Aussie retail recession would breed innovation to adapt to decreasing customer spending: Fifth Dimension
Brands and products will eventually innovate to be better equipped for financially strapped customers during a retail recession, according to customer experience expert Lyndall Spooner.
Spooner, the founder and CEO of Australian strategic research and consulting agency Fifth Dimension said some of the best innovations have come out of turbulent and difficult financial periods.
Fifth Dimension CEO Lyndall Spooner
“The first Burger King restaurant opened amid the post-Korean War recession in the 1950s,” Spooner said.
“The marketing platform Mailchimp formed during the dotcom recession in 2001. Uber, Airbnb and Groupon all started during the Great Recession in 2007 to 2009.”
Retail turnover in Australia recorded a 0.6% fall in the March 2023 quarter, which followed a 0.3% fall in the December quarter, indicating a recession for the retail sector.
Spooner said: “While a lot of people are panicking about Australia being in a retail recession, for most consumers the next 12 to 24 months is likely to change their lives forever as new brands and products hit the market better equipped to meet the needs of a financially strapped consumer with a penchant for entertainment and new experiences.”
She added that the businesses that started after recessions had one thing in common, they empowered consumers to take control of their own assets and be more thrifty with their spending. “I think this is what we will see happen over the next 12 – 24 months,” Spooner said.
“Many new products and brands will launch that give more power back to the consumer to save money while supporting their lifestyle ambitions.”
Spooner said the retail market will see a number of key developments over the next 24 months. She predicts prices of products will drop, unwanted product features will disappear, no-frills brands will emerge, eco-friendly features will no longer be priced at a premium, self-serve and AI-powered services will become more popular and the cost of delivery and service will also increase.
Spooner said consumers will still keep spending even though they are tightening their wallets, but will be spending less and more carefully on where they spend their money.
“As a result, this will place downward pressure on brands to find ways to reduce their pricing to entice sales. Businesses are going to have to find ways to deliver their products and services in a way that costs less, ultimately benefiting the end consumer with cheaper prices,” she said.
“I think this is a good thing. It is going to force many brands to rethink how they do things. It will encourage innovation and the elimination of waste.”
Customers are also forced into buying products with features they don’t want when they often just want the core product only, Spooner added.
“Market forces will start to change this and consumers will benefit greatly,” she said.
“Brands are going to have to look at how they package and deliver their products. Again, consumers will be the winners as businesses are forced to unpack and compartmentalise and simplify their offerings.”
Lower-cost products that won’t spend more on packaging, advertising or promotion, or “no-frills” products, will also see some organic growth through price alone and some help from social media.
“Don’t get me wrong, they will still look sexy on the shelf or enticing in digital content online, but they won’t be taking out television ads that would send most new startups broke in the first five minutes of their existence,” Spooner said.
“Basically, consumers can look forward to a smorgasbord of amazing new brands and offerings that are super cool, are incredibly affordable and in some cases, completely revolutionise how we live and do things.”
Another change would see sustainably sourced and packaged products no longer commanding a premium price.
“At the moment, it is largely the European electric car community that throws money around on products that are six times the price of everything else because they are sustainably sourced and packaged,” Spooner said.
“This is going to change fast. Consumers want to buy things for themselves that are good for the planet, but up until now it has cost them a premium to do so. Brands are already realising that if they can reduce cost and maintain the green value, that consumers will buy their products over other products as long as the product does what it says it can do.”
“Premiumisation will be replaced with ‘greenisation’. If the cost is the same, but one product is green and the other isn’t, green wins the sale.”
Spooner also expects more and more businesses will introduce self-serve selling, pushing the process of buying and selling on to the consumer.
“Support will be provided online and mostly at first level by AI. It will also be provided by phone, but this will be automated,” she said. “Humans are expensive to employ, and will increasingly be removed from front-line service roles over the next 24 months. Gen Z and millennials are the winners. Boomers are the losers.”
While prices will go down during a recession, Spooner also expects the cost of in person service and delivery will instead go up.
This is an area of service where prices can not be cut. Wages are going up, employment law is becoming more complex and as a result, the cost of providing services that are delivered by real people is going to soar,” Spooner said.
“Anything that involves delivery and on-demand human service is going to explode in price. Only those that have the funds or the extreme desire or need, will be paying for these types of services over the next 12 to 24 months.
“Cashed up Gen Z and millennials and Boomers may cough up the funds, but Boomers have already been through a few recessions, so they are recession fit and know how to live without certain things. Gen Z and millennials not so. Their first life lesson on how to live through a recession is already underway.”
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