As the all-important Christmas and holiday trading period draws near, new research by the Australian Retailers Association (ARA) and American Express reveals most small to medium-size retailers (55%) remain uncertain or concerned about their financial future as a consumer spending slowdown continues to impact the industry.The ARA & American Express Small Retail Index shows that while 57% of small and mid-sized businesses are defying economic headwinds to meet or exceed their financial benchmarks, as many as 43% are falling short.
The cost of doing business continues to place significant strain on SMB retailers. Almost all (93%) said they have seen cost increases in their businesses over the past 12 months, with more than one-third (36%) saying their costs have increased by more than 10% – well above the level of inflation.
While decelerated consumer spending is the most pressing concern (57%), wage costs (41%), cost of goods and services (39%), staffing shortages (29%) and cash flow management (29%) also ranked in the top 3 pressing concerns.
To respond to pressures, retailers are prioritising investment in customer acquisition (66%) and loyalty (56%), while innovating in the areas of artificial intelligence and e-commerce.
These findings coincide with the start of Shop Small, a global movement founded by American Express to recognise the contribution of small businesses and to encourage shoppers to support them. Entering its 11th year in Australia, Shop Small also exists in Canada, Japan, India, Hong Kong, the UK, the U.S. and other countries.
ARA CEO Paul Zahra said the index highlights the multi-level pressures small retailers are under.
“It’s a difficult time to own a small business in Australia – one of the most difficult in recent history,” Mr Zahra said.
“Our small retail community is feeling the crunch as shoppers scrutinise their spending and costs continue to increase across the board – wages, rent, utilities, insurances and supply chain costs. They also continue to battle staffing shortages and needing to prioritise and resource investment into new technology and sustainability responses.“Discretionary retailers are at the coalface of this pressure as we head into the Christmas trading period, when most discretionary retailers make up to two-thirds of their profits.
“It’s encouraging to see many SMBs are holding their own against these pressures. We typically expect these businesses are either trading in the essentials category like food, or servicing consumers who are less impacted by cost-of-living pressures.
“Despite the tumultuous operating environment, most retailers are showing extraordinary resilience by investing in innovation, e-commerce and sustainability to prepare themselves for the future.
“The ARA will continue to advocate for Government support for SMBs. Small businesses are the cornerstone of our economy and it’s vital that they remain sustainable”, concluded Zahra.
Emily Roberts, Vice President and General Manager of Consumer and Commercial Services at American Express said:
“Small businesses are the heart of our local communities and backbone of our economy, and they are operating in what is one of the most challenging retail periods in recent times. As we head into the busiest retail season of the year, Shop Small is a reminder to Australians to get out and spend with small businesses as often as they can.
“Every dollar spent with a small business is a dollar towards maintaining the vibrancy of our local communities, rewarding the tenacity of business owners and ensuring that our local stores open their doors for another day.”
Additional key findings of the ARA & American Express Small Retail Index:
• Less than half (45%) of retailers feel confident about the financial year ahead, with 55% feeling either uncertain, somewhat or very concerned. This confidence however has increased compared to July’s Index (34% confident)
• More than half of SMBs (54%) have been forced to pass on higher costs to consumers while more than a quarter (28%) have been forced to reduce staff. When comparing this to just 4 months ago, only 24% of SMBs were passing on higher costs.
• A quarter of retailers are increasingly using staff incentives and bonuses to retain and attract workers.
• The majority (88%) are pursuing innovation to drive revenue and reduce costs (down 3% from the last index).
• Half of ARA member retailers surveyed are investing in sustainable packaging to yield better environmental outcomes.