Facebook and Twitter to engage customers in the next few years will be more successful than those that though. However, half acknowledge that they don’t really understand how to effectively use Facebook or Twitter to promote their business.

“Dynamics are changing quickly and this will hopefully bring education including training back into the forefront for businesses,” Taylor said.