Next 12 Months Will Be ‘Tough’ – Economist Gives Retailers Advice

According to Ferguson, the Australian economy is bursting at the seams. This comes as ‘far too easy’ fiscal and monetary policy alongside supply chain, and geopolitical constraints have helped produce a four-decade high boom in the cycle. With this boom comes a few key elements: lower interest rates, a boom in property sales and an increase in consumer sentiment.

But this is changing. With the return of rising interest rates, significant drops in consumer sentiment and the cost of living going through the roof, it’s causing a shift in how retailers operate.

In the short term, retailers will need to slow down their spending and run operations as lean as possible. “The next 12 months will be tough,” he explained. And according to Ferguson, retailers need to start changing the way they operate now to become leaner and more cost-efficient so they can weather the storm.

Ferguson went on to share that things may seem okay now, but things will inevitably get tougher in 12-18 months. So, as retailers lead into the Christmas period, businesses need to plan for the tough times early.

If there is going increase in inflation and wages don’t follow suit, there will be a drop in spending. Consumer confidence is already low, increasing at very incremental and small rates.

This week, Roy Morgan indicated that there was a 0.7 percent drop in consumer confidence, now at 85. There are significant downfalls in spending intentions, with only 20 percent saying that now is a good time to buy major household items. In contrast, nearly half (49 percent) say that now is a bad time to buy.

“There was a sharp fall in the sub-index that captures whether it is a ‘good time to buy a major household item’, and a moderate drop in the ‘future financial conditions’ sub-index,” shared David Plank, the ANZ Head of Australian Economics. “In contrast, ‘current financial conditions’ and sentiment about current and future economic conditions all rose. Lower inflation expectations may have helped sentiment toward ‘current financial conditions’. All sentiment sub-indices remain weak, however, with only ‘future financial conditions’ in positive territory.”

In the next 12 months, there will be increases in rent, wages and product costs, so in the steps to planning for a leaner business, Ferguson offers the following advice:

1. Reserve cash flow (AKA get lean)
2. Get ahead of pain points and address them
3. Increase productivity using technology
4. Align logistics

Consumers are feeling the pinch of inflation, which reflects in their spending habits. This is backed by the team at Roy Morgan. “Consumers are likely to stay cautious in outlook until there is better news about real wages. Though it is important to remember that this caution hasn’t actually been reflected in a pullback in spending – at least not yet,” explained Plank.

But it’s not all doom and gloom. In fact, Ferguson said that knowing this information is good and to embrace the changes as they come. “This is an invigorating time,” he said, but only if retailers embrace the changes now and make cost-effective decisions that can keep them afloat.

It’s also important to remember that inflation increases will peak, and while no one can predict these things, it may be as soon as the end of CY22.

A final piece of advice from Ferguson to the room: “Embrace the opportunities now!”

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