Industry Insights - The Retail Landcape 2024

What do you see is the greatest challenge for small retail businesses in the year ahead? 
Right now, big retail and small retail are facing similar challenges. Labour costs and availability, rising operating costs driven by inflation and even product costs are rising despite the reduction in freight costs. I think the single biggest challenge is the downward shift in consumer spending as shoppers are more sensitive to where they invest their discretionary dollar. The KPMG Retail Health Index is suggesting that retail spending will be below its long-term average growth rate until well into 2025.

What are 3 crucial aspects for retailers to thrive in 2024? 
In many respects, Australian retailers benefited from almost two years of a ‘discounting holiday’. i.e the economic stimulus that came with the pandemic created an artificial consumer spending bump that drove record sales and margin outcomes for many Australian retailers. Those days are over, and we are already seeing a return to a discount led retail economy in certain sectors of retail. So, when times get tough, my suggested focus areas are:

Balance sheet. Good business models with poor balance sheets (high debt levels) are always more vulnerable in a downturn. So, for a small business owner, making sure your debt levels are under control is critical as the sales and margin squeeze kicks in. It just makes it easier to sleep at night.

Cashflow. The biggest cashflow driver is usually product mix and inventory levels. Why? Because many businesses struggle to manage the optimal quantity and range architecture of their product mix meaning that when shopper spending declines, they are left with too much of the wrong stock, which has a knock-on effect to sales and margin performance as discounting is required to clear cash. My suggestion is small business owners need to be ahead of the game on inventory management and make sure it is fit for purpose through the cycle.

Customer experience. In retail, customer loyalty is hard to secure and harder to keep. Often the one clear advantage small retailers have over large retailers is the ability to deliver a personal customer experience which is unique, because the owner of the store often works in the store. My suggestion is focus on your instore customer experience as your point of difference and keep a database of your customers so you can engage with them when they are not in the store through socials and from time-to-time direct communication (be careful not to spam!) 

What digital technologies will be important for business owners to invest in?

a. 80% of shoppers are starting their purchasing journey online or on socials. Indeed, some of the best brands in the world now started on Instagram. My suggestion is making your social presence a focus and keep it real (authentic – no spin). Customers love to follow their favourite brands and favourite people.

b. There is a significant move away from cash to cashless transactions. Lean into it for two key reasons. You will end up with better sales and margin data (and be less vulnerable to theft) and you will be able to capture better analytics of your customers by working with your POS service provider most of whom offer some value add in this regard.

c. Invest in a simple CRM system to better understand your customer and product range and pricing architecture. (Google will produce lots of options)