New research released in the September ARA Australian Retailers’ Index sent one message loud and clear: Retailers are worried.
Confidence among SME retailers was the lowest of any sector, falling 10 percentage points compared to a fall of eight percent for general SMEs nationally.
With a balance result of net negative two percent compared to a net confidence of 25 percent for SMEs across all sectors, retail SMEs were the only industry sector reporting net negative confidence levels.
For the retail sector, this is 34 percentage points lower than the same time last year - reflecting the mood of the retail market at the moment.
The most common concern for Australian retailers in the past quarter was a lack of work and sales (22 percent) and again this is higher than the general SME population (17 percent). This was followed by retailers’ concern about the economic climate in general (17 percent).
ARA Executive Director Richard Evans said “Retailing is the barometer of the economy, and the fact that demand and consumer spending has dropped, sends a clear message the RBA was slamming economic brakes too hard with two interest rate rises earlier this year. The retail sector has born the brunt of the flow-on effects in the past quarter.”
So what are retailers doing to drive sales?
Retail SMEs are more concerned about the current economic climate than any other sector and with sales falling they are adapting to the new conditions.
With a drop in sales and profitability and increasing concern about the current economic climate, it’s not surprising 30 percent of retailers indicate they have reduced their cost base in the past quarter.
What’s interesting is that the second most frequent response to the current economic climate was that retailers are advertising more in a bid to drive sales, with 16 per cent of retailers reporting this strategy. This is five percent higher than was the case for SMEs in general.
“This is a positive indication that retailers are starting to understand you can’t compete on price alone in times of economic uncertainty. Rather than focusing on making products cheaper, retailers are injecting dollars into advertising campaigns and thinking strategically about how they can give consumers, who have limited discretionary spend, a reason to shop. For small retailers though, advertising is not the only way to do this. Indeed, it may not be the most cost-effective way to communicate with customers,” Evans said. However, the results also reveal a worrying 13 percent of retailers have not yet taken steps to adapt to the current economic climate, with five percent of retailers indicating they are planning to take action in the near future and eight percent saying they are doing nothing. “Australian retailing is in a period of change and the current economic uncertainty is a great source of opportunity for retailers,” Evans said. To grow and prosper, retailers must be adaptable to the new conditions
Small retailers give Rudd ‘tough love’
The September ARA Australian Retailers’ Index revealed retail support for the Federal Government has remained low during the past quarter despite rising 10 points to a negative 22 percent approval rating.
ARA Executive Director Richard Evans said the Index revealed there was still the notion among 33 percent of retailers that the Federal Government’s policies worked against them.
“The September ARA Australian Retailers’ Index shows small business legislators that reducing red tape is the number one priority for retailers, with those unsupportive of Federal Government policies blaming too much paper work and administration. On the other hand, those retailers who are supportive of government policies (11 percent) believe they have tried hard to reduce red tape.
“Other key reasons Australian retailers believed the Federal Government’s policies worked against them were: a feeling that increases in the petrol price had impacted consumer spending and that the Government didn’t offer incentives to small business,” Evans said.
“Although confidence in government policies has risen slightly, it seems retailers’ expectations are a little ahead of reality with sales performance falling 15 percent in the past quarter and 52 percent of retailers experiencing a decrease in sales, despite only 29 percent of them saying they expected a decrease in sales in the previous quarter.
“We see the same trend with profitability. When retailers were asked about their expectations for the past quarter, 31 percent of retailers indicated they expected to increase their profits. In fact, only 18 percent increased profits while 53 percent of retailers experienced a decrease in profitability. This is a drop of 20 percentage points from the previous quarter’s results,” Evans said. “This is a clear warning for small retailers to err on the side of caution and be conservative in their planning – even if they are slowly gaining confidence with the Government.
“What the retail market needs is consumer confidence and this requires government narrative to become more supportive. Now is not the time for politics, rather we need positive government news. Retailers are warming to Prime Minister Rudd but its ‘tough love’,” Evans said.