Waiting for the Christmas rush
Retailers will be hoping for robust Christmas sales this year after what was for many a subdued first quarter. More than halfway through November, there doesn’t seem to be as much Yuletide enthusiasm as might have been expected.
In the past two years, November has been a bigger month for retail sales than December, the month which includes not just last-minute Christmas shopping but also the Boxing Day discount sales.
November replaced December as the biggest month for retail sales in 2016 for the first time.
In 2017, retailers were peddling discounts early. This was no doubt a key factor in a 1.3 per cent increase in November 2017 sales, compared with 2016, and a 0.6 per cent decline in December. On the surface it appears that there has been somewhat less discounting this month and not quite the advertising frenzy.
Letterboxes are certainly not bulging with Christmas catalogues as in years past, and it seems one must watch The Bachelorette to see any holiday-themed ads at all.
Trends in transition
Also, many retailers have said that, in an effort to keep costs down, they are hiring fewer casuals for Christmas trading than they have in the past. They are relying more on social media and loyalty programs than on traditional media advertising to spread the word about their Christmas offerings.
Retail sales trends have also been changed by major online promotions such as Black Friday, Cyber Monday and Click Frenzy.
Amazon is contributing to confused perceptions by beginning Black Friday discounts a week early, which could be a market share grab or an attempt to logistically manage the popular event. It may, however, also flag that consumers have yet to turn their attention to Christmas shopping in earnest.
The growth in November sales over recent years has, of course, been driven by extensive discounts and promotional pricing which are pinching the bottom line during the one time of the year in which the main event is capable of generating full-price sales.
Retailers that reported falls in earnings in the first quarter of the current financial year and in the full 2018 financial year have indicated that they want to reduce the discount activity because it is cutting into profitability.
Even Coles has suggested there is a need for less reliance on discounting. But that is a hard decision to make and stick by, as the industry has demonstrated over decades.
The retail industry always attempts to drive the adrenaline through consumer veins for Christmas trading, but it is not just any diminished advertising and promotional impetus or even online competition that is making business much tougher for retailers this year.
Consumers under pressure
Many consumers are facing the direct hit of higher interest rates and cost-of-living increases in services such as health insurance, energy prices, government rates and charges, and the indirect threat of a fall in the value of houses.
As IRW has pointed out in the past (and as economists now acknowledge), consumers are more confident about spending when they believe their debt exposure is covered by rising property values. A fall in housing prices makes the credit-card and other household debt a little more sobering.
Despite the talk of an upswing in wages growth across the economy, that cheer is realistically yet to materialise. For retailers, this is a double-edged sword as they are facing significant hikes in staff pay packets under new enterprise bargaining agreements and awards.
For retailers, Christmas and second-quarter celebrations will depend on how deep consumers are prepared to dip into their pockets in what is left of November and perhaps in a resurgence of December spending.