Retailers can protect this year’s profit and still weaken next year’s business. Reduce store staffing, trim the range and postpone investment, and savings can arrive quickly. The damage to customer loyalty may take longer to appear.
The challenge for Australian retail leaders is therefore simple to describe, but harder to execute: Become more efficient while continuing to invest in the reasons customers choose you. A business cannot shrink its way to lasting success. Endeavour illustrates why savings alone do not guarantee growth. The owner of Dan Murphy’s and BWS delivered $70m of savings in FY26, while retail sales were flat. Concerningly, Dan Murphy’s has fallen 10 places in OC&C’s Retail Proposition Index since 2024, suggesting this particular member of Australian retail royalty still has a lot of ground to recover.
Preliminary findings from our soon-to-be-released Retail Proposition Index, OC&C’s proprietary survey of Australian consumers, show 48 per cent of high-income shoppers expect to spend more over the next year across the categories surveyed, versus only 24 per cent of lower-income shoppers. Among lower-income consumers, 43 per cent expect to cut back.
But affluent shoppers are not simply less price sensitive. They expect more. Some 61 per cent are prepared to pay more for better quality or a better experience, compared with 38 per cent of lower-income shoppers. Mecca shows what this can mean in practice. Its Melbourne flagship combines product discovery, expertise and services into a destination attracting around 50,000 visitors a week.
Retailers therefore face two different demands: Make constrained budgets stretch further while giving customers with greater spending capacity compelling reasons to trade up. Applying the same cuts, promotions or proposition to everyone risks getting both wrong. The answer is to be ruthlessly efficient where customers do not care and disproportionately invested where they do.
Strip out duplicated reporting, unnecessary complexity and routine tasks that tech can perform better. But be deliberate about where those savings go. For a value retailer, that might mean protecting entry prices and availability. For a specialist, it might mean distinctive products, expertise or service. Woolworths provides a useful example. By H1 FY26 it had delivered $400m of annualised cost savings while continuing to invest in value, range and convenience. Since 2024, its RPI scores have improved on both value for money and product choice. Cost-out and proposition investment are happening together.
The same principle applies to loyalty. Our RPI finds that price, value and product quality matter more than loyalty benefits in determining where shoppers return. Loyalty programmes can increase spend, particularly among higher-income customers, but they work best when the proposition has already earned the loyalty. Myer illustrates this. Myer One has grown rapidly, reaching 5.3m active members in FY26 – however, the share price has struggled over the same period. A loyalty scheme can help monetise a stronger consumer proposition, but it cannot substitute for it.
For retail CEOs and investors, the implication is important. Cost-out and growth should not be sequential chapters of a value creation plan. They need to be designed together. Every efficiency programme should define what customers will never notice, what must be protected and where savings will be reinvested.
And leaders should track customer perceptions, availability and repeat purchase alongside the cost line. Otherwise, a successful savings programme can conceal a deteriorating proposition until the sales numbers reveal it.
Our forthcoming Australian Retail Proposition Index will explore where customers genuinely see value, and which retailers are gaining or losing ground. The retailers that walk the tightrope best will emerge leaner, but with more reasons for customers to choose them, not fewer.
