Retailers up ad spend to boost stagnating sales

Posted by Daniel Palmer on 22nd September 2008

New research released in the September Australian ARA Australian Retailers’ Index* reveals SME retailers are cutting back on costs but spending more on advertising in a bid to drive sales.

Australian Retailers Association (ARA) Executive Director Richard Evans said retail SMEs were more concerned about the current economic climate than any other sector and with sales falling they were adapting to the new conditions. “With a drop in sales and profitability and increasing concern about the current economic climate, it’s not surprising 30 per cent of retailers indicate they have reduced their cost base in the past quarter,” he commented. “What’s interesting is that the second most frequent response to the current economic climate was that retailers were advertising more, with 16 per cent of retailers reporting this strategy. This is five percent higher than was the case for SMEs in general.”

Mr Evans believed the strategy was becoming more prevalent as retailers realise that price is not the only selling point for consumers. “This is a positive indication that retailers are starting to understand you can’t compete on price alone in times of economic uncertainty,” he said. “Rather than focusing on making products cheaper, retailers are injecting dollars into advertising campaigns and thinking strategically about how they can give consumers, who have limited discretionary spend, a reason to shop. For small retailers though, advertising is not the only way to do this. Indeed, it may not be the most cost-effective way to communicate with customers.”

“The results also reveal a worrying 13 per cent of retailers have not yet taken steps to adapt to the current economic climate, with five percent of retailers indicating they are planning to take action in the near future and eight percent saying they are doing nothing,” Mr Evans added. “Australian retailing is in a period of change and the current economic uncertainty is a great source of opportunity for retailers. To grow and prosper, retailers must be adaptable to the new conditions.”

* The ARA Australian Retailers’ Index analyses the Sensis Business Index results for businesses in the retail sector, providing a snap shot of the retail sector every quarter in the following categories: retailer confidence; retailer concerns; sales, profitability and employment; capital expenditure; wages and prices and assessment of Federal Government policies. The results of the ARA Australian Retailers’ Index assist the ARA to maintain strong links with government and influence and direct policy affecting the retail industry.