Decreasing footfall, rising rents, and conservative shoppers means retailers are less optimistic about the all-important Christmas trading period than 12 months ago, according to new research for Deloitte.

In contrast, online sales are expected to grow as digital investments start to pay off, while the Amazon juggernaut continues to gather momentum down under.

According to Deloitte’s annual Christmas Retailers’ Survey report, released last week only 62 per cent of Australian retailers expect to see higher sales this Christmas, down from 80 per cent last year.

Digital continues to be a standout with 58 per cent of Australian retailers expect to see growth of 10 per cent or more in online Christmas sales. 

It is Amazon’s third Christmas in the local market, after it entered Australia in late 2016 but the US giant’s presence is being felt by competitors. 

According to the report, Amazon Australia generated c.$300 million in sales in 2018 with over 100 million different products. Deloitte expects sales will double in 2019. 

“Whilst this represents only a very small percentage of the Australian retail market, the bigger impact has been how Australian retailers have responded,” said David White, national leader of Deloitte’s Retail, Wholesale & Distribution Group. 

“Over the past three years we’ve seen a significant increase by Australian retailers in their digital, online and fulfilment capabilities in a clear response to the Amazon threat. It’s still early days for Amazon in Australia, but as digital becomes ever more important in the battle for consumer spend, expect to see Amazon’s market share continue to grow rapidly.” 

Tough times

The report notes that this is the most pessimistic retailers have felt since 2013. 

“It’s clearly been a tough year for many retailers, with 47 per cent of our survey respondents telling us they’ve experienced flat or negative sales growth over the past 12 months,” White said. 

Almost 40 per cent said they expect to see a decrease in margins during the Christmas trading period.

The report notes the shift to discount earlier has been underway for a number of years,  driven by increased competition, reduced footfall in major shopping centres and the rise of US sales which fall in late November to early December. 

In 2019, 39 per cent of retailers are planning to discount before Christmas to drive sales compared to 31 per cent in FY18 through sales campaigns such as Black Friday and Cyber Monday.

“As always, when to discount and by how much remains a critical decision for retailers over the holiday period. Last year they told us they were intent on holding strong. But with difficult trading conditions 12 months later, this will be challenging, with 39 per cent of retailers planning to discount before Christmas compared to 31  per cent last year, and 30 per cent in early December.

“And with the proliferation of sales campaigns such as next week’s Black Friday leading into December, many are concerned this could bring forward Christmas trading at discounted prices.” 

Real estate

The report also shows retailers are viewing their real estate differently than in previous years. 

In 2020 revenue growth is expected to be driven by online sales and new products, rather than store openings –  only 11 per cent of retailers are expecting to grow through new store openings, down from a peak of 43 per cent in 2017. 

Over a quarter of respondents highlighted customer service as the most important driver of sales this Christmas, just behind digital and omnichannel offerings.

“These two strategies aren’t mutually exclusive. Forming a strong digital connection with the consumer is critical to building trust in the brand, regardless of where the customer spends, and this connection to the customer flows through to loyalty,” White said. 

Looking further ahead, 72 per cent expect to see positive sales growth in calendar year 2020, down from more than 90 per cent for 2019 . 

“There are signs of more optimism amongst retailers for their prospects in 2020,” White said. “They’re still hoping for the best, with some 72 per cent expecting to bounce back and grow their top line. But with most not forecasting growth in excess of 5 per cent, it still looks like another challenging year ahead.

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