Fifty-eight percent of Australian retailers admitted to passing the majority of the increased costs of doing business onto consumers, with 23% passing on all costs, as the Australian retail industry grapples with inflation, worker shortages, and softening consumer demand, new research from Shopify has revealed.
The Shopify Australian Retail Report, conducted in partnership with YouGov, unpacks the tactics retailers are employing to manage the current economic environment, their investment priorities for the next 12 months, and their plans to connect to Australian consumers who are becoming increasingly value conscious. The study of more than 200 medium to large retailers and 1,000 Australian consumers sheds light on shifting consumer behaviours and lays out effective pathways to growth for retailers to connect with customers facing economic pressures.
Unsurprisingly, almost all (99%) of Australian retailers have been impacted by macroeconomic pressures with the increased costs of wages (45%) being the biggest strain on company budgets, followed by the increased cost of servicing debt (43%), and surging operational costs, including energy bills and rent (41%).
For 95% of Australian retailers, the immediate response to manage these mounting pressures has been to pass at least some of the increased costs of doing business onto consumers. The one group bucking this trend is direct-to-consumer retailers (DTC), with 62% absorbing the majority of costs, signalling the sector is still coveting raw customer growth over profitability. The tension, for retailers, exists in the finding that three in four (75%) Aussie consumers say they have opted to cut back spending in order to save money and 82% of Australians have changed their spending habits due to increased cost of living.
“Australian retailers are in a precarious position, as they are facing growing price-sensitivity amongst consumers dealing with the higher cost of living, whilst having to overcome those same inflationary pressures themselves. It really is like being stuck between a rock and a hard place,” said James Johnson Director of Technology Services & Enterprise, APAC at Shopify. “In such a competitive environment, many of the retailers we’re speaking with are doubling down on customer-focused initiatives, whether that’s expanding their product offering to appeal to a broader range of consumers, or investments in customer experience, personalisation, and loyalty programs.”
Customer experience is a top priority for Aussie retailers
Ninety-three percent of Australian retailers cite customer experience as either important or critical. In fact the retailers most likely to view customer experience as critical for their business’ survival were also those that may be considered the most successful by measures – 50% of businesses with $500m+ annual revenue, 41% of retailers in operation for 20+ years, and 34% of retailers with 500+ employees.
Australia’s largest and most successful businesses are betting on personalisation to improve their customer experience over the next twelve months, adopting methods such as data-driven recommendations and personal touches like handwritten notes with delivery. Nearly half (47%) of businesses with over 500 employees, and nearly three quarters (73%) of businesses earning over $500m in revenue, have adopted or are planning to implement personalisation strategies, being their biggest priority for the next twelve months.
DTC businesses are also making personalisation a top priority when it comes to customer experience with 62% saying this will be their focus. 41% of B2C retailers are looking to invest in additional customer insights such as qualitative and quantitative data as their number one priority. Whereas, B2B organisations have a strong focus on the integration of online shopping with in-store experience as their main focus with 41% of businesses doing this.
Jehan Ratnatunga, Co-Founder & VP of Strategy and Digital Product at Who Gives a Crap said “If we want to meaningfully grow market share, we need to understand and drive a behavioural shift. There’s education or sampling or driving behaviour to ‘top of mind awareness’, our brand campaign is a first step in that direction”
“We do need to think about where the customer is. We’ve been DTC for years, but the supermarkets still capture most of the market, so we need to think about an omnichannel approach to reach those customers. Our DTC experience will always be the best way to engage directly with customers but there are still customers we can’t reach without an omnichannel approach.”
Investment in tech
Technology is important for efficiency, but it’s also incredibly important for enabling customer experience excellence, an especially valuable trait for retailers as consumer behaviour evolves. Almost all (98%) of Australian businesses are investing in different technology measures over the next 12 months, with nearly half (44%) investing in real-time data analysis.
Almost two thirds (64%) of respondents will be using technology to improve their customer experience through automation. Second to this, over half (55%) said they are planning to enhance their customer’s online experience such as automatic refunds. Interestingly, retailers located in NSW are 50% more likely to enhance online customer experience in the next 12 months compared to those in Victoria.
Highlights from the increased costs research:
Macroeconomic pressures retailers are facing
- The increased cost of wages is the main challenge businesses are grappling with in most states and territories, with South Australia (59%) and Western Australia (52%) most impacted.
- Queensland businesses cited the increased cost of servicing debt as their main challenge (58%), while Victorian businesses cited increased operational costs (42%) like energy bills and rent
- Victorian retailers were the least likely to plan price increases in the next 12 months at 16%, almost half the rate of the most likely, NSW at 28%
- One in five (21%) businesses are looking for new non-bank sources of finance, jumping to 35% for businesses in WA
- Businesses with $500m+ revenue cited digital transformation as the biggest challenge their business was facing (55%), but did not perceive maintaining profitability or people management as challenges (both 9%)
- Conversely, maintaining profitability was the number one challenge for businesses with $100-499.9m in revenue (47%), while they were least concerned with cyber security (11%)
Customer experience takes hold
- On average, Australian retailers are planning to invest 13.2% of total revenue in customer experience over the next 12 months, with those turning over $500m+ investing the most at 15.9%
- Personalisation is the top customer experience initiative businesses are investing in, at 41% – a number that jumps to 71% for businesses with $500m+ annual revenue
- This is followed by promotions (28%), most prevalent with businesses turning over $50-$99.9m p.a., and investments in additional customer insights (28%), also most popular with businesses clearing $500m+ p.a.
- 55% of enterprises with $500m+ revenue are investing in the integration of online shopping with the in-store experience, as are 42% of businesses with between $100m-$499.9m in revenue
Tech talks
- Real-time data analysis (44%) is the primary technology investment retailers are making in the next 12 months, most pronounced with businesses generating $100,-$499.9m at 58%
- This is followed by technology upskilling programs for internal teams (41%) and supply chain optimisation initiatives (36%)
- 26% of retailers are reviewing the total cost of ownership of their tech platforms, with 19% aiming for vendor consolidation
- 54% of DTC retailers were investing in a customer data platform, while 46% were investing in social commerce