om mid-year highs, whereby spending rose by 19.2 per cent in August, 2022. So what explains the drop in spending? Especially in department stores, where the consumer appetite to spend appears to have fallen so dramatically between November and December? Is it expected following a period of unsustainable growth after the easing of Covid-19 restrictions, or is it more connected to cost of living pressures, price sensitivity and the end of the lag effect?  Chair of the consumer research advisory committee at the Australian Retailers Association, Professor Gary Mortimer told Inside Retail that the narrative has been on the month-to-month decline in sales, but – for several years – November has been a bigger month for retail than December, because of online sales events such as Black Friday and Quick Frenzy. Despite the significant drop in month-to-month department store spending, he said there was a $200 million increase in sales between December 2021 and 2022.  Mortimer explained that the quick drop can be attributed to the long lead times for deliveries, and that Christmas shopping is mostly done in November. He contended that, following the big growth months of June to September last year, negative figures are probable. However, that doesn’t necessarily mean that the industry is going backward. Rather, it’s cycling very big lifts that occurred in 2021-2022. “I think we’ll start to see a return to normality,” Mortimer told Inside Retail. “I think consumer spending, certainly in discretionary spending categories, will normalise and soften. But we’ve come a long way. Before the pandemic, we were spending about $26.5 to $27 billion a month in the retail sector. That number is now $34 to $35 billion.” He added that many consumers were in a strong cash position going into 2022, due to Covid-19 financial support measures, different rebate opportunities and other stimulus policies. This, in conjunction with limited travel, enabled customers to spend more of their savings. However, in 2023, he suspects that customers will be more sensitive to price, and focused on servicing debts, fuel prices and putting food on the table. “It’ll be those discretionary categories – [such as] footwear, clothing, accessories and possibly even consumer electronics that will struggle [to] make gains in the market,” Mortimer said. National Retail Association CEO Greg Griffith said that consumers felt the pinch of the economic situation – with rising inflation, energy costs and interest rates – and approached the festive season more strategically. He agreed that consumers brought Christmas shopping forward, and took advantage of the sales and promotions on offer in November, but added that the retail sector will face a number of challenges in the coming months. “Locally, consumer prices remain high while demand is waning, which will see inflation drop further and the effect of this will be evident in consumer prices towards the end of 2023,” he said Experiential offering While department stores performed well in November, Griffiths noted that, come December, NRA members chose to prioritise travel and tourism, and sought the convenience of digital purchases.  “There is definitely a convenience factor at play when consumers opt for online shopping over department stores, however our consumer sentiment report revealed that 50 per cent of shoppers still prefer to shop in-store,” Griffiths said. Meanwhile, Mortimer believes that discount stores – which are well positioned on value at low price – are more likely to weather cost of living pressures, while traditional department stores such as David Jones and Myer have struggled over the last decade. He said that both brands have cut costs, right-sized by closing stores and exiting leases, and expanded on its private label ranges. But, he added that it’s a shrinking market.  “When it comes to the big department stores, there needs to be a differentiation. What will encourage me to walk through the front door, and spend my hard earned money, when I can sit at home on my notebook and order brands globally,” Mortimer said. He predicts that the future of the traditional department stores will be a smaller model, focused on flagship stores and CBD locations. “Department stores [were] places where customers could access multiple brands and products all under one roof. Shopping centres do that today. These places [can] differentiate themselves by offering a more luxurious, premium and prestigious experience,” Mortimer said. He added that department stores in Australia should emulate the style of experiences offered by Selfridges, Harrods and Galeries Lafayette, in order to generate more traffic and sales. “When you walk in, there’s a pianist in the cosmetics department, a champagne bar on level three, and oysters on level four. It needs to be experiential,” he said. “That can’t be done when you have 60 stores, but it can be done when you have five.” Sustainability high on the agenda According to Griffiths, the retail sector is in for a challenging year ahead. He encouraged retailers to be on the front foot with regard to their strategic thinking. In mitigating the effects of cost of living pressures and a curb on spending, he said that department stores need to appeal to changing buyer behaviours of the younger generation to remain relevant. “They could incorporate more personalised customer experiences through omnichannel shopping to meet the expectations of the digital-savvy millennials and Gen Z,” he said. “Sustainability is also high on the agenda [of] younger consumers, and retailers embracing sustainability practices might benefit [from] engaging this emerging market.” Mortimer added that these more exclusive department stores should avoid going down the heavy discounting route, as it doesn’t do the business or the brands it represents justice. “You don’t go to David Jones to get 40 per cent off hosiery, you go to Big W to do that,” he said. “You need to go to market with one of two offers. Low price, high turnover, or high price, high profit, and more exclusive experiences, [with a] focus on value, not discounting.”