The consumer strike threatening Australian retail

Retailers have failed to keep up with consumers' habits and now face a tough battle to win them back as purse strings tighten and foreign brands compete aggressively on price.

Australian consumers have gone on strike. And it’s a strike that will require dramatic management changes among retailers to break.

I reach that conclusion from the Boston Consulting Group’s latest annual survey of consumer sentiment. BCG only goes as far as suggesting that consumers are ‘threatening to go on strike’, but when you look at their material you see that Australian consumers are already on strike and it helps explains why so many retailers are in trouble.

In just one year the proportion of consumers who want to save in 2013 rather than spend has risen from 40 per cent to 46 per cent while those who are less inclined to buy new things has risen from 49 per cent to 54 per cent.

Why has this happened, who is being affected most and what can be done to reverse it?

It’s true that the mess the Gillard government made of the economy, including its attack on small business, has had a big effect. But the problem goes much deeper.

I believe that many Australian sense that the organisations they are working for are not coping with the internet revolution and industrial relations laws. So they feel insecure, and this is reflected in their spending  My earlier comment today highlighted this (Companies failing the online test, July 26).

To underline this failing among Australian retailers to understand the internet, Australians are rushing to buy goods online from overseas retailers. Amazingly, Australians are leading all developed countries in their frequency of overseas internet purchases. And BCG says we are driven not by lower prices but by better product ranges and availability on overseas sites.

BCG says we are seeing fundamental changes in demand and the way consumers behave, which will require different marketing approaches including more skilled marketing to women. I am stunned to discover that among all developed countries, Australian women have the least help from their partners with grocery shopping.

Meanwhile, there is a clear preference for savings over spending, with almost half of all Australians now in this mindset.

BCG say that among the new savers, 49 per cent are acting on concerns about another economic downturn, but 43 per cent are saving more just to meet financial goals such as retirement and the cost of healthcare.

The leader of BCG’s marketing and sales practice in Australia and New Zealand, Jane Danziger, goes even further and says that Australians are now rejecting consumerism.

“We see Australian consumers are increasingly jaded with the very idea of buying new things, and are becoming quite critical of companies pushing sales in an increasingly difficult economic climate,” Danziger says.

“Australians are still planning to increase their spending in a few selected areas in the next 12 months, including holidays, fresh food and items for their children.

“They are also trading up on big-ticket items related to their home and their cars in order to get quality and durability.”

I suspect that spending on telecommunications is taking demand from conventional retailers. The good news is that the balance sheets of Australians are improving and so if their disposition changes they are in a position to spend.