The holiday season has long been a critical trading period for the retail sector. For many retailers, the months of November and December make up a large chunk of their annual sales, with customers out shopping in droves ahead of the Christmas season. However, after a number of years of record spending in Australia, this holiday season is shaping up to be a bit less merry than usual. According to Paul Zahra, CEO of the Australian Retailers Association, the 2023 festive season is “not l
not looking as great as we would like to see.”
“There are going to be winners and losers,” Zahra said at the ARA’s Christmas Insights Breakfast on October 12.
Zahra predicted that customers will continue to shop based on value and budget throughout the holiday season, but that customers are still willing to spend their money – they’re just being more conscious about how they do it.
From aspiration to necessity
Michele Levine, CEO of Roy Morgan, noted that overall sales during the 2023 Christmas period are likely to be flat on last year – something the ARA also predicted recently – and that more customers will be looking to online sales events for deals.
The difference this year, Levine noted, is the change in customers.
“There are always people who are more optimistic and are still spending, but what we’re seeing overall is a move from what we might call aspirational spending to necessity-driven spending,” Levine said.
What this means is fewer customers splurging on aspirational purchases, such as high-end luxury goods, and instead focusing on more affordable alternatives. These customers still want something special for their loved ones (or themselves), but they are looking to cheaper alternatives.
In saying that, people are actually beginning to feel better about the economy and their own personal finances, Levine said, with consumer confidence topping 80 for the first time in several months, and Roy Morgan’s data showing people are largely comfortable with their personal finances and expecting to be even better off next year.
“I see that as a quiet sign of hopefulness,” she said, referring to the year ahead.
MST Marquee’s senior consumer analyst Craig Woolford largely agreed with Levine’s expectations, and noted that while retail spending is rising at a rate of around 2 per cent, broader consumer spending is rising at a rate of 6 per cent: showing that consumers are spending money, just in different places.
“They’re out there spending money, it’s just not as much in retail stores,” Woolford said.
“Consumers are very happy to still dip into their savings to ensure that they’re living the life that they want.”
Woolford pointed to the mad rush to get Taylor Swift tickets earlier this year, as well as the recent Grand Final weekend, and predicted a rise in hospitality spending during the holiday season.
This could be bad news for retailers, who, according to Zahra, could make up to two-thirds of their annual revenue in the Christmas quarter. However, Woolford said that consumers are likely to focus more on Black Friday, and surrounding online events, in order to get the best deal.
“I think the availability of products, and the willingness of retailers to drive promotional events, will be enough to stimulate a successful Black Friday event,” Woolford said.
“The question is, what sort of pocket or hangover [the sector] is left with between then and Christmas.”
This was echoed by Ebay’s chief marketing officer Rebecca Newton, who told Inside Retail that the business is expecting to see more purposeful purchases over the Black Friday and Cyber Monday period.
According to Newton, Ebay research shows that 45 per cent of Australians await sales events to buy non-essential items.
“This is something we expect to continue into the festive season as people buy thoughtful presents that are just the thing for the giftee, rather than buying generic gift cards and pre-packed gift sets,” Newton said.
“Despite cost of living challenges, people are still spending on the things they really care about. We find ‘want’ based categories – that tie into people’s passions – are often more resilient than those that are ‘needs’ based during challenging times.”
The key takeaway
According to the panel, the holiday season this year is unlikely to exceed the highs reached in previous years. However, given the record spending in past seasons, a flat Christmas isn’t such a bad outcome.
Zahra added that while some retailers may miss out this season, those that get all the the elements right will continue to thrive, despite a potential reduction in spend.
The key for retailers, according to Woolford, is to ensure that they “hold their nerve” against the possibility of fewer transactions, maintain a balanced margin, and make a decent profit off of fewer, higher priced sales.
For Levine, retailers can bring customers in by ensuring that the shopping process is as easy as possible.
“We haven’t really talked about it, but a lot of people see Christmas shopping as a task to be done,” she said.
“We ask each other, ‘have you done your Christmas shopping yet?’ It’s actually something that needs to be done, and making sure that it’s easy will be really, really important.”
Levine pointed to offering multiple delivery options, with the option of spending more for faster delivery, or spending less for slower delivery, as a way of catering to customers’ needs.