Retailers brace for more tough times as survey says 75% of consumers will cut spending further

The retail industry must prepare for another shocking year in which 75% of customers will spend less and continue to search for sales, new research from the Australian Retailer’s Association reveals.

However, the industry may be given a boost next week with IBISWorld predicting families will break free of frugality and splurge for Father’s Day.

ARA executive chairman Russell Zimmerman says the group’s research, which reveals a majority of Australians are still uncertain about the domestic economy, “doesn’t necessarily brighten your day”.

“There’s going to be a continued drop in spending, and people will be looking for price over convenience. It shows again that the most important factor in retail is the quality of the product and service, outside of price.”

“It continues to be vitally important that businesses start considering whether their product offers value for money.”

The survey also comes after reporting season, during which a number of retailers recorded reduced profits and disappointing economic outlooks. Even JB Hi-Fi, viewed as an exceptional performer in this frugal environment, said like-for-like sales declined in July.

The research reveals 65% of consumers believe in saving, not spending, and that 75% will spend less, look for sales or “drastically” cut their spending over the next 12 months. Another 55% say they shop at different stores in order to get a cheaper price, over their convenience.

The survey also reveals 50% of consumers “forgo best brand for best price”. This comes just days after a debate erupted between retail heavy weight Gerry Harvey and discount electronic goods entrepreneur Ruslan Kogan about whether customers look for brands they trust or go for the discounts.

Zimmerman says while the survey shows more customers are indeed switching brands for price, he believes “brand still plays a big part in this retail environment”.

“I think brand is still very important. You also have to remember that while customers will forgo brand for price, they are still looking for value for money and won’t just buy anything they can get their hands on.”

“About 52% spend time searching online before buying. They want to find the best service, and the best quality product they can buy for a particular price.”

Zimmerman says retailers need to understand this in order to survive another volatile 12 months – customers reward value.

“Looking back over the year, there have been a few retailers that have hit the wall. This environment is not going to make it any easier. There have been many retailers downsizing, with profits down, and so operating wisely is more important than ever.”

“It’s all about the value for money. The companies that will do well over the next 12 months won’t be those just doing the same thing, but those who give good service and offer value for money.”

However, this upcoming weekend should provide retailers with some relief. IBISWorld predicts Australians will spend over $1 billion this Father’s Day, up by 2.8% from 2009. General manager Robert Bryant said in a statement retailers will benefit from higher consumer sentiment.

“Improved economic conditions, lower unemployment and higher disposable incomes will support increased Fathers’ Day spending in 2010, although Australians remain cautious,” he said.

Cafes and restaurants will see the highest spending at $261.7 million, but hardware and electronics will record the biggest growth rate at 123% to hardware and electronics. Clothing spending will fall 6.8% to $127.4 million, while gift vouchers are set to increase 3.2% to $107.3 million.

“IBISWorld predicts electric shavers, power tools and computer games will be 2010’s most popular hardware and electronics presents. Indeed, IBISWorld analysis shows Fathers’ Day is the key sales period all year for electric shavers. It seems designer stubble is out of favour with Australian families.”

Bryant also points out that for the first time, 10% of Father’s Day spending will be spent on gift cards, with $29.4 million to be spent on alcohol.