Cautious consumers could make for a slow start to 2023

Now Black Friday weekend is behind us, we know Australian consumers have spent $4.97b in global sales according to Shopify data. While this is below the forecast $6.2b spike in spending, this still represents an impressive 17 per cent increase on last year.

What do consumers want?

Consumers are seeking value for money as household discretionary spending becomes tighter and as a result, they’re making increasingly considered purchase decisions for bargains to save in the long run. We saw shoppers bring forward their Christmas spending to November, leveraging promotional activities. We’ve seen this reflected in the average cart price over Black Friday weekend, which increased from $163.28 per transaction in 2021 to $167.99 this year according to Shopify data.

Favoured categories were aligned with expectations: recreational goods, clothing, footwear, and furniture performed best. Unsurprisingly, shopping-deprived Melbourne ranked as the highest city for spending, followed by Sydney, Perth, Brisbane and Adelaide.

As expected, buying behaviour shifted with consumers returning to stores, making the most of their shopping experience after lengthy pandemic and lockdown-induced waiting periods. There was a 29 per cent increase to in-store point of sale – or offline, bricks-and-mortar sales, compared to 2021. This shows consumers still want store experiences as they create an engaging, touch and feel, customer service driven retail experience with the instant gratification of buying products in person.

But this is not to say that the online experience isn’t just as important. In this era of omnichannel retailing, retailers need to provide a consistent experience across all touchpoints – spanning from online channels to stores. Poor customer experiences can be detrimental to businesses, as 80 per cent of shoppers will abandon a retailer after three bad experiences, according to Salesforce’s Connected Shoppers Report.

While strong consumer spending is positive for retailers’ bottom lines, this uptick of November activity expanding the holiday trading period doesn’t come without challenges. Supply chains will have to bear the brunt across their distribution networks – from packing, processing, distribution to customer services – while also battling the impacts of the recent floods and global events, to ensure timely delivery before the festive season kicks in and maintain the higher volumes.

Looking back to look forward

Reflecting on 2022 more broadly, this year wasn’t immune to disruption. Retail, like most sectors, was impacted by price inflation, a tight labour market, cost pressures and a reduction in promotional activity. There was however overall positive consumer sentiment with an increased willingness to go shopping, explore restaurants, and benefit from the long-awaited social interactions Australians needed.

This sentiment may not continue into 2023, as consumers who held record level household balance sheets a year ago are now more cautious with their spending as inflation, rising interest rates and impacts on the cost of living are front of mind. This will inevitably affect retailers across all sub-sectors.

Shoppers of high-end retailers may start going to more affordable stores if businesses don’t put measures in place to retain customers. Consumers are projected to reduce discretionary spending, prioritise essential goods and discount options. This change in spending habits is expected to have a significant impact, so inventory planning should be at the forefront of retailers’ minds during this trading period.

In addition, shoppers have recently been increasingly conscious of making sustainable purchase decisions, considering values and businesses impacts on the planet and communities. But with expected changes in discretionary spending, will this trend continue? Increasingly price-sensitive consumers may prioritise price over responsible purchases, therefore affecting outlet and product choices.

We will continue to focus on the evolution of the industry and changing consumer behaviour both locally and globally moving into a challenging period. We expect to hear more about these trends at the January NRF 2023: Retail's Big Show conference in the United States, where our experts will be immersed in conversations around the future of retail, disruptors, innovators, culture, sustainability and more. This will allow us to consider how influences on markets across the globe are translating to the industry domestically.