Cost of living pressures: 54% of retailers passing on costs to consumers
The ARA has found that Aussie retailers are under relentless pressure as shoppers limit their spending due to cost of living pressures.
With the Christmas and holiday trading period looming, a new report shining a light on the state of today’s retail landscape has found that more than half of small and medium businesses have been forced to pass on higher costs to consumers.
These figures mark a 30% increase compared to just four months ago when only 24% of small and medium businesses were passing on higher costs.
Ahead of what should be the busiest retail period of the year, the national retail body Australian Retailers Association (ARA) and American Express released their Small Retail Index today.
The report, which surveyed 468 retailers between September and October 2023, found that while 57% of small and mid-sized businesses are defying economic headwinds to meet or exceed their financial benchmarks, as many as 43% are falling short.
Less than half, 45%, of retailers feel confident about the financial year ahead, with 55% feeling either uncertain or concerned as a consumer spending slowdown continues to impact the industry.
A quarter of retailers are increasingly using staff incentives and bonuses to retain and attract workers and the majority, 88%, are pursuing innovation to drive revenue and reduce costs.
Australian Retailers Association CEO Paul Zahra said the Small Retail Index demonstrates just how difficult it is for small businesses in Australia in the current economic landscape.
“Our retail community is under relentless pressure as shoppers limit their spending due to cost of living pressures,” he said.
“It comes at the worst possible time for SMEs, who are simultaneously grappling with rising costs across the board; rent, labour, insurances, utilities and materials.
“While it remains somewhat uncertain what lies ahead for the future retail landscape, it will likely involve significant transformation and evolution.
“Despite the tumultuous operating environment, most retailers are showing extraordinary resilience by investing in innovation, e-commerce and sustainability to prepare themselves for the future. Crises are known to drive innovation.”
Zahra said many small retailers are struggling for economic survival.
“While passing on cost increases to consumers is the last resort – in many instances, it is necessary to stay in business,” he said.
“Most retailers are reluctant to increase their prices, and only do so when forced. Retailers are aware of the risks of increasing prices in terms of losing customers, but for many, they have no choice.
“It is concerning, but unsurprising, that less than half of retailers are feeling uncertain about the financial year ahead. How retail performs is at the mercy of many factors. Cash rate decisions by the Reserve Bank of Australia will be a significant factor, as will overall consumer confidence.”
Zahra added that the findings are consistent with ARA-Roy Morgan research indicating it will be an uncertain holiday trading period for retailers.
“Small businesses, especially discretionary retailers, are at the coalface of this pressure as we head into the Christmas trading period,” he said.
“Most discretionary retailers make up to two-thirds of their profits during the lead-up to Christmas, so it can be a make-or-break period for many.
“While some SMEs are holding their own against the current economic pressures, we typically expect these businesses are either trading in the essentials category like food, or servicing consumers who are less impacted by cost of living pressures.”
The ARA & American Express Small Retail Index also found that the cost of doing business continues to be a significant strain for retailers, with almost all 93% stating that they have seen cost increases in their businesses over the past 12 months, with more than one-third saying their costs have increased by more than 10%.
While decelerated consumer spending is the most pressing concern at 57%, wage costs at 41%, cost of goods and services at 39%, staffing shortages at 29%, and cash flow management at 29% are also ranked in the top pressing concerns.
American Express vice president and general manager of Consumer and Commercial Services at American Express Emily Roberts said the latest ARA & American Express Small Retail Index confirms that many small retailers are unfortunately struggling at the moment, with around four in ten not meeting their financial targets.
“The pressure facing small businesses is considerable. Not only do they have to contend with rising costs, but also the uncertainty of what’s around the corner.
“Christmas is typically the busiest period of the year for most small retailers, but with consumers being more considerate with their spending, retailers are unsure if the festive trading period will be enough to sure-up their finances.
“Yet, the Index proves what most know to be true about small retailers, and that’s the fact they are incredibly resilient. Many are looking at how they can bring in new customers to their business while building loyalty with existing clientele.
“There is also a keen interest in innovation, sustainable practices and AI to help strengthen and future-proof their business, so there is still a lot to feel positive about from these findings.”
