This year will be a Christmas like no other as COVID-19 disrupts the industry and supercharges innovation in online and last mile delivery, while dramatically shifting consumer demand.
In the lead-up to this all-important Christmas trading period, Deloitte surveyed a cross-section of executives and senior management from retailers operating in Australia about their expectations for Christmas 2020 and beyond. This survey analyses retailers’ sentiment for the Christmas period, key trends, expectations and priorities of Australian retailers for 2021.
For the first time in the survey’s history, more respondents expect +/-5% sales growth than all other categories. The percentage of retailers expecting more than 5% growth this year has nearly doubled since last year, illustrating that while retail spending will likely be lower in 2020, many retailers are seeing supercharged demand for their products as consumers spend more time at home with the share of wallet for retailers shifting accordingly.
The retail sector has been polarised between the haves and have nots – some have benefitted from border closures and consumers spending more time at home, whereas others in the services, apparel and catered food market have borne the brunt of the downturn. COVID-19 has caused a lot of concern with forced closures, but we have bounced back well after a refurbishment of the shop and sales have been consistently better. Customers are shopping local it would appear.
As for margins, the story is a little different. While there remains a much larger proportion of retailers expecting margin declines of greater than 2% in 2020, in the main, expectations are relatively consistent to last year. Of those respondents that are bullish about sales, half are expecting that the margins will increase by more than 1%, and of those expecting a decline in sales of more than 5%, none are expecting margin increases. With some of our respondents highlighting that stock availability is an issue this Christmas, margins may hold up even if sales disappoint but it remains a risk particularly for those that are heavily impacted.
COVID-19 turned normal operating procedure on its head for all of Australia, with retail hit harder than most. The retail sector employed 1.25 million Australians at February 2020, and many of these were stood down over the pandemic period as stores were closed and retailers small and large were caught up in the fallout.
Nearly three-quarters of our respondents told us that JobKeeper helped avoid redundancies during the pandemic. JobKeeper has not only supported retail employees across Australia but also provided those employees with money to spend in the economy during the hardest-hit period. Time will tell whether the reductions in JobKeeper over the next six months precipitates the so-called ‘fiscal cliff’ and what impact this will have on retail spending. Retailers doing it tough will be hoping that the JobKeeper taper will be matched by a recovery in organic demand. While the majority of retailers haven’t seen a significant change to weekly spending habits, nearly a third have had a shift in demand to weekdays. Consumers have largely shopped closer to home, and Deloitte’s survey respondents that cater to this market have done well over the year.
In-store purchases a priority
So what will the next four weeks bring? This year Deloitte asked respondents to highlight their key priorities heading into the all-important holiday period. More than 68% noted digital and omni-channel and customer engagement and experience as strategic priorities in the weeks leading into Christmas. Interestingly, 73% of these respondents have said in-store purchases will remain the most popular distribution channel in the next four weeks, which means retailers that leverage superior digital and omni-channel strategies as a complement to physical stores will be the ones that standout from the pack this Christmas. This is not surprising, given the huge growth in online market share throughout 2020, where the interaction between digital and customer experience has become a key criteria for success for any retailer, and never more so than in 2020.
This Christmas, retailers are looking to seize both in-store and online opportunities to ensure they have the biggest find in their holiday stocking. A sure way of winning this season will be executing on partnering arrangements, with courier companies to offer last mile delivery to existing and new shoppers. More than 50% of our respondents are confident in their last mile delivery capabilities and retailers are investing in technologies that enable ETA track and trace, dynamic routing, autonomous delivery and pick-up/drop-off networks. This investment is enabling a more seamless experience for consumers.
Online sales have eased off slightly as Melbourne reopened, but we’re still expecting that online will be strong up until the Australia Post cut-off for Christmas. After that, expect more foot traffic in-store, particularly in suburban stores.
Omni-channel comes of age
Australia has lagged major overseas markets in the US and Europe ever since the early days of online retail. Necessity is the mother of invention and, as stores closed around the country, consumers turned to the PC, tablet and mobile for many of their retail needs. In the two months between February and April 2020, online sales’ share of wallet increased as much as in the previous four years, from 6.6% to 11.1%2.
As stores have reopened, some retailers have seen a normalisation of online sales and time will tell whether the surge will settle back to historical averages. It is likely that the shift to online will only continue as convenience replaces safety as the primary reason to shop online.
Reflecting the upending of the retail landscape this year, the survey results illustrate just how much online sales have accelerated. Since the beginning of the survey, no more than a third of respondents have highlighted more than 30% growth in online revenue. This year? A full 47% of our respondents expect that there will be more than 30% growth in online sales, with 13% of retailers expecting this channel to at least double this Christmas. Adding in Click & Collect and other digitally enabled in-store experiences, it’s clear that Christmas this year will have a very different flavour than 2019.
Overseas consumers aren’t standing still – an incredible 64% of holiday spending is expected online in the US, which remains well in excess of Australia. While Australia is in a very different place with respect to COVID-19 cases than the US, retailers are continuing to invest in online and last mile capability to meet this trend. Deloitte foresees an increase in demand for online purchasing and an improvement in foot traffic if the current situation does not deteriorate.
Supply and demand challenges
Australian retailers will be in a tug-of-war with each other this Christmas as they look to tap into consumer enthusiasm and holiday sentiment. The next four weeks will give retailers the opportunity to regain time and sales lost over the year, reconnect with existing customers and connect with new customers acquired during the year.
With the industrial action at ports causing stock delays, retailers will need flexible supply chain capabilities and dynamic pricing models – to match supply and demand this season and grab the biggest piece of the Christmas pudding.
From a physical footprint perspective, retailers have gone back to basics this year. Information and in-store experience lead as the most important purposes of the store, while brand community engagement has declined from 22% to 4%, which reflects the challenges around having customers gather in-store while adhering to COVID-safe guidelines.
An almost equal number of survey respondents expect consumer confidence to improve and deteriorate in the next 12 months. The uncertainty of the responses is understandable, given the current unpredictability of the health crisis. Domestic recovery is largely contingent on a safe, widely-available vaccine but, over the long term, the reduction in net overseas migration may be a permanent handicap compared to pre-COVID-19 expectations.
Retailers are focusing on making it as easy as possible for their customers to engage and transact. Although the survey indicates leveraging digital capabilities and marketing as the most important focus areas to boost Christmas sales, digital enablement of in-store purchasing remains a critical piece of the puzzle, with 73% of retailers highlighting stores as the most popular sales channel in the holiday period.