Consumer Anxiety and Dropping Sales: Connecting the Dots

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By Published On: October 17, 20190 Comments

In a recent report by NAB, consumer anxiety has risen - the cost of living has become higher and is causing concern amongst Australians. 

The concern surrounding the rise in house prices, future savings, and maintaining a healthy spend is impacting retail across the board, resulting in many Aussies turning to BNPL to keep themselves afloat.

In the NAB report, the results show an increase in anxiety by 2.9 per cent from 57.3 points from 54.4 in Q2 2019. “When we ask Australian consumers what worries them, the cost of living is consistently at the top of their list,” explained Alan Olster, the NAB Chief Economist. “Some of these costs (food, alcohol, clothing, housing, health expenses, transport etc.) worry some consumers more than others, and these are the costs consumers often think of most when determining their true cost of living.”

How Does This Affect Retailers?

Retailers have been openly struggling within the sector for several months, as the National Retail Association (NRA) pointed out. In July the retail sales dropped .01 per cent but were lifted again in August. “Retail is one of the largest sectors in Australia and the biggest employer of young people, so it’s importance to the overall economy cannot be overstated. The NRA urges Aussie shoppers not to shy away from spending any extra money to not shy away from spending any extra money they’ve received in tax cuts or the drop in interest rates at their local retail outlet,” explained Dominique Lamb, the CEO of the NRA.

It’s not Australia either. As WWD reported, retail sales suddenly dropped in mid-September in the U.S, which is most likely linked to the tariffs that President Donald Trump imposed last August. Across the country, sales fell .03 per cent, a significant number against the Australian slump.

Retailers including David Jones and JB Hi-Fi have made public comments regarding the dop in sales – some have been majorly affected, some haven’t experienced a change. 2018 saw a massive spike in retail spend, which is something that wasn’t experienced this year. As mentioned in a previous Power Retail article, the 2019 Federal Election also made consumers afraid to spend, due to interest rates and uncertainty in the political parties. With these tax cuts filling consumer’s wallets, Dominique Lamb says there’s no better time to splurge.

“Whether it is purchasing a few extra items during grocery shopping, splurging on some personal items or finally having enough cash to make a long-awaited purchase, we encourage shoppers to not be shy about spending this money,” said Ms Lamb.

According to the NAB, the most significant factors that have contributed to this slump in sales included grocery prices, utilities and the age and income of the consumer. “But your age and your income did have an impact on other causes of cost of living pressures, Mr Olster explained. “For example, more young people aged 18-29 were impacted by rent, eating out, entertainment and other debt than any other age group.”

The Rise of BNPL

According to ASIC, in 2018, there were an estimated two million users of BNPL options, and as of June 2018, the outstanding payments from all of these users equated to $903 million, with predictions that it will hit $1 billion by the end of 2019. While there’s no surprise that BNPL platforms are on the rise, it may cause consumers to make more purchases and stack up new debt.

Scheduled payment platforms like Afterpay, Openpay and humm, are on their way to becoming the mainstream and necessity within the retail industry, but will that further capture sale, or will the novelty soon wear off? In the Power Retail Spotlight Series: BNPL, 90 per cent of online shoppers use the payment schedule platforms on subsequent purchases. According to the report, 79 per cent of shoppers use the service to better support their cash flow, while 27 per cent use it to budget their finances better for larger purchases.

The love for BNPL may not be so prevalent since its initial boom in late 2018. Rather than being a novelty, it may have become an essential part of the consumer’s shopping behaviour.

According to the Spotlight Series report, ‘almost every retailer (94 per cent) who took on BNPL wanted it to increase conversions. For 74 per cent of retailers, BNPL delivered on that requirement’. Similarly, the second most nominated reason (81 per cent) for taking on BNPL was to increase Average Order Value (AOV), and 61 per cent agreed that it had also met that objective, the report found.

Ultimately, anxiety pressures can create a stir for consumers, and they’re relying on the likes of BNPL to kee their shopping habits afloat. Only time will tell if this harms retail or if things will even out.

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