Christmas proves easy prey for bargain hunters

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Retailers that count on consumers to open their wallets a little wider ahead of Christmas are in for a rude awakening, as Australians tighten their belts and bargain-hunting becomes the norm.

That’s the finding of a new report on holiday retail spending this year, which IBISWorld released on Monday. Based on trade data from the Australian Bureau of Statistics and industry reports, the global research company predicts consumers will spend a meagre 0.4 per cent more than they did last December in categories that typically rely on Christmas trading, including electronic goods, jewellery and watches, liquor, department stores and recreational goods.

 

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According to IBISWorld senior industry analyst Nick Tarrant, lower-budget retailers stand to gain the most from Christmas 2016, which will be characterised by price-conscious consumers looking for early sales, deep discounts and bargains in the lead-up to the holidays. He attributes this behaviour to current events.

“This year, consumer sentiment is travelling at a similar pace as last year, but GDP data, which suggests the economy has gone backwards in the last quarter, and other volatile political things happening in the world, such as Trump getting elected, will contribute to consumers spending less,” Tarrant told Inside Retail Weekly.

These factors are compounded by the years-long rise of e-commerce, which has made it easier for consumers to compare prices.

“Consumers won’t just go into a store and buy a product anymore – they’re hunting out the best price. This has caused retailers to change the way they think about how they price products,” he said.

This was most visible in the popularity of Black Friday sales in Australia this year, which showed retailers’ eagerness to cash in on consumers’ appetite for early discounts. But if they thought it would boost their pre-Christmas sales, they were mistaken.

Department store sales are expected to fall 2.8 per cent compared to last December, according to IBISWorld’s research.

“Sales will be hurt this Christmas season by competition from online retailers and heavy discounting in the industry,” Tarrant said.

Indeed, IBISWorld expects online retailers to be the big winners this festive season, with e-commerce spending during December set to grow 17.3 per cent on last year.

The research company estimates that Australians will spend $75.20 per capita online ahead of Christmas, compared to $116.90 in department stores.

“Clothing, personal accessories, liquor and lightweight electronic goods are among the most popular online choices, as these products are often from well-known brands that consumers can trust,” Tarrant said.

Liquor sales specifically are expected to grow by 3.4 per cent this December, a month that drives around 13 per cent of yearly retail liquor sales in Australia. According to Tarrant, weaker sales in beer and spirits will be offset by growth in categories such as cider, which is expected to grow by six per cent in 2016-17.

These figures are broadly in line with Endeavour Drinks Group’s expectations ahead of Christmas.

“The only exception [is] some positive growth numbers occurring in bottled spirits due to customers getting more involved in crafting cocktails at home,” said Michael Jackson, general manager of merchandising and marketing for Endeavour Drinks Group (formerly known as Woolworths Liquor Group).

In other key retail categories, IBISWorld predicts Australians will spend roughly $1.5 billion on electronics, $1 billion on recreational goods and $451.8 million on jewellery and watches this December. Across the board, these figures represent an opportunity primarily for big-box and low to mid-range retailers, rather than luxury brands.

“Fast fashion jewellery retailers, such as Lovisa, are expected to fare better than their fine jewellery counterparts this Christmas, as their lower pricepoint and disposable nature make them an affordable Christmas gift,” Tarrant said.

Although the IBISWorld report only pertains to retail spending ahead of Christmas, Tarrant says this behaviour will likely outlast the Christmas turkey.

“It’s unlikely the behaviour will change straightaway. It’s something we think of as a long-term rather than a short-term trend,” he said.

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