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Aussie retailers shift costs to buyers

According to recent research conducted by Shopify in collaboration with YouGov, the Australian retail sector is grappling with challenges such as inflation, worker shortages, and weakening consumer demand.

The study reveals that 58% of Australian retailers openly admit to passing the majority of increased operational costs onto consumers, with 23% transferring all costs.

The Shopify Australian Retail Report offers insights into how retailers are navigating the current economic climate. It explores their strategies for managing challenges, investment priorities for the upcoming year, and plans for engaging with value-conscious Australian consumers. The report, based on the responses of over 200 medium to large retailers and 1,000 Australian consumers, sheds light on changing consumer behaviors and provides effective growth strategies for retailers in the face of economic pressures.

It’s no surprise that nearly all (99%) of Australian retailers have been impacted by macroeconomic pressures. The research identifies higher wages (45%) as the most significant budget strain, followed by increased debt servicing costs (43%), and rising operational expenses like energy bills and rent (41%).

In response to these mounting challenges, 95% of Australian retailers have resorted to transferring at least some of the escalated business costs to consumers. However, an interesting contrast arises with direct-to-consumer (DTC) retailers, where 62% have chosen to absorb the majority of these costs, indicating the sector’s focus on customer growth rather than immediate profitability. This dynamic highlights the tension faced by retailers, as 75% of Australian consumers report cutting back on spending to save money, and 82% have altered their spending habits due to the higher cost of living.

James Johnson, Director of Technology Services & Enterprise, APAC at Shopify, acknowledges the delicate position of Australian retailers, caught between the price sensitivity of consumers dealing with elevated living costs and their own struggle against inflationary pressures. Johnson emphasizes retailers’ increased emphasis on customer-centric initiatives in this competitive environment, such as expanding product offerings to cater to a wider consumer base, investing in customer experience, personalization, and loyalty programs.

The report underscores the paramount importance of customer experience for Australian retailers. A significant 93% of them consider customer experience to be either important or critical. Notably, those retailers who view customer experience as critical tend to be more successful by certain metrics, including businesses with annual revenues exceeding $500 million (50%), retailers operating for over 20 years (41%), and those with 500+ employees (34%).

Australia’s largest and most successful businesses are turning to personalization as a key strategy for enhancing customer experience in the coming year. This includes tactics like data-driven recommendations and personalized touches like handwritten notes accompanying deliveries. Among businesses with over 500 employees, 47% have adopted or plan to implement personalization strategies, as do 73% of businesses with annual revenues surpassing $500 million.

The report reveals variations in priorities based on retail type. DTC businesses prioritize personalization in customer experience (62%), while B2C retailers are more focused on investing in additional customer insights, including qualitative and quantitative data (41%). Meanwhile, B2B organizations are keen on integrating online shopping with in-store experiences, with 41% of businesses pursuing this avenue.

Jehan Ratnatunga, Co-Founder & VP of Strategy and Digital Product at Who Gives a Crap, emphasizes the need for a behavioral shift to drive meaningful market share growth. He highlights the importance of omnichannel approaches to reach diverse customer segments, acknowledging the effectiveness of DTC experiences while acknowledging the necessity of broader outreach.

Investment in technology is a prevailing theme among Australian retailers. Nearly all (98%) businesses are planning technology-related investments over the next year. Real-time data analysis (44%) is a primary focus, with 64% utilizing technology to enhance customer experience through automation. Improving the online customer experience, including automatic refunds, is a priority for 55% of respondents. Notably, retailers in New South Wales (NSW) are more inclined (50%) to enhance online customer experience compared to those in Victoria.

Key highlights from the report include insights into the macroeconomic pressures facing retailers, such as the main budget challenge being higher wages in most states and territories. Queensland businesses are primarily grappling with increased debt servicing costs, while Victorian businesses face elevated operational costs like energy bills and rent. The report also highlights the importance of personalization in customer experience initiatives, with investments being made by businesses of varying sizes and revenues. Additionally, technology investments, especially in real-time data analysis, technology upskilling, and supply chain optimization, are widespread among Australian retailers.

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Yajush Gupta

Yajush Gupta

Yajush is a journalist at Dynamic Business. He previously worked with Reuters as a business correspondent and holds a postgrad degree in print journalism.

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