I have been spending a little time this week thinking about 2009 and retail in general.
Although I haven’t been able to speak to too many other sellers recently the ones I have spoken to are hinting at the same issues.
- Prices are all going up, thanks to the current exchange rate (1 Australian dollar buys .71 USD as I write this)
- Margin pressure will increase as retailers (online and off) try to maintain sales levels and cashflow
Consumers may not often realise how much business capital is held up in orders of stock from Chinese factories for example. And often, orders are planned (and deposits paid) many months in advance.
With the Australian dollar falling so quickly from its lofty heights of 95+ US cents down to low 60’s so quickly, some businesses will be left in tough positions, trying to keep cashlfow and profits high enough to fund purchase and import of all that stock ordered earlier in the year.
And what of the factories and suppliers of product?
I have heard from various sources (factories, and visitors to them) that up to 30% of factories in Shanghai have stopped operating due to the current economy! True or not, the slow worldwide economy and throttling back on business spending and investment is going to have an impact in China and other consumable producing countries.
Factories that we buy from are ok (they tend to be larger factories), but in talking to these suppliers is becomes quite clear that business is very tough in China. Material costs are rising, they have pressure to increase wages to labourers, and their customer demand is slowing.
Retailers in Australia are selling down on their stock that has been purchased at higher exchange rates, and I don’t think consumers have seen any real impact on product prices just yet.
Once the current post-Christmas sales are over prices will really start to rise as businesses start buying in newer stock. It doesn’t matter whether a business buys from US or China, it is all going to cost more. We are already seeing local suppliers raise prices anywhere from 15 – 40%, and most of this is going to have to be passed on to the consumer.
Some sources of news and opinion relating to online retail suggest that there will be a change of buying habit from shoppers who traditionally buy in bricks and mortar. The suggestion is consumers will start to look online for cheaper prices.
I am not convinced!
Sure there has been stronger growth in online retail relative to traditional bricks and mortar retail (and there has been for some time) but don’t think this shift in buyer behaviour will increase noticably in rate.
Most shoppers comfortable with bricks and mortar aren’t going to suddenly turn to their PC and Google or eBay to find that product cheaper to ensure all of us online retailers have a comfortable year.
So, get ready for some hard work.
We will all need to keep working on ensuring we make the most of every customer opportunity we get. Service, retention and value are all gong to be key this year.
We might see a shift of focus to ‘value’ brands or items. Maybe shoppers will start to look at cheaper brands when making purchase decisions.
Perhaps we will see a boost in product search terms with the words ‘cheap’ or ‘discount’ in them (and we should change our marketing to suit).
In summary, I think the retail landscape is going to get tougher yet, but as always there is great opportunity for those who work smart and offer the best service and product possible to their consumers.
Build that customer list, keep growing your customer base, and work hard at keeping them!