With the Christmas period fast approaching, many Australian retailers and service providers are preparing for their peak earning period.
Business information analysts at IBISWorld anticipate sales spikes of between 17 per cent and 90 per cent over the Christmas period.
“While this strong seasonal demand and forecast sales spike is set to subsidise weaker trading periods throughout the year, the Christmas period presents both opportunities and challenges for Australian businesses,” said IBISWorld Senior Analyst, Stephen Gargano.
The Christmas winners
“With total retail spending forecast to jump by 35.2% this December, compared with average expenditure over the previous 11 months, all retail categories can expect a share of the spoils. However, department stores are expected to outperform competitor categories with an anticipated sales spike of 94.1%,” said Mr Gargano.
“Department stores operate as a one-stop-shop, stocking a range of consumer goods. This holds them in good stead to benefit from an influx of time-poor consumers keen to purchase their Christmas gifts and holiday supplies in one location,” he added.
IBISWorld analysts expect electronic goods, such as iPads and gaming consoles, to top many Christmas wish lists this year, helping to drive up revenue generated by electronic goods retailers by 56.2% in December. This suggests that many households defer these purchases until Christmas.
The Christmas sales period also provides an opportunity for retailers take advantage of the high demand by discounting prices to clear inventory, particularly in areas such as clothing, footwear and personal accessories. This is expected to result in a 66.2% rise in clothing retailing revenue during December as consumers take advantage of discounted prices to update their wardrobes.
“The revenue spike for the footwear and accessory retailing segment will be even more pronounced, rising by an estimated 76.7% due to higher spending on popular gift items such as jewellery and watches in the lead-up to Christmas,” said Mr Gargano.
Other areas where December spending is set to increase include liquor retailing and restaurants. Liquor retail spending is anticipated to jump by 59.4%, with Christmas parties driving demand and alcohol consumption rising over the holiday period. Demand for restaurants is expected to grow by 24.9%, driven by corporate spending on Christmas functions.
“Dedicated Christmas lunch and dinner menus offered by restaurants, as well as strong high-margin alcohol sales during corporate events, will help boost profitability for restaurateurs during this period,” said Mr Gargano.
On the other hand, December spending at supermarkets and grocery stores is forecast to rise by a modest 17.3%. While supermarket purchases are essential year round, the rise in spending reflects an increase in people hosting dinners, lunches and barbecues over the Christmas period.
The Christmas challenges
The Christmas season isn’t all good cheer, however, with retailers facing several key challenges throughout the holiday period.
Staffing presents a traditional challenge over the Christmas period. To cover the significant spike in demand, retailers require not only sufficient staff, but also the flexibility to cut back staff hours once demand subsides after Christmas.
“If demand predictions are overstated, having too many staff may threaten profitability, especially once you factor in penalty rate payments for overtime and public holidays,” said Mr Gargano. He stated that the use of casual Christmas staff will help to manage personnel levels and provide the requisite level of flexibility. “Restaurants will face similar challenges during the holiday period. However, Christmas functions are typically booked in advance, which helps hospitality businesses to plan ahead to manage both staff and inventory.”
Another challenge over the period will be effectively managing inventory to ensure stock is available to meet Christmas demand. Overstocking leads to significant excess inventory, which may require drastic discounting and erode profitability.
“In the restaurant sector, it’s essential that operators purchase enough to cater for peak demand, but avoid over-ordering, which can lead to significant waste,” explained Mr Gargano.
Furthermore, specific Christmas items – such as decorations, cards and wrapping paper – are particularly sensitive to overstocking, with demand declining dramatically after Christmas.