Australian businesses are gearing up for a concerted spate of discounting in order to spur consumer spending heading into Christmas, with expectations for selling prices hitting a 20-year low, according to new research.
The latest Dun & Bradstreet National Business Expectations Survey found that businesses’ expectations of their prices have fallen by more than 10 points over the last two years and now stand at an index score of 11.
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The quarterly survey polled 1,200 businesses. The indices used by Dun & Bradstreet are calculated by subtracting the percentage of respondents expecting decreases from the percentage expecting increases.
The 10-year average index for pricing stands at 30, suggesting that firms are preparing for a frenzied period of discounting ahead of this festive season.
Dun & Bradstreet found that this tactic is expected to pay off, with anticipated sales rising to 33 on the index, compared to 11 last year. More than a third of businesses expect to boost their inventories to cope with the Christmas spending surge.
In other encouraging news, the profits expectations index is up 18 points to 20, while capital investment expectation rose seven points to 15.
“Five years ago, discounting was a seasonal tactic that was primarily limited to post-Christmas and end of financial year periods,” says Gareth Jones, CEO of Dun & Bradstreet.
“However, discounting is now the norm as consumers have become accustomed to sales and are unwilling to buy at full price.”
“For businesses heavily exposed to consumer spending, particularly non-essential spending, it’s difficult to get stock moving off the shelves without a price cut.”
“Consequently, while businesses are expecting an uptick in sales numbers over the Christmas period, they are alert to the fact that discount campaigns will negatively impact margins and overall profit.”
Stephen Koukoulas, Dun & Bradstreet’s economist, adds that the widespread price cutting could lead to further interest rate cuts.
“The results fit with the general tone of the economy since the middle of the year when overall growth was close to the long-running trend.”
“This solid performance for sales does not, however, show up in employment expectations, which are broadly flat. This suggests that despite more favourable sales expectations, job creation and the unemployment rate are likely to be stable around recent levels.
“For the Reserve Bank of Australia, a highlight in the results is the sharp fall in expectations for selling prices.”
“These are close to the lowest level in 24 years and suggest that inflation will remain near or even below the bottom of the RBA target band. This low inflation climate should give the RBA scope to lower official interest rates as it assesses the challenges for Australia from global events.”