How consumers are spending this Christmas
Consumer behaviour during Christmas is heavily influenced by ongoing cost of living pressures. Households, particularly those with mortgage commitments, are feeling the pinch as fixed-rate loans transition to higher variable rates. While relief from energy subsidies and reduced fuel prices offer some respite, underlying inflation remains stubbornly above the Reserve Bank of Australia's (RBA) target. With services inflation hovering around 5%, consumers are more discerning, seeking value for money. Interestingly, increased spending, largely driven by inflation, may inadvertently delay potential rate cuts by the RBA.
The pros and cons of offering discounts
In response to consumer expectations for bargains, businesses often resort to discounting. However, understanding profit margins is crucial before slashing prices. A business with a 20% gross profit margin that offers a 15% discount needs a 300% increase in sales volume just to break even. Without careful consideration, this strategy can lead to trading below the breakeven point, resulting in losses.
Instead of direct discounts, consider alternative strategies like value-added services or packaging deals. Bundling high-demand with lower-demand products can boost sales while maintaining margins. Quantity discounts and value-added offerings can also enhance perceived value without eroding profits.
Keeping costs under control during christmas
Christmas often brings increased operational costs, from hiring additional staff to covering downtime on non-trading days. While it's important to embrace the festive spirit, businesses must avoid a financial hangover in the New Year. Cost control is essential, and businesses should ensure compliance with staffing rates and Superannuation Guarantee obligations by using accurate pay calculators.
Avoiding the New Year money squeeze
The New Year typically ushers in quieter trading and tighter cashflow. With the March quarter often being the toughest, businesses need a cash buffer to avoid starting the year with financial stress. It's crucial not to overcommit financially in the lead-up to year-end.
Get ahead with debtor management
Taking a cue from Scrooge, businesses should be proactive in managing debtors. Initiating debtor follow-up early can help manage cashflow, as the Christmas period often exacerbates financial strain on customers. Those who pursue debts diligently and early are more likely to secure payments, avoiding cashflow shortfalls.
Smart stock management for the holiday rush
For businesses experiencing a spike in activity, managing stock levels is key. While increasing stock for Christmas makes sense, excess stock post-season can tie up cash and leave products out of season. Engaging suppliers who can provide goods on short notice helps optimise inventory levels. Offering an online option for customers to purchase items not available in-store can also capture potential sales.
The wrap up
Christmas is undoubtedly a wonderful time of year, but businesses must remember the fundamentals to navigate it successfully. By understanding consumer behaviour, managing discounts wisely, controlling costs, and planning for cashflow, businesses can not only survive but thrive during the festive season. With strategic planning and execution, the challenges of Christmas can become opportunities for growth and success.
