IBISWorld predicts subdued Christmas spending

In the wake of online competition.

Christmas retail spending is expected to stagnate this December, falling by 0.2% compared to the same time last year, according to IBISWorld, attributing the overall decline to lower discretionary incomes, negative consumer sentiment, and price discounting across the retail sector.

“Overall, IBISWorld has observed early signs that retailers will struggle to outperform over the 2017 holiday period,” IBISWorld analyst, Jason Aravanis said.

“Consumers are tending to transition to cheaper online retailers, particularly as the entrance of Amazon into the market increases the awareness of online platforms. Jewellery retailers, department stores, and electronic goods retailers are all expected to underperform this holiday season, although it isn’t all bad news – with liquor retailers, supermarkets, and online retailers expected experience some subdued growth over the period.”

 

Electronic goods retailing

Christmas spending on electronic goods is expected to decline, falling by 1.2% compared with last year, to total $1.7 billion. Despite continued advances in product design and technology, revenue has fallen due to strong price-based competition, progressive declines in the average price of some domestic appliance categories, and weak consumer sentiment. Falling discretionary incomes has also caused some households to postpone big-ticket sales, particularly computers and televisions.

“This Christmas season is likely to be particularly interesting due to the recent entrance of Amazon into the Australian market. Amazon is expected to try and capture to the trust of Australian consumers during this Christmas period. IBISWorld expects Amazon to aggressively drive down prices; however this may not occur until after Christmas as Amazon integrates manufacturers into their local supply chain. Other large players, including Harvey Norman and JB Hi-Fi, are expected to accept lower margins as they offer significant discounts in order to prevent Amazon from capturing market share,” Aravanis said.

Department stores

Department stores’ festive takings are anticipated to decline this Christmas season, with sales expected to be 1.9% lower compared with the previous holiday season. Over December 2017, consumers are expected to spend $111.64 per capita in department stores. This is down from $116.94 in the previous year.

“Competition from online retailers is expected to continue to negatively affect sales, particularly as Amazon seeks to capture market share over the Christmas period. Discounting and negative consumer sentiment are also likely to hinder revenue growth,” Aravanis said.

IBISWorld expects major players such as David Jones and Myer to protect their margins by pivoting to exclusive high-margin products and expanding their product ranges. In contrast, budget department stores such as Big W are expected to compete primarily through discounting.

Online shopping

Online retailers are expected to be the big winners this Christmas season as consumers are driven online by the allure of lower prices and greater product ranges.

“IBISWorld expects spending during December to grow by 15% from last year as budget-conscious consumers seek discounted items and Amazon increases the popularity of online shopping. Per capita online spending this Christmas is expected to reach $83.34, up from $76.68 in the previous year.

“Increasing confidence in transaction security and shorter delivery times are likely to spur greater use of online shopping platforms. The entrance of Amazon is likely to significantly increase retail trade over future Christmas periods, as consumers become aware of Amazon’s discounted prices, short delivery times, and wide product range,” Aravanis said.

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