A happy new year for retailers

Australian retailers are starting the New Year with a spring in their step, according to the latest Commonwealth Bank Future Business Index.

Designed to measure confidence across Australia’s midsized businesses, the Index is based on organisations’ own forecasts of future conditions, revenue and risk, all wrapped up into a single number. In the December 2013 quarter, the Retail industry’s Index doubled — its highest level since the Index began in September 2011.The good news doesn’t stop there. Asked about their forecasts for 2014, 82% of retailers expect business performance to improve, while 54% predict revenue growth in the first half of the year. Overall, the retail outlook seems brighter than it’s been in some time.

Retailers reinvent themselves

Lower interest rates, improved consumer confidence and a falling currency are helping the industry regain lost ground and reinvigorate their service offering to customers.

In recent years we’ve seen retail clients consistently working to drive down costs by creating new efficiencies in distribution and sourcing, especially in consumer staples. Meanwhile, some of the country’s biggest brands have reinvented themselves as slimmed-down, funkier stores attracting a new generation of discerning shoppers.

There has been growth in the online pureplay and omni-channel as domestic retailers have seen others adapt their offerings. They have taken on the digital competition directly, with omni-channel strategies combining bricks and mortar stores with a growing online presence. There are signs that these strategies are gaining traction. For example, we’ve been hearing stories of Australian retailers selling luxury goods to online shoppers from China — a fascinating trend.

The retail market outlook remains challenging

Yet, as conditions improve, the Future Business Index also shows competitive pressures are rising. 56% of retailers say they could be impacted by increased domestic competition over the next six months, up from 44% in the September quarter, while 41% see international retailers as a significant threat, up from 24%. Maintaining margin in this environment remains a key focus.

Some categories face stiff competition from new overseas entrants, while others are dealing with specialist online retailers at home and abroad. With barriers to entry still very low online, margins are being eroded, making cost control all the more important. The drop in the Australian dollar helps mitigate some of the pressures from offshore players.

Rising to the challenge

Our research suggests retailers are ready to rise to the challenge. Encouragingly, 81% of retailers say costs are under control, while one in two are now focused on growth, rather than cost management. More than a third plan to lift capital expenditure over the next six months, while one in five expects to increase headcount.

Over the year ahead, we hope to see a continued resurgence in bricks and mortar retailing, thanks to rising consumer sentiment and improved competitiveness. If the industry’s own forecasts are correct, it could be time for retailers to reap the rewards of their resilience.

Find out more

See how your industry compares to others in Australia with our latest Future Business Index report.

To find out how CommBank can help your business, contact your Relationship Executive or call us on 1800 019 910.