Deloitte: Retailers expect sales to rise this Christmas

Eighty percent of Australia's retailers expect 2015 Christmas sales to exceed those achieved in 2014, according to the findings of the latest Deloitte Retailers’ Christmas Survey.

18% expect sales growth in excess of 5%, compared to no retailers in 2014, and 35% are expecting 2-5% growth this Christmas.

However, the study's results show that retailers are less optimistic about their profit margins. 43% of the survey respondents anticipate increased margins over Christmas, but these are expected to be modest at best. Just 6% of retailers are envisaging margins to grow by greater than 2% compared to the 2014 festive period. And over a quarter expect margins to decline, 12% more than last year.

David White, partner and national leader of Deloitte’s Retail, Wholesale & Distribution Group, said: “A key concern is the impact of the falling Australian dollar. Whilst currency hedges have helped shelter the effect of higher import prices to some extent earlier in the year, there is concern higher product costs will no longer be avoidable come Christmas. As competition intensifies, businesses face having to absorb some or all of these cost increases for fear of losing customers."

“So, whilst on the surface the numbers look good, dig just below and there’s a question mark over profitability.”

The retailer optimism is set to extend into 2016 as 41% predict sales growth of 5% or more in earnings over the course of the year. The roll out of new stores (31%), the introduction of new products (31%), online offerings (12%) and price increases (12%) have been identified by retailers as the key sources of sales growth in 2016.

Some 59% of the respondents anticipate discounting their products this Christmas, and 27% are planning to begin discounting in early December, the highest since the survey began four years ago. That said 20% of retailers are still undecided on when to discount and by how much.

“With one in five yet to decide if and when they’ll start discounting, it could be the case of who will blink first,” said White.

“This may be both indicative of uncertainty around the strength of consumer sentiment, but also the greater levels of sophistication of retailers. Increasingly, ‘real time’ pricing decisions give retailers the ability to change prices at short notice across specific products in specific locations at specific times of the day. So, based on our survey, the majority of retailers will discount their products at some point over the Christmas period. The question is when and by how much.”

A third of retailers cite product choice and 23% highlight customer service as the top two key focus areas to boost sales this Christmas.

White said, "Getting the product range and mix right is always front of mind for retailers, but never more so than at Christmas. Coupled with customer service, it’s critical for all retailers to be asking what their different customers want and deliver services and products that genuinely meet their expectations. The fact more and more retailers are recognising this can only be positive for retailers and consumers.”

Four years ago, two thirds of retailers were expecting their online sales over Christmas to be 2% or less of their total Christmas sales. Fast forward to 2015, the figure has halved to 34% of retailers. Nearly 50% of retailers expect their online sales to make up 6% or more of their total sales this Christmas, compared to just 18% of retailers in 2012 and 21% last year. Whilst this is still low compared to the likes of the US and UK, Australian retailers are starting to invest in online in response to an ever more demanding consumer.

“The key for retailers is to understand how customers are using digital devices, such as smartphones, tablets and laptops, to make decisions and shop,” said White.

“The recent Deloitte report ‘Navigating the New Digital Divide’ showed 40% of in-store visits in Australia are influenced by digital – higher than the UK, Netherlands and Germany – with 65% of customers using a digital device before their shopping trip and nearly 31% while shopping.

“Far from being digital dinosaurs, Australian consumers are actually highly connected when it comes to the use of digital whether it is for researching a product, comparing prices and checking availability or purchasing with click and collect. Australian retailers are potentially underestimating the appetite of consumers for digital engagement through the end-to-end shopping journey.”

The survey showed that retailers’ global intentions are gaining a foothold as an increasing number (45% versus 31% in 2014) see expanding their operations overseas as an opportunity to grow their business over the next 12 months. Though just 6% see this as being their most significant driver of sales, there is a gradually increasing number of retailers looking to venture overseas. Any overseas expansion at this stage is likely to be on a relatively small scale to begin with.

“Whilst the risks of overseas expansion are higher, so are the rewards and with the continued growth in the Asian markets in particular, the opportunities remain significant. But a broken business model in Australia is a broken business model overseas too. A key message for retailers to understand is if you can’t be successful on your home turf, then the chances of being successful overseas are even slimmer. The strategy and timing must be right,” White said.