Retailers Are Passing On Higher Cost Of Doing Business To Consumers

Shot of a gorgeous and elegant young woman out on a shopping spree
B&T Magazine
Edited by B&T Magazine

Fifty-eight percent of Australian retailers admitted to passing the majority of the higher costs of doing business onto consumers with 23 per cent passing on all costs.

Shopify reveals this research as the Australian retail industry grapples with inflation, worker shortages, and softening consumer demand.

The Shopify Australian Retail Report, conducted in partnership with YouGov, unpacks the tactics retailers are employing to manage the current economic environment, their investment priorities for the next 12 months, and their plans to connect to Australian consumers who are becoming increasingly value conscious. The study of more than 200 medium to large retailers and 1,000 Australian consumers sheds light on shifting consumer behaviours and lays out effective pathways to growth for retailers to connect with customers facing economic pressures.

Unsurprisingly, almost all (99 per cent) of Australian retailers have been impacted by macroeconomic pressures with the higher costs of wages (45 per cent) being the biggest strain on company budgets, followed by the increased cost of servicing debt (43 per cent), and surging operational costs, including energy bills and rent (41 per cent).

For 95 per cent of Australian retailers, the immediate response to manage these mounting pressures has been to pass at least some of the increased cost of doing business onto consumers. The one group bucking this trend is direct-to-consumer retailers (DTC), with 62 per cent absorbing the majority of costs, signalling the sector is still coveting raw customer growth over profitability. The tension, for retailers, exists in the finding that three in four (75 per cent) Aussie consumers say they have opted to cut back spending in order to save money and 82 per cent of Australians have changed their spending habits due to increased cost of living.

“Australian retailers are in a precarious position, as they are facing growing price-sensitivity amongst consumers dealing with the higher cost of living, whilst having to overcome those same inflationary pressures themselves. It really is like being stuck between a rock and a hard place,” said James Johnson, director of Technology Services & Enterprise, APAC at Shopify.

“In such a competitive environment, many of the retailers we’re speaking with are doubling down on customer-focused initiatives, whether that’s expanding their product offering to appeal to a broader range of consumers, or investments in customer experience, personalisation, and loyalty programs.”

Customer experience is a top priority for Aussie retailers 

Ninety-three percent of Australian retailers cite customer experience as either important or critical. In fact the retailers most likely to view customer experience as critical for their business’ survival were also those that may be considered the most successful by measures – 50 per cent of businesses with $500 million annual revenue, 41 per cent of retailers in operation for 20+ years, and 34 per cent of retailers with 500+ employees.

Australia’s largest and most successful businesses are betting on personalisation to improve their customer experience over the next twelve months, adopting methods such as data-driven recommendations and personal touches like handwritten notes with delivery.

Nearly half (47 per cent) of businesses with over 500 employees, and nearly three quarters (73 per cent) of businesses earning over $500 million in revenue, have adopted or are planning to implement personalisation strategies, being their biggest priority for the next twelve months.

DTC businesses are also making personalisation a top priority when it comes to customer experience with 62 per cent saying this will be their focus. 41 per cent of B2C retailers are looking to invest in additional customer insights such as qualitative and quantitative data as their number one priority. Whereas, B2B organisations have a strong focus on the integration of online shopping with in-store experience as their main focus with 41 per cent of businesses doing this.

Jehan Ratnatunga, co-founder & VP of Strategy and Digital Product, Who Gives a Crap, said: “If we want to meaningfully grow market share, we need to understand and drive a behavioural shift. There’s education or sampling or driving behaviour to ‘top of mind awareness’, our brand campaign is a first step in that direction”

“We do need to think about where the customer is. We’ve been DTC for years, but the supermarkets still capture most of the market, so we need to think about an omnichannel approach to reach those customers. Our DTC experience will always be the best way to engage directly with customers but there are still customers we can’t reach without an omnichannel approach.”

Investment in tech 

Technology is important for efficiency, but it’s also incredibly important for enabling customer experience excellence, an especially valuable trait for retailers as consumer behaviour evolves. Almost all (98 per cent) of Australian businesses are investing in different technology measures over the next 12 months, with nearly half (44 per cent) investing in real-time data analysis.

Almost two thirds (64 per cent) of respondents will be using technology to improve their customer experience through automation. Second to this, over half (55 per cent) said they are planning to enhance their customer’s online experience such as automatic refunds. Interestingly, retailers located in NSW are 50 per cent more likely to enhance online customer experience in the next 12 months compared to those in Victoria.

Highlights from the report:

Macroeconomic pressures retailers are facing 

  • The higher cost of wages is the main challenge businesses are grappling with in most states and territories, with South Australia (59 per cent) and Western Australia (52 per cent) most impacted
  • Queensland businesses cited the increased cost of servicing debt as their main challenge (58 per cent), while Victorian businesses cited increased operational costs (42 per cent) like energy bills and rent
  • Victorian retailers were the least likely to plan price increases in the next 12 months at 16 per cent, almost half the rate of the most likely, NSW at 28 per cent
  • One in five (21 per cent) businesses are looking for new non-bank sources of finance, jumping to 35 per cent for businesses in WA
  • Businesses with $500 million revenue cited digital transformation as the biggest challenge their business was facing (55 per cent), but did not perceive maintaining profitability or people management as challenges (both 9 per cent)
  • Conversely, maintaining profitability was the number one challenge for businesses with $100-499.9m in revenue (47 per cent), while they were least concerned with cyber security (11 per cent)

Customer experience takes hold 

  • On average, Australian retailers are planning to invest 13.2 per cent of total revenue in customer experience over the next 12 months, with those turning over $500 million investing the most at 15.9 per cent
  • Personalisation is the top customer experience initiative businesses are investing in, at 41 per cent – a number that jumps to 71 per cent for businesses with $500 million annual revenue
  • This is followed by promotions (28 per cent), most prevalent with businesses turning over $50-$99.9 million p.a., and investments in additional customer insights (28 per cent), also most popular with businesses clearing $500 million p.a.
  • 55 per cent of enterprises with $500 million revenue are investing in the integration of online shopping with the in-store experience, as are 42 per cent of businesses with between $100m-$499.9m in revenue

Tech talks 

  • Real-time data analysis (44 per cent) is the primary technology investment retailers are making in the next 12 months,  most pronounced with businesses generating $100-$499.9 million at 58 per cent
  • This is followed by technology up-skilling programs for internal teams (41 per cent) and supply chain optimisation initiatives (36 per cent)
  • 26 per cent of retailers are reviewing the total cost of ownership of their tech platforms, with 19 per cent aiming for vendor consolidation
  • 54 per cent of DTC retailers were investing in a customer data platform, while 46 per cent were investing in social commerce

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