Australian Retail Outlook 2023: Paradigm shifts and fresh perspectives

Source: Supplied by Rebecca Vallance

After multiple paradigm shifts in 2022, retailers are facing a very different landscape in the months ahead.

Let’s start with shoppers finally emerging from a Covid-19 cocoon of contemplation and online shopping. In a short period, their mindset shifted from lockdown doldrums to finally getting ‘back to normal’ with a bit of catchup spending and a lot of treating themselves after the hardships of the last two years. 

Then, seemingly out of the blue, around mid-2022 many shoppers realised they could no longer afford their lifestyle. In the face of drastic increases in the cost of essentials, most consumers made rapid and wide-ranging spending cuts. 

Some went without products in many non-essential categories altogether, others deferred large purchases. Many traded down to cheaper brands, and most did a lot more price checking before pulling out their digital wallets. With interest rates still high, even the normalisation of costs for many food items has not reassured consumers, and many intend to continue a cautious spending approach in 2023.

So what have been the paradigm shifts for retailers over the past year? We recently asked business leaders this question in our annual industry survey powered by KPMG, the Australian Retail Outlook. Here’s a quick review of the biggest ones, whose impact is likely to extend well beyond 2022.

People problems

Throughout 2022, retailers struggled with the Covid-induced sick and carer leave, combined with significant decreases in the number of international students and people with temporary visas. The impact hit small businesses and those in regional areas particularly hard. 

It’s difficult to anticipate the extent to which this will continue through 2023 and beyond, though our survey found that 44 per cent of retailers believe staffing will be one of their biggest challenges in 2023 and 39 per cent name retaining staff as one of their top priorities for the year.

Just out of time

Over the last few years, most retailers have focused on fine-tuning their supply chains to reduce inventory and shipping costs. As previously noted, in 2022 multiple factors disrupted these finely tuned machines.

Jana Bowden, professor of marketing at Macquarie Business School, aptly summarised these developments, noting that the cost of shipping goods to Australia had increased by up to 700 percent, ordering times had tripled and most have had to pay earlier for their orders. 

More importantly, however, “The whole concept of just-in-time sourcing that Australia has relied so heavily upon has crumbled,” Bowden remarked. 

Many retailers are already gearing up for these issues, with 24 per cent citing supply chain, and 20 per cent citing shipping and delivery as major challenges for 2023.

E-commerce matures

Despite such staffing challenges, many retailers benefited from the surge back to physical stores. Longer term, however, 2022 clarified the short- to medium-term future of online retailing as a significant channel but one that is still substantially smaller than physical stores.

While Covid lockdowns shifted many shoppers online, the last six months have brought a leveling out of shopper participation in e-commerce, and of online as a proportion of retail sales. Survey data fails to suggest any significant change in the near future, with almost three in four shoppers preferring to shop in-store, and nearly two in five saying they have a newfound appreciation for being able to touch and try on fashion items. 

Reflecting this consumer behaviour, only 12 per cent of retailers reported a significant rise in their e-commerce revenue in 2022, though 49 per cent did experience some increase. Another sign of the leveling off of e-commerce is that only 30 per cent of retailers list growing online as one of their top priorities for 2023. 

Perhaps the most telling sign that digital still has a long way to go, however, is that 39 per cent of retailers who operate physical stores plan to increase their footprint in 2023.

Doing the right thing

Last year also delivered a case study in the business impact of ESG behaviour. 

Within weeks of the Russian invasion of Ukraine, numerous global brands, including H&M – the parent of Zara and a collection of other brands – and Estée Lauder shut up shop in Russia. Most luxury brands ceased trading, leaving empty stores, while ASOS, Apple, Ikea and Nike have all suspended or closed various consumer-facing services.

Uniqlo chose a different response and announced that it was not closing its Russian stores, so as to not “deprive people in Russia of clothing, as it is a basic human need”. “Clothing is a necessity of life. The people of Russia have the same right to live as we do.” It was a bold response that lasted less than a week in the face of a global social-media backlash.

On balance, it appears that most retailers are comfortable with their own approach to ESG, with just one in seven (15 per cent) nominating it as a top priority for 2023.

Under the spotlight

The Australian Competition and Consumer Commission’s Digital Platform Services Inquiry report found that online marketplaces have a “high level of control and involvement” in transactions between consumers and sellers on their platforms. over the way they use algorithms to influence consumers’ purchasing behaviour.

The consumer watchdog’s report highlighted a range of operational and privacy concerns regarding the use of consumer data, lack of dispute resolution mechanisms and the way products are preferentially ranked on some websites.

“Hybrid marketplaces, like other vertically integrated digital platforms, face conflicts of interest and may act in ways that advantage their own products with potentially adverse effects for third-party sellers and consumers,” the report stated.

‘Buy now, pay later’ (BNPL) has been the darling of the retail industry, with widespread consumer acceptance; however, it has been under intense scrutiny, with consumer groups pushing hard for tighter regulations.

In November, The Treasury released an options paper on BNPL. A number of options were outlined and further consultations promised. It looks likely there will be regulatory changes in the future. 

All in all, what a year of change. More than ever, it is a time for new perspectives and fresh approaches. There is no doubt that 2023 will reward those retailers that are prepared to get uncomfortable and embrace the new reality – what fun.

This article was originally published in the 2023 Australian Retail Outlook, powered by KPMG. Download here.

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