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Data the key to fighting interest rates impact on retail spending
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Data the key to fighting interest rates impact on retail spending

As interest rates rise, discretionary spending is likely to slow, with superfluous retail purchases often the first belt to tighten for consumers. How can businesses navigate a spending slowdown to ensure commercial security?

Well, as interest rates rise, retail looked to ride the impact wave unscathed with trade up 12 per cent for the 12 months ending June 30, and many retailers posting healthy profits as the nation collectively threw off the COVID-19 shackles.

People started returning to offices and shopping centres, driving home the monetary value of foot traffic for the retail sector, even in the face of soaring online sales.

But retailers can’t maintain this pace with the tightening monetary policy headwinds, so forward planning is crucial. A critical part of this planning is having a strong understanding of key customers, their spending habits, and how these may be impacted by rising rates.

Data can drive spending

With the potential for further rates rises, discretionary spending from the average Australian is set to dive further, meaning a business needs to match their offering to a customer’s needs and spending habits to keep consumers engaged.

Businesses can analyse previous purchase data both in-store and online to build customer personas and better understand the demographics of their customers and adjust offerings to meet demand.

For example, turnover for café, restaurants and takeaway food grew 2.7 per cent for the month of June, while clothing, footwear and personal accessories was up 1.3 per cent.

This speaks to a split in the kind of consumer that is emerging and their associated purchase capacity. On the one hand we have young people without the burden of a mortgage and the increased trend in competitive wages, and those who own their home who are comparatively unaffected by the economic clamps and continue to spend.

The other hand sees Australian families operating off 1.5 incomes to service a mortgage, a household and run two cars, thus leaving little room for discretionary spending. Being able to build an understanding of which of these spending groups a typical customer falls into and their associated purchase capacity can inform a beneficial commercial strategy.

Businesses with e-commerce offerings are particularly well placed in this area. E-commerce platforms are more than just a channel for click and collect orders. One of the characteristics of businesses that have thrived since the outbreak of COVID-19 is the productive use of the insights gathered from online interactions with the business. Insights from customer data will help you learn more about customers than ever before, providing the foundations you need to innovate, tap into new markets, and tailor online interactions to the individual and their spending habits and capacity.

What else can be done

Looking forward to repeat purchase trends such as seasonal changes or release calendars can help businesses prepare to recoup potential losses. For example clothing and homeware retailers can consider clearing winter stock and preparing for summer, entertainment retailers can make room for the latest wave of improved products or upcoming releases.

Retailers should also be mindful of the rolling impact of COVID-19, as we learn to live with the virus on a day-to-day level. Its prevalence means increasing sick leave among workers as well as shoppers, and a reluctance for people to be in public. That means reverting to a now familiar pattern – a spike in online sales, but reduced foot traffic and lower participation in hospitality. It would be beneficial to assess and overhaul any digital shopping experience to focus on customer engagement. Putting the work in now instead of when another crisis hits will put a business in the best commercial position moving forward.

Considering the future

The annual consumer price index, a key inflation indicator, is now at 6.1 per cent, its highest level since the introduction of the GST, and the Reserve Bank has responded.

The pressure is not likely to ease in the short term unless inflation takes a sudden and unexpected dive.

Combined with higher costs of finance, labour and inputs it is likely that there will be a slowdown in investment and commercial activity. This could be the trigger for a broader economic slowdown that businesses should start planning for now, diving deep into available customer data to adjust their offerings to entice continued spending, and build customer loyalty.

What to do now

Pitcher Partners has a team of digital experts with broad experience helping retail business in the mid- market thrive with data-driven strategies. If you are interested in more information about anything in this article, contact your Pitcher Partners specialist today.

This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.

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