This story is from our 2025 Australian Retail Outlook. Download the full report here.

Every January, the US National Retail Federation hosts its annual retail Big Show in New York City, attracting about 40,000 attendees from all over the world. In June 2024, the NRF also hosted its inaugural Apac Big Show in Singapore, attracting 8000 attendees. The NRF Big Show is famous for big brands, big crowds and cutting-edge retail tech. The themes on display are often indicative of the global trends affecting consumers and retail. But as with any gathering of industry leaders, you don’t always get the whole story without a little more digging.

In the past year or so, KPMG has published global research papers that add further insights to the big trends affecting retail models and consumer behaviour. In this article, we will explore the key themes of seamless commerce, customer behaviour and digital technology, and what drives the human aspects of retail and the connection to our digital world.

Customer

We all know customer behaviour can be fickle; after all, we are all shoppers. But if you have never heard of social commerce, now is the time to stand up and pay attention. Let’s start with some fun facts.

• Statista has reported that the global value of social commerce will grow from US$1.3 trillion in 2023 to US$8.5 trillion in 2030.
• In late 2023, Salesforce reported that 59 per cent of consumers had shopped on social media, a massive jump from 15 per cent in 2021. Furthermore, it reported that half of shoppers are now using social media as their primary discovery channel.
• In the US alone, TikTok shop garnered 1.1 billion users in four months from its launch in September 2023 to January 2024.
• Brands like Aritzia, Shein and Temu have become social media specialists at the heart of the customer experience and product development. Indeed, Shein and Temu are marketplace disruptors, offering a DTC experience online at unparalleled value.
• KPMG’s 2024 Apac seamless commerce report suggests Gen Z shoppers (born 1995-2010) are now so heavily influenced by what they see on social media and livestreaming, that 63 per cent said social commerce is most important to their shopping experience, followed closely by livestreaming (57 per cent).

In contrast, Australian responses to the KPMG seamless commerce report suggest a low adoption rate for livestreaming shopping (11 per cent) and social commerce (13 per cent). Given that shoppers in other markets have embraced it, however, the exam question is: Should this be regarded as a permanent or temporary difference? We suggest only time will tell.

Physical retail

Is the in-store retail experience becoming the last bastion for true brand experiences or has online won shoppers over? The answer is: neither. Let’s explore that a little further. KPMG’s 2024 Apac seamless commerce report stated:

• 45 per cent of shoppers prefer an omnichannel retail experience (much lower than we thought)
• 57 per cent of shoppers expect online retailers to be more price competitive than physical retailers (no surprise here)
• In Australia:
  • 42 per cent of consumers are omnichannel but prefer online
  • 38 per cent prefer a physical store to online.

So, what is the data saying to us?

We think the bottom line is that Australian shoppers are remarkably adaptable and channel-agnostic. Therein lies the challenge for retailers.For instance, what Aussie shoppers value online is:

• competitive pricing
• a wide variety of products
• fast and reliable delivery
• secure payment options
• good customer service

Sounds a lot like a physical store offer, doesn’t it?

Where things get a little more complicated is through the introduction of in-store technology that changes (and hopefully enhances) the in-store experience, to become truly frictionless.

For example, while the Amazon Go (‘just walk out’) concept may have passed its useful life, that doesn’t mean the concept of frictionless retail is dead. Self-checkout technology, introduced around 10 years ago, was maligned by many at first, but has now become an embedded part of the shopping experience and continues to evolve.

Indeed, Amazon and retail tech companies are now investing in ‘just walk in’ technologies that may further enhance the shopping experience. Amazon is investing in Dash Cart technology, which enables Amazon Prime customers to pre-register their payment details in a digitally enabled physical shopping cart, before they walk into the store, and then simply walk out with their basket of goods that has been placed in the self-scanning trolley. In November 2024, Coles announced a partnership with Instacart to offer a similar capability, albeit with a gamification twist where the customer could spin the digital wheel on the trolley screen for additional discounts.

Japanese retailer Uniqlo is investing heavily in radio-frequency identification (RFID) technology to accelerate supply chain efficiencies, with an ambition to embed RFID into its global product range, facilitating improved inventory management and the customer self-checkout experience.

In January 2024, Walmart announced the introduction of drone delivery services to 1.8 million households in the Dallas- Fort Worth area of Texas. Walmart said that 70 per cent of its products can be delivered by an autonomous drone within 30 minutes: essentially Uber in the sky. While drone technology is not new, it has advanced in recent years and continues to have the potential to revolutionise last-mile delivery. Watch this (air) space.

So, what does this mean for the physical store?

We believe physical retail remains as relevant as ever, but with a savvy digital customer watching your every move, it won’t be enough to have great products and great prices. In the future, the technology edge could be decisive when it comes to customer engagement and loyalty.

Technology

Technology use cases for retail cover a broad canvas across the entire retail value chain. Whether it be automation or AI across the front, middle or back office – according to the 2024 KPMG global tech report surveying 2450 technology executives – 78 per cent of respondents said their organisation was struggling to keep up with the pace of change.

Indeed, 80 per cent of technology executives say their business’s senior leadership is too risk averse when it comes to investing in technology and risks falling behind competitors. Talk about FOMO.

That said, there has been a huge jump in the number of technology executives who said technology investments were positively influencing profit outcomes (89 per cent vs 62 per cent over two years)
and most are claiming an average profit improvement of 11 per cent to 15 per cent.

So where is this technology investment going?

The focus appears to be across four key areas:

• cloud computing (86 per cent)
• cyber security (65 per cent)
• AI/automation (61 per cent)
• edge computing or distributed IT (61 per cent)

There’s a lot to unpack here, but let’s focus on the digital elephant in the room: AI.

Seventy-four per cent of technology executives said AI is improving the productivity of their knowledge workers and business performance, but the challenge is that AI is yet to deliver benefits at scale (only 31 per cent is currently doing so) and there is considerable workforce anxiety, which has yet to be overcome through education and upskilling.

So, let’s unpack the AI/gen AI subject a little more. What do consumers think and how are retailers using it?

KPMG’s 2024 Apac seamless commerce report surveyed 7000 customers across 14 markets, overlaid with numerous C-suite interviews of retail leaders. The findings were fascinating.

• Most retailers are embracing (or intend to embrace) generative AI.
• 70 per cent of C&R leaders see AI transforming their business through customer analysis and personalisation,demand forecasting, supply-chain management, and marketing content generation.
• 44 per cent of Australian consumers were satisfied with generative AI-driven product recommendations, albeit 36 per cent had never tried gen AI product recommendations.
• The top three concerns for customers using gen AI product recommendations are:
  • privacy
  • accuracy
  • not being able to interact with a human

So, let’s look at some examples in Apac.

Nutifood (Vietnam)

This consumer goods business had already been using livestreamers and influencers when it discovered young mums were often sitting up late at night and into the morning nursing or comforting their babies – and ready to buy milk. Recognising it was impractical to have humans livestreaming for 12 hours a day, Nutifood looked to AI as a solution.

Now Nutifood has virtual influencers – software trained by nutritionists to communicate like a nutritional expert through livestreams in the early hours of the morning – routinely drawing 20,000 viewers on Facebook or TikTok.

Pet Lovers Centre (Singapore)

Pet Lovers Centre is collectively the only pet care retail chain in Southeast Asia, with more than 170 stores and an online shopping portal. The company offers pet owners services including food and pharmaceuticals, grooming, travel and lodging – and even cremation.

Pet Lovers Centre is using AI in the company’s high-tech 3250sqm warehouse eoperated by just one employee. A multi-depth automated storage and retrieval system (ASRS) manages the entire storage space, helping the company achieve 100 per cent warehouse capacity and boosting productive capacity by 40 per cent.

Hyundai Department Store (Korea)

Hyundai incorporates new digital technologies such as AI to enhance operational efficiency and customer convenience, including the industry’s first AI copywriting system called ‘Lewis’.

Lewis automatically generates optimal marketing copy by inputting main keywords and event themes – learned from three years of Hyundai Department Store’s event data. The outputs reflect the store’s distinctive sentiment and style so it can be immediately applied to business operations.

The common theme when it comes to technology investments (including AI or gen AI) is that there is no one silver bullet. The success of retail technology investments hinges on the quality of the data used and how that technology integrates across the value chain and with other compatible technologies.

We believe the ultimate exam question is: Will the technology investment enhance the end customer experience (through the business value chain) and will the customer value that enhanced experience enough to move the dial?

Sustainability

In recent years, sustainability goals and values have become embedded features of many retail brands. Retailers are often investing heavily in circular and sustainable solutions as customer demand grows, but also as governments begin to actively regulate actual and claimed behaviours to drive sustainable ESG outcomes; for example, there are new Australian sustainability reporting standards effective from 1 January 2025.

The KPMG 2024 CEO Outlook Report found that while ESG strategies remain core to business strategies, CEOs acknowledged that there is work to be done.

• 66 per cent said their business is not ready to withstand shareholder scrutiny.
• 24 per cent said that if their business doesn’t get ESG solutions right, they will deliver an advantage to their competitors.
• 76 per cent said they would divest from a business that couldn’t meet its ESG objectives.
  

KPMG’s 2024 Global circularity report also had some interesting findings.

• Many businesses have strong sustainability and circularity ambitions; however, the detail is sometimes lacking in how these ambitions will be achieved.
• Conversely, when clear goals are set, they are often not ambitious enough, suggesting that business leaders are overly conservative in their pursuit of sustainability outcomes.
• The lack of quantification of the impact of circularity goals stood out, suggesting business leaders are not always standing up to be counted when it comes to measuring outcomes.
• Sector-based partnerships are important to driving industry-wide change (in other words, competitors should collaborate in the pursuit of common sector circularity goals).

Unsurprisingly, the fashion and apparel industry comes in for a bit of stick among circular economy critics; however, as consumers change their preferences, the industry is adapting.

In 2023, Global Data estimated that by 2032, in the US alone, almost 40 per cent of apparel sales will either be second-hand or off-price (such as at TK Maxx or Ross), encroaching on the market share of specialty retail brands and department stores. Gen Z shoppers are material influencers of this trend as a generation of digital natives focused on climate change and online shopping, embracing livestreaming platforms such as Poshmark to auction their wardrobes.

Indeed, major fashion brands such as Zara, have already set up their own marketplace environments to facilitate peer-to-peer trading and the recycling of second-hand product.

In Australia, women’s fashion brand Decjuba has teamed up with circular-economy start-up Authentified, to activate the second-hand market by rewarding its customers who sell their old Decjuba favourites through marketplaces such as eBay. It’s a win-win for the customer and Decjuba that drives loyalty and customer engagement well past the initial transaction for a new fashion item. What about actual customer behaviour?

KPMG’s 2024 Apac seamless commerce report suggested:

• Gen Z shoppers are most influenced by sustainability practices, with:
  • 86 per cent more likely to support brands with clear sustainability commitments
  • 79 per cent buying into brands that align with their values.
• 65 per cent of Apac shoppers are prepared to pay up to 20 per cent more for sustainable products.
• However, 25 per cent of Australian shoppers said product sustainability would not affect their buying decisions at all.
• Somewhat concerningly, Australians are the least willing shoppers in Apac to pay more for sustainable products, with 51 per cent of Aussie shoppers not prepared to pay more just because of a product’s sustainability credentials. Talk about do as I say, not as I do.

So, the bottom line for sustainability?

We believe it’s here to stay – whether retailers like it or not. Indeed, the biggest driver for sustainability practices in Australia’s future may be government mandatory reporting obligations commencing from 1 January 2025 designed to sort out the window-dressers from the action-oriented brands.

Market outlook

Since the pandemic years, retail conditions for most Australian retailers have been tough, particularly for those exposed to discretionary retail spending.

KPMG Australia’s December 2024 Retail Health Index suggests that healthy retail conditions are unlikely to return before mid-2025.

Indeed, while net population growth (approximately 500,000 a year for 2023 and 2024) provides a tailwind for economic growth, the cost-of-living crisis and multiple interest-rate rises have more than offset this, with per capita spending dropping since 2023, placing the Aussie retail market into a technical recession as household savings dry up and sit at an anaemic 1 per cent vs long-term average savings of 5-6 per cent.

It’s also apparent that the Boomer generation is, for the time being, the generation with real spending power, driven by their relatively cashed-up and asset-rich position. Millennials and Gen Z are struggling to rent a house, much less buy one, with people aged 25-29 reducing spending in 2023 by 5.1 per cent vs those aged 75 years and older increasing spending by 8.1 per cent.

However, taking a long-term view, JBWere has stated that9 over $5 trillion will be passed down to future Australian generations in the next 10 years, with around 65 per cent being passed on to women, potentially leading to another major generational shift in spending patterns.

Globally, the outlook is a little different.

After interviews with 1300 retail leaders across 11 markets (including Australia), KPMG’s 2024 Global CEO Outlook report has stated that the number of CEOs who are optimistic about their economy is down, at 72 per cent vs 93 per cent in 2015.

Also, this CEO group is also expecting a shift in work behaviours, with 83 per cent of CEOs expecting a full return to the office in the next three years and 92 per cent expecting to grow overall headcount in the same period. Wow. This could mean the end of the work-from-home generation.

So, our take?

There’s no denying retail market conditions remain challenging, but there is also the real prospect Australian retail is at the bottom of the economic cycle and market conditions should slowly start to improve, all things being equal.

Authors:

• James Stewart, National Leader, Consumer and Retail, KPMG Australia
• Peter Marczenko, Mid-Market Retail & Consumer Leader, KPMG Australia
• Linda Chai, National Leader, Enterprise Technology Enablement, KPMG Australia