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Customer Acquisition and Loyalty Top Small Retail’s Priority List Amid Economic Headwinds

While some small and medium-sized Australian  retailers are surpassing performance expectations in the face of significant challenge, many say  they are failing to meet their financial benchmarks, the inaugural ARA & American Express Small  Retail Index has revealed. 

The report reveals 17% of SMBs have remained resilient in the face of a consumer spending  slowdown and rising costs of doing business; performing above (15%) or far above (2%) their expectations for the FY23. On the other hand, 41% of SMB retailers are performing below (33%)  or far below (8%) their FY23 financial forecasts. 

Unsurprisingly, more than 91% of SMBs have seen cost increases in their businesses across the  past 12 months, however around one-third (32%) say their costs have increased more than 10% - which is above the level of inflation. 

As economic conditions become more challenging, retailers are increasingly prioritising the  acquisition of new customers and building customer loyalty.  

Key findings of the ARA & American Express Small Retail Index: 

An equal number of businesses feel somewhat confident (23%) or very confident (11%) to  those who feel somewhat concerned (25%) or very concerned (9%) about the financial  year ahead – both totalling 34%. 

Uncertainty is also a key theme with 32% of SMB’s feeling uncertain about the year ahead.  This will impact growth, employment and investment decisions.

The consumer spending slowdown and rising wage costs are the most pressing concerns  for SMBs in the year ahead.

Acquiring new customers and encouraging customer loyalty are top SMB priorities for the  year ahead.

The rising cost of doing business is a consistent concern with wage pressures, the cost of  goods and services and cash flow management high on the list of concerns.
SMBs are absorbing cost increases by passing higher costs onto customers (24%), with 19% of SMBs reducing margin and looking for cost savings in the business (16%).  Furthermore, 12% have reduced staff and 7% have reduced stores or store hours.

SMBs say among the measures they would like to see from government are: tax breaks,  reduced inflation and relief for utilities, leasing and wage costs.  

ARA CEO Paul Zahra said the index – which is the first to focus exclusively on SMB retailers in  Australia – highlights the unprecedented pressure small retailers are under.  

“I cannot recall a period of more significant challenge for our retail community – with our small  retailers disproportionately affected by ongoing revenue and resource pressures,” Zahra said.

“2023 ushered in the perfect storm for retail – a spending slowdown, coupled with the rising cost  of doing business, all taking place alongside the largest set of government reforms in decades and  a retail crime wave that is impacting the wellbeing of workers and the bottom line of companies. 

“We are concerned about the outlook for small retailers in these tumultuous economic conditions  and the toll these pressures are taking.  

“Small businesses are the cornerstone of our economy and it’s vital that they receive adequate  support.” 

Emily Roberts, Vice President and General Manager of Consumer and Commercial Services at  American Express said the index serves as a vital barometer of the wellbeing of Australia’s small  retail sector. 

“Following years of consumer uncertainty, supply chain constraints and economic pressures, this  research commissioned by the Australian Retailers Association and American Express paints a  picture of an industry that is bracing for more challenges ahead,” Roberts said.  

“Despite this, history has shown that no industry is more resilient and better positioned to emerge  from adversity. 

“Retailers that adapt how they build, market and sell their products to meet new consumer  behaviours will be best placed to acquire new customers, secure their loyalty and navigate the  challenges to come.” 

The ARA & American Express Small Retail Index survey was conducted online nationally during  May - June 2023. Almost 400 retailers were surveyed, with retail turnovers below $50m.  

Most of the survey participants had retail turnovers below $5m. 

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