Opinion: Why 2023 could be a solid year for retail
Christmas and new year trading metrics will be intensively analysed in the early months of 2023. After the disruption of Covid-19 and the preceding years of sluggish growth, all retail industry observers will be keen to assess the prospects for sustainable growth. Trading results for calendar 2022 compared with periods in 2021 and January 2022 that were not impacted by Covid-19 restrictions will provide the first snapshot of the current market and consumer confidence. Strong sales growth and sub
h and subsequent earnings announcements will be welcome after the challenges of the past five years but will not necessarily have champagne corks popping.
The persistence of Covid-19 infections, climbing interest rates, inflation and global economic volatility will add to the crystal ball nature of forecasts for retail sales data – and therein lies the hard part.
Christmas and everything after
Retailers are obviously spruiking a strong Christmas, albeit the past four years indicate that November is now the prime sales period – due in large measure to the online sales promotions.
They are hoping that the somewhat untimely interest rate rise in December and warnings by the Reserve Bank of Australia of even more increases in 2023 won’t flatten consumer spending in the critical Christmas and new year sales period.
There is certainly concern amongst some retailers and analysts that rising interest rates, along with cost-of-living pressures, will hit sales growth in 2023 and that they may be further hit by a tough government budget in May that sets out to tackle mounting public debt.
While only around one-third of Australians have mortgages, interest rates have markedly increased, with loans of around $500,000 requiring almost $900 more in interest charges monthly, compared with in March 2022.
With inflation pressures compounding household budget challenges for many Australians, the increased interest costs will directly affect discretionary spending but are also cutting into non-discretionary purchases of food and clothing.
It is not just homeowners with mortgages finding it more difficult to make ends meet.
Residential tenants are also facing spiralling rental costs while self-funded retirees and savers are not achieving significant income gains.
In an increasing number of cases, they are using their retirement savings to help their children meet mortgage commitments.
The bank of mum and dad that helped fund children enter the housing market in the past 3-5 years is now itself under stress at a time when housing prices have been falling and leaving a cohort of homeowners with negative equity in their properties.
The truth is, money is still cheap
There is media speculation of a possible easing of interest rates at the end of 2023 or 2024.
That is as improbable as was the crazy and irresponsible Reserve Bank of Australia assurances through 2021 that interest rates would not rise before 2024.
Interest rates are still at relatively low levels and the lesson that needs to be learned by governments, businesses and consumers is that money has a real cost.
Inflation is also likely to remain high though 2023 because of the impact of the floods on food production in eastern Australia, higher wages flowing through the economy, and rising costs for fuel, energy and health services.
The good news
So the outlook is not glittering like gold, to say the least, but there are positives for the retail industry.
With a solid first half for FY23 under the belt and a clear understanding of the challenges ahead, the current financial year could be a solid one for the retail industry.
The key reasons are:
Covid-19 and the preceding years forced many retailers to restructure their operations and ‘right-size’ their store networks by closing marginal or unprofitable stores or reducing floorspace.
Many Australian retailers were half-hearted about an online presence five years back but, through necessity, have invested in the development of online platforms and are now generating substantial sales growth and expanding the reach of their brands.
Apart from online retailing, there has been a significant lift in innovation in the retail industry and a greater appreciation of the value of staff or team members in creating sales and generating new or enhanced product and service initiatives.
Australian retailers have also seen the tidal wave of global competitors diminish.
They will be back but the Australian chains are in much better shape, leaner and smarter than they were before.
Consumers have shown a willingness to prefer Australian products and retailers that reflect their values. Climate-change awareness is currency, especially for young consumers and women, but the price must be fair and you must be genuine and have earned trust.
The relationship between retailers and landlords, suppliers, financial partners and other service providers is generally more collaborative than ever before, as a result of the shared experience of the Covid-19 pandemic.
Volatility, or unpredictability, is the biggest threat to any business. If you can factor in any variables, including interest rates, inflation and higher costs for doing business, you can chart a successful course.
The key is to control the things you can control and have strategies in place to counter or adapt to the challenges you can’t directly control.
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