Economic pressures on Australian retail in 2024
Silly season, tight times
If you're part of the commercial retail industry, you’ll know that every year, November marks the start of Sale Season, a period kicked off by Singles Day and Click Frenzy, hotly followed by Black Friday, Cyber Monday and cascading all the way through Christmas to Boxing Day, as consumers empty their wallets in a flurry of retail spending. In 2024 however, many retailers are considering how current trends, including economic ones, will impact this typically buoyant time, and how they should prepare to navigate whatever conditions the season brings.
Here we explore the expected retail trends for the 2024 Sale Season, considering factors like economic pressures, consumer behavioural shifts, and strategic moves retailers can implement to ensure every purchase that goes through their checkout brings maximum benefit to their business’s bottom line.
Inflation, interest rates and the Aussie dollar
In 2024, Australia is experiencing unique economic conditions, made up of various interwoven factors, which include inflation, interest rates and the value of the Aussie dollar. How do these factors affect retail specifically? Let’s take a look.
Inflation
Inflationary pressures squeeze profit margins for retailers, mainly because they also stretch consumer budgets. As the price of things go up, the pie of total consumer spending is smaller, and retailers have to fight harder for their piece of it. In this climate, it's essential for retail businesses to adopt agile pricing models that can quickly adjust to market conditions without alienating customers.
Interest rates
Whilst globally, all markets have experienced a steep interest rate incline over the immediate post pandemic years, Australia is proving to be one of the last countries to see this incline flatten, with The Reserve Bank holding firm in late 2024 on reducing interest rates until inflation is properly and officially under control. High interest rates mean a large proportion of Australians are spending more on their mortgages – or passing on the cost in terms of higher rents for tenants. This creates pressure on the household budget across the board and hi-jacks disposable income, consequently impacting spending in the retail sector.
The Aussie dollar
With many retail wholesale items sourced internationally, a weaker Australian dollar is never good for the retail sector, and the Australian dollar is currently a few cents off its all-time low against the USD. When their costs go up, retailers are faced with the difficult choice of either reducing margins, or seeing inflated prices result in reduced sales.
Will this year’s retail spending be as silly?
Will pressures created on consumer budgets by the cost-of-living crisis impact this year’s sale season spending? Or will the Aussie shopper’s voracious appetite to kick loose on their annual spending spree transcend those pressures for another record season?
In a recent set of individual studies supported by Australia post, multiple forecasts point to it being another cracker year’s end for our retail sector. Roy Morgan is predicting total pre-Christmas Sales to be up 2.7% to a whopping $69.7 billion and an even steeper 5.5% uplift for sales to predicted for the four-day weekend of Black Friday to Cyber Monday, to $6.7 billion.1
This could be because tighter budgets mean an even greater appetite amongst consumers for bargain bagging. This year, Shopify surveyed 2000 Australian consumers and learned that 49% intend to do most their holiday shopping during the Black Friday to Cyber Monday long weekend. For families with kids, the trend to shop early for Christmas and holiday needs is even more pronounced with 70% finalising their lists by October and 68% having done the bulk of their shopping by the end of November.2
Retail footfall versus online
The rise of a hybrid approach
In 2024, the battle between bricks-and-mortar stores and online purchasing continues to evolve. While online shopping remains a popular choice for its convenience, a resurgence in retail foot traffic is expected as consumers crave a more tactile shopping experience post-pandemic.
Foot traffic trends indicate that consumers are maturing and now use a hybrid approach to clinch their buying decisions, combining the best of both worlds – using online platforms for product research and price comparison before heading to physical stores for final purchases. This hybrid shopping model means retailers need to integrate their online and offline strategies seamlessly.
For procurement managers, this means ensuring adequate stock levels across channels and investing in digital marketing strategies that drive in-store visits as well as immediate digital cart sales.
In-store coming back into its own
To meet renewed customer expectation in the in-store environment, retail operators need to lean into the reason customers are coming in store, which is essentially to experience something. Experiential shopping environments that draw customers in and encourage them to linger longer will ultimately boost sales. In addition, instore customers are also seeking personalisation, convenience, and of course, exceptional service – which remains non-negotiable.
3 ways to shine instore
- Make it personal
Retailers can enhance personalisation by leveraging customer data to tailor shopping experiences to individual preferences. Implementing AI-driven recommendations or personalised greetings can go a long way in making customers feel valued and understood.
- Make it easy
Convenience also plays a significant role in the in-shop experience. Offering features like easy-to-navigate store layouts, efficient checkout processes, and flexible return policies can significantly enhance customer satisfaction.
- Make it helpful
Well-trained staff who provide knowledgeable assistance, and a friendly demeanour can be the deciding factor in whether a customer completes a purchase or walks away. Retailers who invest in staff training and development will reap the rewards of satisfied, loyal customers.
How retailers can improve their bottom line
3 centres of efficiency
As every retailer knows, maximising profitability is a balancing act between stock, sales, and the fickle ebbing and flowing tide of consumer demand. That said, there are a number of things retailers can do to reduce pressures on their business bottom line. Particularly during the silly season, improving the bottom line requires strategic planning and execution. Here are three key centres of efficiency that retailers can target:
- Optimise inventory management
Efficient inventory management is key to reducing carrying costs and minimising stockouts. Retail operators should leverage data analytics to forecast demand accurately and adjust inventory levels accordingly. This approach ensures popular items are readily available while reducing excess stock that ties up capital.
- Leverage marketing technology
The world of marketing technology (Martech) has come leaps and bounds since the days of price tickets and old-fashioned cash registers. Digital marketing is a powerful tool for reaching target audiences effectively and ensuring no marketing dollars are wasted. Retailers can use social media platforms, email marketing, and targeted ads to engage customers with offers and promotions that their online behaviour shows they’re interested in. Implementing AI-driven marketing tools can further enhance campaign precision and reach, plus create major cost efficiencies in the creation of marketing materials that have not been possible until the last couple of years.
- Add energy savings to the mix
With rising energy costs, finding ways to reduce consumption can significantly impact profitability. Come the silly season, retailers face increased energy costs cutting into their profits due to longer opening hours and extravagant energy powered displays. To minimise the impact of increased energy costs, it pays for retailers to think ahead and invest in energy-efficient lighting, smart HVAC systems, and renewable energy sources as a part of their wider business planning. Not only does this save money, but it also aligns with sustainability initiatives that resonate with eco-conscious consumers, which could help them corner more of that Sale Season dollar.
Spotlight on energy efficiency
From illuminating expansive shopping floors to maintaining optimal temperatures throughout the year, the Australian retail sector demands a significant portion of the country's energy supply. It's a fact that every retail business, from bustling supermarkets to niche boutiques, contributes to this consumption pattern.
Energy consumption statistics reveal that the retail sector is among the top energy consumers in the commercial building category. This energy dependence not only impacts the environment but also represents a considerable operational cost for retail businesses. Procurement managers are increasingly aware that reducing this energy footprint is as much about sustainability as it is about enhancing the bottom line.
Where the retail sector uses its energy
Lighting, heating, ventilation, and air conditioning (HVAC) systems are the primary culprits making retail one of Australia (and the globe’s) highest energy consumers.
Lighting alone can account for up to 40% of a retail store's energy use. Bright, welcoming spaces are a hallmark of successful retail, but traditional lighting solutions are inefficient. The shift to LED lighting offers a promising alternative, reducing energy consumption significantly while maintaining the desired ambiance.
HVAC systems, crucial for customer comfort, represent another major energy guzzler. From winter warmth to summer cool, maintaining a pleasant temperature consumes a substantial amount of energy. Upgrading to more efficient systems or implementing smart thermostats can help mitigate these costs and environmental impacts.
Beyond these, refrigeration for grocery stores and storage facilities also demands a significant energy investment. Optimising these systems not only aids in energy reduction but also enhances the operational flow, making it a win-win for both sustainability and efficiency.
Technological advancements in retail energy efficiency
Thanks to recent technological advancements, many powered by AI, there's a wealth of options available to transform energy usage.
AI-powered energy analytics
One of the most promising advancements is the integration of AI-powered energy analytics. These systems continuously monitor and analyse energy data, offering insights that enable businesses to monitor their energy usage, spot inefficiencies, see where the greatest efficiency gains can be made and take targeted and informed action to optimise their energy use.
Solar and batteries
Solar and battery technology is another frontier in retail energy efficiency. By harnessing renewable resources, retail businesses can reduce their reliance on traditional energy grids. This shift not only curtails emissions but also insulates businesses from fluctuating energy prices – although it needs to be said that implementing solar is dependent on a retail business’s premises being suitable.
5 practical steps for retail businesses to enhance energy efficiency
Here are some practical steps retail businesses can take to drive an energy-efficient transformation and see the benefits pay back both on their bottom line, and their carbon footprint.
- Conduct an energy audit
Begin with a thorough assessment of current energy use. Identify areas where consumption is highest and prioritise them for improvements.
- Upgrade lighting systems
Transition to LED lighting to reduce energy consumption and costs without compromising on customer experience.
- Optimise HVAC systems
Implement smart thermostats and regularly maintain systems to ensure they operate at peak efficiency.
- Leverage AI and data analytics
Use advanced analytics to gain insights into energy usage patterns and make informed decisions.
- Explore renewable energy sources
Invest in solar panels or other renewable technologies to decrease reliance on traditional energy grids.
By taking these steps, retail businesses not only contribute to environmental sustainability but also support long-term operational efficiency and profitability.
How Zembl can help
More than energy procurement
At Zembl, we offer energy procurement for the entire Australian business sector including retailers, but we know it takes more than energy procurement alone to make the biggest impact on a business’s bottom line in terms of energy efficiency.
That’s why, when you choose Zembl for energy procurement you’ll feel our energy well beyond signing your energy contract, with ongoing service to help you know more, use less and pay less for your energy, for your full contract duration. This includes:
- Zembl Energy Consultants – a team of local, expert people at your service.
- Energy intelligence – AI-powered insights from your own usage data to uncover and maximise your efficiency opportunities.
- Energy efficiency – using your energy insights, we’ll help power your business’s transformation to today’s most energy efficient options.
If you’d like to know more, it’s as simple as leaving your details and a Zembl Energy Consultant will call you right back.
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