Australian small to medium retailers are performing below (33%) or far below (8%) their FY23 forecasts, according to new research by Australian Retailers Association (ARA) and American Express.
Meanwhile, 15% of SMEs are performing above or far above (2%) financial expectations.
The inaugural 'ARA & American Express Small Retail Index' also found that 91% of SMEs have reported cost increases over the last year, with 32% saying their costs have increased more than 10% - above the level of inflation.
The report found that acquiring new customers and driving customer loyalty are top priorities for SMEs across FY24.
ARA CEO Paul Zahra said the index – which is the first to focus exclusively on SME 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.”
Other key findings in the research include mixed sentiment over the financial year ahead, with 11% feeling very confident, while 9% feel very concerned.
32% of SMEs feel uncertain about the year ahead, which is expected to impact growth, employment and investment decisions, while their most pressing concerns are the consumer spending slowdown and rising wage costs.
SMEs are absorbing cost increases by passing higher costs onto customers (24%), with 19% of SMEs reducing margins and looking for cost savings in the business (16%).
Meanwhile, 12% have reduced their staffing level and 7% have reduced stores or store hours.
The study showed that SMEs are calling on the government to implement tax breaks, reduce inflation and relief for utilities, leasing and wage costs.
American Express VP & GM of consumer and commercial services Emily Roberts said this new research is a “vital barometer” of the well-being 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 from May - June 2023. Almost 400 retailers were surveyed, with retail turnovers below $50m.
Most of the survey participants had retail turnovers below $5m.