Why do retail sales boom on Black Friday in Australia? talkBIG podcast | Season 3 Episode 4

Andrew Sykes (00:00)

Black Friday, what is it? Black Friday is the day after Thanksgiving. But why do we have it in Australia and where does it come from? Black Friday in Australia traditionally dealt with cataclysmic events in our landscape. So Black Friday was always when we had a big bushfire on a Friday. In the US though, it has a different meaning and that started in the 1950s when employers found that they couldn't get anybody to come into work between the Thursday of Thanksgiving and the Saturday. 

Traditionally, employees would go out and particularly in the Philadelphia area where this really took off, they would go shopping on the Friday instead of going into work. In 1960, we started to see this develop into what was the Black Friday sales and the police started using it as a term to say, "Hey, there's so much trouble on that Friday that it's Black Friday." 

Retailers got onto this and they then transitioned this into a positive spin. And it ended up with what we refer to today as Black Friday. If you're in the red before Black Friday, you should be so successful and sell so much on that day that your profit should be in the black.

So Black Friday has become a traditional retail day. Now, with the connectedness of the world and our transition across the internet, it's now become a thing in Australia. So what we're seeing is traditionally, if you went back a while, we had our Boxing Day sales and we all remember those scenes of panic on Boxing Day as the stores opened up and people piling through the doors. We think that maybe has quietened off a little bit and we're adopting the Black Friday sales from the US.

Welcome to the RSM talk BIG podcast. My name is Andrew Sykes. I'm a director at RSM and an accountant with a lot of experience in talking about business, finance and economics. Before we kick off, I'd like to acknowledge the traditional owners of the lands on which we present on. I'm presenting from the Ngunnawal lands in the ACT and welcome and thank you to everyone for joining us. Today, I'm joined by the favourite RSM Economist, Devika Shivadekar.

How are you Devika?

Devika Shivadekar (02:17)

I'm well, thank you, Andrew, and thank you for inviting me once more on your podcast.

Andrew Sykes (02:21)

You're welcome. And Dr Ian Tho from our Data Analytics division.

Dr Ian Tho (02:27)

Ian, please. Welcome. Nice to see you.

Andrew Sykes (02:29)

Yeah, Terrific to have you both with us. And Devika, you've been with RSM now as our economist, but really interesting. I believe you were once a graduate at the Reserve Bank of India. Is that right?

Devika Shivadekar (02:44)

Yes, that is right. And that was a long time, almost 10 years. So it's been a long journey from Reserve Bank of India in Mumbai to RSM Australia in Sydney. And a journey I definitely cherish. So very happy to be here. And hopefully can use all these experiences I've had to grow in RSM.

Andrew Sykes (03:06)

And give us some deep insights into the economy. And hopefully during our podcast today, we can get some of those insights around retail strategies and how it's impacting on the economy and hopefully some insight into the behaviour of consumers. And Dr Ian Tho, background with Google. That's fascinating.

Dr Ian Tho (03:26)

Yes, yes, I thoroughly enjoyed myself. I spent some time with Google in Mountain View and then mainly in Singapore, managing the data science practice for Google professional services there.

Andrew Sykes (03:37)

And you've just come back from a data convention, I believe.

Dr Ian Tho (03:42)

I spent a day with some fascinating people here in Melbourne on the data convention just on Thursday last week. We talked about lots and lots of things, so very keen to share them.

Andrew Sykes (03:56)

Excellent. So when we look at Black Friday, we'll jump into Black Friday and we have Black Friday on the Friday and then that revolves into Cyber Monday on the Monday. So, retailers of electronics goods saw how well everyone else was doing on Black Friday, so they created Cyber Monday. Devika, are these the biggest consumer events in Australia? How do we compare to the US? Do you have any data on that or views?

Devika Shivadekar (04:26)

Look, so comparison with the US, I think we probably not at the comparable level, but it's definitely making an inroad into the Australian hearts now over the last couple of years, particularly post COVID. And there are a lot of reasons why we are seeing all these trends coming up.

We are all aware that an ordinary Australian household did undergo significant cost of living pressures over the last two - more than two years in fact. And while the interest rates were targeted to bring inflation down, obviously that meant an increase in mortgage repayments for most of the Australian households. So that meant less disposable cash. And obviously people got smarter. People got more judicious with how they wanted to spend their money.

So the first change we saw among people was the fall in discretionary spending and only spending on essential categories. But then slowly we saw a change in that trend and we saw that retail sales started ticking up, particularly during these sale periods. So the first spike was actually observed during the EOFY sales, which happened mid-calendar year, around June to July months.

But then there was an extreme spike towards the tail end of the year, which coincided obviously with the Black Friday sales, the Cyber Monday, and of course, towards the end of the year with the Christmas sales. Why? You would ask. Because everyone celebrates Christmas, everyone loves to give and receive gifts, and the best way to get a steal deal is to get into the sale period. 
So that's how Black Friday has started picking up over the last couple of years.

Andrew Sykes (06:03)

So it's really interesting when we look at ABS data, the ABS's data, and what we're seeing, is that Australian shoppers now seem to be shopping more in November. Are you seeing that, Devika, in the data that comes through?

Devika Shivadekar (06:18)

I am. In fact, last year particularly, it was a very interesting trend where we saw the November retail sales pick up. There was a smaller increase in October perhaps in anticipation of the sale period that was going to come around in November, a sharp pickup in retail sales in November and a drop compared to November in December because the Black Friday sales had finished. But then again, we saw a little bit of a pickup beginning the Christmas period and the end of the year sales again.

What this tells us is obviously this is not just brick and mortar shopping, this is also online shopping. And in fact, that is how everything started. We saw a lot of these online shopping portals, such as Amazon, offer some excellent discounts during the Black Friday period because Amazon obviously is an American firm.

So Australians thought, "this looks good, let's shop more online." But then the brick and mortar shopkeepers realised that "ah, we might just be losing some business there." And they just put out their own sales. And particularly there's been some significant spike in expensive goods, electronics, like you rightly mentioned.

Cyber Monday follows Black Friday very closely. You've got a spike in other household goods, clothing and footwear as well. So we have been seeing a significant amount of change in how the trends have developed over the last couple of months.

Andrew Sykes (07:38)

Thanks, Devika. So what we are seeing is the wider economic data is telling us that Australians are now shopping earlier. So Australians are actually starting to shop in October for the sales in November to get ready for Christmas, whereas previously, I certainly know I would finish work in the last week of December and do my Christmas shopping. But that doesn't seem to be the way it's going.

Now, Ian, you deal with a lot of retail data. What are you seeing in the data around shopping patterns? And in particular, how should retailers businesses be getting ready for this shift in changing consumer patterns in Australia?

Dr Ian Tho (08:19)

Absolutely, I think because Australia is a funny place where majority of us, more of us actually are born overseas than here. And we've noticed that nearly 80 % of Australians have bought a Christmas gift. But remember that we also have Chinese New Year coming up in January. So there's gifting there as well. 
So we've seen that a lot of toys have been selling very, well early on but one in two of the customers who buy toys also decide to pamper themselves. So we see a lot of clothing and shoes and house goods coming. But because cost of living expenses recently, we've seen that the shopping journey has also changed quite significantly. People are doing a lot more research, and the consumer journey to purchase, if you will, has gotten a lot more complicated.

We have decided to buy a little bit more from our mobile phones and mobile devices like iPads and a lot more on PC. Although that makes only about 10 % of total purchases. A lot of decisions we make come from our friends and colleagues in social media and branding. Because many of us are new entrants into the country, we rely significantly on branding.

So, if you look at Google searches, they go by Good Friday, and then some people joke about Broke Saturday. And then obviously Cyber Monday is the follow up. So there is a growth if you look in terms of number of searches and decision points towards the weekend. And then a Frenzy on Friday as discounts come on board.

And then there is a tail off across the cyber week following that. But what we're seeing is a lot of opportunity then for people who want to sell, particularly retailers themselves, to look at this patterns and try to understand and intervene in the decision journey, if you will, to take advantage of this.

And we've seen that many, places, not only in retail, but in food, in travel, and in supply chain. Because what happens following this is a lot of goods have to be delivered physically to the customers.

Andrew Sykes (10:36)

So what you've said that's really interesting there is that we are seeing consumers doing a lot of their research online. So people are looking online, but then they're going to the shop to buy. When you look at data, do you see a lot of abandoned shopping carts because of that? 

Because I certainly know when I...I'll go to buy and I'll go to buy a t-shirt, for example, and it'll be, here's a fantastic deal on a $30 t-shirt. But then I say it's $15 delivery - so I'll abandon. So, do you see a lot of that or do you have any data on that?

Dr Ian Tho (11:09)

Absolutely. At Google, we recall nearly about four out of five items in the cart will be just left in the cart. So people only purchase 20% of items. So during the frenzy, people put lots and lots of things in the online cart or the shopping cart. And then perhaps because of other things in the mix, which actually create this thing called friction. Either it costs too much in terms of delivery fee, concerns over privacy, just reactionary concerns about things people have purchased without much consideration have led to a cart abandonment, much, much more than normal.

Andrew Sykes (11:49)

So if I was a brick and mortar retailer, so I'm running a traditional store, how much do think I could count on people? It's not necessarily driven by the sticker price, but it's actual delivery time and cost of delivery. Are there any strategies that you've seen that a traditional retailer could use to combat online competition?

Dr Ian Tho (12:14)

Yes, there are two types of people. One would decide to actually go in store to do their research, touch and feel, play with the item. Sometimes it's a phone, sometimes it's a garden furniture where it requires a person to actually have a sit to see if it's comfortable enough. The other side is when you're buying something more generic and online research and reviews carry a lot more weight.

So there are a number of things which actually influence that way. So depending on what your customer wants, your items you're selling, the types of individuals you're selling to, the pathway to purchase can actually differ.

Andrew Sykes (12:53)

Yeah, so is some of that using your data to anticipate what the buyer wants to see in person when they come in your shop. So success in these sales, if you say, "OK, we want to have a big Black Friday," it's about saying, OK, this is the kind of stock and this is what the data is telling me I need to have in stock on the floor for people to touch, feel, walk away with.

Dr Ian Tho (13:15)

Sometimes it can be a little bit difficult and daunting to the majority of retailers. So there is a dichotomy there where there is a fear of missing out. So everybody just wants to get data and understand it. Then there is also the fear of, once you come in, that I don't know what to do with the data. Recently, we've used a lot of tools. One of the more popular ones include this thing called artificial intelligence, or AI, to understand shopper behaviour.

It eases the way to understanding or analysing the data. They call it the three A's typically, where AIs used to firstly automate the marketing process, the first A. Secondly, we have this thing called generative AI, where they use to augment the way you send messages to individuals.

And finally, the last A is actually to analyse how people behave. So there's the ultimate augment and analyse method approach, which some retailers choose to use.

Andrew Sykes (14:18)

Okay, so do we automate with AI?

Dr Ian Tho (14:21)

Well, AI understands people's behaviours, understands what you like, what you don't like in terms of groups and clusters of people. Not as yourself, Andrew, or myself, or Devika, individually, because that's obviously got privacy concerns. But as groups of individuals, we prefer some things. We like sweet things. We like more savoury food. We like red as opposed to pink or blue or black.

So the AI can understand this and automate that process to either stocking or marketing or otherwise. So the augment bit actually takes the automation and then creates more specific, more targeted one-on-one messages to our customers. Remember, we have over 20 million people living in 10 million households in Australia. So it's not a simple task.

So automate allows and streamlines this task for lots of retailers.

Andrew Sykes (15:16)

Thanks Ian. So Devika really we're talking about AI there and we'll come back to AI in a minute. But what we're really talking about is consumer behaviour. So  are there any patterns we can see from consumer behaviour that can help retailers.

Devika Shivadekar (15:26)

Definitely, and I would like to say in the field of economics, we have a completely dedicated branch to understanding behavioural patterns, which is called behavioural economics. So off late, I think all the trends that we have noted have come off of the back of observing how consumers have been behaving.

So the clear demarcation between looking at their spending behaviours where they are reducing their non-essential spending, focusing only on essential spending, being smart enough to preempt sale periods, making sure most of the shopping gets done during the sale periods to bring down the overall costs in order to manage their household budgets. These are all economic trends based entirely off of consumer behaviour. Oftentimes, I'll be honest, Andrew, it so happens that we get data with a lag. So for example, I might get visibility on the November retail sales data in December.

But if I go and speak to a business owner or a shopkeeper in the month of November, he can actually tell you how his business has done, which gives me an idea of what the data is likely to look like because the ground realities are more dynamic, more real time, and they're all based off of the back of consumer behaviour.

So one of the reasons the brick and mortar shopkeepers or business owners did decide to come out with sale periods mirroring those of online sales was because they observed that people were moving more and more towards the online shopping arena simply because it gave them the comfort of not having to go out and get everything delivered at home.

But in such a situation where there's a tussle where everyone is offering sales, where everyone is offering goods and services at reduced prices, I think what really sets your business apart, and what could really help you attract more customers, is how you treat them, which is again, another behavioural aspect of the whole economics of trade. So oftentimes, like Ian mentioned, that we have a clear distinction between people who prefer to shop online and people who prefer to touch and see the goods.

So the people who do prefer to touch and see the goods also prefer to have a good during sales and post sales service as well from the vendor. So how you treat your customers also goes a long way in driving up your sales. So that behavioural observation is relevant not just for consumers, but also for the sellers.

Andrew Sykes (18:03)

Is that a bit about perceived value? So it's not just the product value, it's the service on there, but it's also that perceived value, it cost $100 yesterday and even though I don't really need it, it's $60 today, so I'll buy it.

Devika Shivadekar (18:09)

Yep, absolutely. And that's how it works, right? I mean, let's be honest. We go into a shop. How likely are you to buy something if you're greeted with a smile versus entering a shop and not seeing any of the service people around or just busy doing their own thing or hunched up in a corner just chatting away? It's human tendency to actually be more reciprocative to sentiments.

You have to bundle your services with the goods you're selling to give a holistic experience to those who are still keen to have that physical experience compared to those who are moving to the online services.

Andrew Sykes (19:00)

And that's, you've raised a really interesting point. And if we were to look at our small business clients, a practical strategy they could take away from what Devika, and you Ian, have both said is that be aware that the consumer has probably done their research. They've walked in their store and they understand what they're going to buy. So if you have on sufficient sales staff to serve the customer, you're polite, you train your salespeople, they're more likely to get the sale and it's not just about price.

Devika Shivadekar (19:31)

100%

Andrew Sykes (19:32)

So Ian, if we reflect on that, smaller businesses, how big do they have to be to use data and should they be putting up websites as well to attract these consumers who are going to come in?

Dr Ian Tho (19:46)

Now the democratising of data or the ability to share data freely is becoming more and more. And I guess even more important, particularly over COVID, when people have got health concerns in going into store. So recently what we see in Black Friday sales is that a lot more people are doing their research online. I teach a subject called semiotics at the university and we talk about some things called behavioural levers, which people use, which these small retailers can benefit from. Firstly, I guess we talk about social proof. In other words, customer reviews, five-star ratings, particularly from another customer, is very, very highly regarded, particularly when I buy something.

The small retailers have this thing called low delivery friction, which is the second behavioural lever we talked about early on as well, Andrew, where it talks about alleviating customers' anxiety about buying and getting it difficult to be delivered. So smaller retailers typically are more nimble, easier to deal with, easier to talk to, and lower cost. The other two or three we talk about is the authority bias tapping on expert reviews. There is this thing called power of free. Free accessories, samples, servicing, tech, whenever there's something free attached to it, people tend to say, maybe I want this one rather than something else.

So data does play a key point, but it's a matter of when you choose to exert and when you choose to communicate what, at what time during this customer decision journey before the actual purchase decision.

Andrew Sykes (21:26)

Yeah, and that's great. Look, I love that because I know when I've trained our staff on PD, I always tell them you can't say free too much in a conversation. So the power is still a very powerful word in the online world. So if I was to summarise those three things and if I was a small business looking to go head towards Black Friday, I would first off start getting some five-star reviews.

Dr Ian Tho (21:37)

Absolutely.

Andrew Sykes (21:55)

Asking customers to leave some reviews because I know that I'm going to get traffic to my website. So make sure my website's functioning well and I've got my products on there. Go and ask customers for five star reviews. Make sure I've got my logistics right so I can offer somebody comes in store and say that's okay I can ship that to you. So I know how I'm going to deliver my product.

And then also just arrange for some free samples, maybe call my manufacturers, come up with some freebies that I can give away and advertise that I'm giving away free. Do you think that would have an impact on my big Black Friday sales?

Dr Ian Tho (22:35)

Absolutely, we've seen quite significant increases up to five, six times, ordinary once this sequence of activities are followed. And then there is the likelihood also of not only returning customers, customers who are loyal to you, but acquiring new customers as you progress along this way. People are doing some research and often buy new brands across areas. And we've seen you know, basket size increased from less customers coming back because they're now choosing to buy from the places where they bought before. Yeah, so absolutely. 

Andrew Sykes (23:09)

Yeah, excellent. And it's really interesting. So, yeah, we're using AI to drive a lot of this. Didn't we used to call AI just an algorithm? Is it a little high on the hype cycle saying AI for everything?

Dr Ian Tho (23:24)

Yes, AI have got many, many variations to it right now. So AI is the overarching term people use or refer to when they talk about a machine having similar intelligence to human beings. And I mean that almost literally, where artificial intelligence learns the way we do autonomously and independently, just like a little child would. But behind that is this thing called machine learning.

As the two words suggest, the machine's able to learn from past behaviours much better than us, because machines don't sleep and machines have almost infinite power. So they can actually learn about every individual who purchases items, every item in the store. And finally, we have this thing called deep learning, where people then often refer to as the ability to produce a long equation or algorithm, the thing you refer to, to describe a situation.

You can not only describe something with words, but also with numbers.

Andrew Sykes (24:22)

Yeah, because it's generally, I believe there's a bit of an assumption that AI and using data is something that big business does. But the local shop can do it, can't they? You can still use AI and data in quite a small business to improve your profits.

Dr Ian Tho (24:36)

Absolutely.
So there are different categories of AI. The ones you and I use would possibly be Apple Intelligence or chat GPT or Google Gemini. And the stores, the small stores have similar access to these tools, but there are specific tools which are tailored for small retailers. The last count, I think we saw like 600 odd applications being used in Australia alone for small retailers.

They can obviously also partner with people like Google, where people have said "near me," for example, Google near me, look for a store near me or look for a store which sells this brand of Nike shoe near me so that I can actually walk into store, try the shoe out, try my size, and then go online and buy it. Across the period 2019, 2020, the terms "near me" actually have grown by 11 times.

So people are doing a lot more searches over the pandemic over the last few years, particularly, and using tools like that to help them. So small retailers have access to many, tools, just as the large retailers. Amazon and the others obviously have got significantly larger number of customers.

And these terms called endless aisles, where they've got infinite number of items for sale, use different tools. As a smaller retailer, might have, I don't know, 10,000, 12,000 SKUs, or stock keeping units, to sell. So I use different tools for that. You and I are after a certain type of chair outside, which I want to buy. I might be limited to maybe 10, 20 items I want to decide to buy.

Andrew Sykes (26:26)

Yeah, and I think, you know, small retailers can look at some very practical strategies. If we were to go back and you said that four out of five shopping carts are abandoned. So we know that people are looking and they want to buy. Somebody walks in my store, I think I've got to be training my staff around strategies and getting them prepared to say to the customer, "Do you know I can give that to you straight away?" or "I can have that delivered to your house tomorrow." 

Andrew Sykes (26:52)

And we go off the competitive advantage that bricks and mortar retailers have, which is around being able to deliver on the spot and provide, you know, Devika, as you said, service with a smile. A customer smile is always going to win, isn't it?

Devika Shivadekar (27:04)

Yep.

Yes, Absolutely. And there's one more thing. mean, particularly in areas such as clothing and footwear, where online shopping really is something that people don't tend to do, don't tend to look at very favourably, simply because they are not sure about the sizes. Each brand has a different size. So when there are niche retail areas such as clothing, footwear, accessories, where it is more helpful to try it on physically than to do it online, regardless of whether it reaches you sooner or not, whether it's next day delivery or not, you'd rather try it on first before you pay for it because then returning it is another hassle.

But this whole purchasing during sale and after sale service, if everything is packaged really well by the small and medium sized businesses, they have all the potential to really give a tough competition to the large retailers.

Andrew Sykes (28:01)

Yeah. Do we have any sort of view on the prevalence of people going in and just trying on items and then they go and shop online? Do we think that that is a significant issue for retailers?

Devika Shivadekar (28:16)

To be honest, not so much because how I look at that experience is you live somewhere, you want to go and try out the size, you have identified the exact store, the exact product that you wish to purchase. It's just that perhaps you're waiting for your salary. Let's take an example. You're waiting for your salary. You were in the mall, you found something you liked, you have gone physically tested it, you have identified the store where it is at, and you go back home, once the salary hits your account, you simply go online, order from the same store, the same product.

Oftentimes, all these stores do have the option to select the location. So if it is a particular buyer who is keen to buy something close to home, just so that it removes the hassle of traveling too far in case they wish to return it, it really doesn't make much of a difference if your product gets sold because ultimately that revenue is going to flow to that very store, whether people purchase it in person or people purchase it online.

As long as it is done in this manner where the product is identified, the store is identified, and then the purchase is made from the same store online. On the flip side, it may happen that you have very similar designs regardless of the product.

It could be electronics, could be clothing, accessories, footwear, you name it, it could be a similar product, but across multiple different stores. Now, this is where the challenge comes when it comes to pricing and the service experience. Now, as a consumer, if I can find the same product in five different stores, I am going to rank my experience based on number one, price, number two, how I was dealt with, and number three, the ease of just going through the whole activity of purchasing those goods or services. 

Devika Shivadekar

So it's a good mix, I would say. online shopping doesn't really take much away from brick and mortar if it is from the same store, which is where I think, to Ian's point and your point as well, where you raise that even small and medium-sized businesses should have a virtual presence simply because there could be times when people might like to order things well ahead in time. 
Let's look at the example of something that is perishable. You are aware that that good is going to finish soon and you might as well want to get a second order in before your medicines or before your favorite cereal or before your bespoke perfume or something.

I mean, the possibilities could be endless, but before that runs out, you want to get the second one in place. So, oftentimes if you're not present there physically, you might resort to online shopping. So it's very important to have a presence both in brick and mortar as well as online.

Andrew Sykes (31:06)

Yeah, and picking up on what Ian said before as well, five star reviews. So if I was a smaller business that wanted to compete against the big retailers and after listening to both of you, I'd be asking my customers to do reviews, but I'd be asking them to do reviews and mention how pleasant it was, how the service was, how easy my shop was to deal with because

That term you used, Ian, and I really liked, is reducing friction.

Dr Ian Tho (31:38)

Absolutely, Andrew. So the less friction, the easier it is to buy. People tend to want to do that. But I also want to pick on a couple of points that Devika made in terms of frequency. A lot of the smaller retailers also can take advantage of this thing called loyalty points.

Because if I've got a huge number of loyalty points attached to you already, there is a tendency to want to turn to my left other than to my right, the left meaning where I got my loyalty points. So one in five purchases actually over Big Friday have been based on loyalty points. People are keeping that up. And then finally, there's nothing to replace price because over 70 % of people have one eye on price and the promotions on Friday. So Big Friday, 50 % off. My goodness. I mean, it's a no-brainer that I should buy it from this store at that particular price, which will never repeat.

Andrew Sykes (32:35)

It's very hard to walk away. You'll put up with a lot for a big discount, won't you? But there's part of success in Big - In Black Friday sales. Is it having your big ticket item like that? This is 50 % off, but make sure you're well stocked in other better priced items or better margin items for the retailer. Do you see that?

Dr Ian Tho (32:42)

Yeah, because as you're buying - even if I buy my shoes and it's 50 % off, then you also want to buy your socks. And you want to buy extra pair of shoelaces. You might want to buy some accessories which go with the shoes. And the shoes are for my running. I might buy a pair of shirt or my shorts. So the basket size just keeps on increasing. The average basket size over the last three years was about $350, $400 over the Black Friday sale period.

It hasn't increased too much but you know so i think this is another area of opportunity for retailers to increase the basket size because at every incremental dollar you spend, multiplied by the number of transactions you have, gives you your margin and revenue.

Andrew Sykes (33:51)

So you could look at last year, what your shoppers purchased, what your customers purchased, and structure your pricing around them buying a basket of items in your store. So you could have, say the $100 pair of sneakers are 50 % off, but then you want to have a good display of T-shirts to go with it and jeans and socks and accessories to go with it at a lower discount. So you're getting your margin from a bigger basket, is that correct?

Dr Ian Tho (34:23)

Absolutely correct. I think they call it the large tail. So in a supermarket, for example, in Australia, think that people are talking about an average of about 12, 13 items per basket. But when you reduce the price of a staple like milk or sugar or eggs, the basket actually increases from 12, 13 to about 17 or 18 items per basket.

So people will be pulling out of their trolleys a much larger number of items and that's one of the targets many retailers will have in their mind.

It's like when Coles had their dollar down promotion, when milk was a dollar, you know, I go in and buy milk, but normally people just don't buy a bottle of milk. They buy something else, a butter, the sugar, the flour, whatever else.

Andrew Sykes (35:08)

And you raise a really important point there is that the battle is to get the customer in your retail space, isn't it? So they're not necessarily going to buy the discounted item, but if you get them in there, there's a chance I'll walk out with a sale. Some really interesting things around data and where's small business getting this kind of data?

Dr Ian Tho (35:24)

Well, as I said, it was democratised. people like Google, Amazon, Microsoft provide this to be shared. Competition, so if a group of retailers along a shopping strip may want to share the data, Westfield, for example, in a shopping center would collect that data, particularly on footfall. So we talk about number of customers, each customer having footsteps. So they call it, the term we use is footfall.

The more footfall we have, the better because then you get more eyes in the aisles and then there more eyes and more time spent in the store. You get people wanting to buy more. It's just like online. We talk about hover time. So as your mouse would hover across a certain item, the longer you hover, the more interest perhaps you may have on that particular item. But what's important in the more recent developments with online shopping is this thing called special events.

So you might identify a special event as a first time to this page. So why did Andrew hover on the Alpha 7C camera for two minutes all of a sudden? He perhaps maybe having a thought that he would buy a camera for Christmas, you know, that kind of thing.

Andrew Sykes (36:48)

So, you can get that. Does a lot of this come through the point of sale at the store?

Dr Ian Tho (36:57)

Point of sale is typically a destination already, so you would have already made the decision to buy. So that's the transaction at point of sale. So I purchased 12 items last Saturday for my weekly shop. But what we want to catch for Big Friday particularly, and that's the topic we're talking about, is the decision to buy or the journey towards this decision to buy.

So we're not talking about regular shops anymore but typically a holiday or a seasonal shop. So I'm looking for a gift over Christmas. I'm looking to buy, replace my outdoor barbecue and seating arrangements. So that's the decision point we want. So typically for Black Friday, it's no longer a weekly shop like a supermarket shop you want to buy, but this is a once off Christmas gift.

And you know what? I'm looking for gifts for my two kids, for my wife, for the in-laws, for whoever it is, my friends. And I know they like Barbie. I know they like Lego. I know they like Marvel, Superman toys. So all of a sudden, I'm looking for that. So the decision on the retailer to then focus on what I like, give me a promotion, reduce the friction, get me a better price as I shop, will yield dividends in terms of larger basket, more revenue, a higher profitability.

Andrew Sykes (38:20)

Yeah, so that data really feeds into what you have in the store, but winning the sales, we're really back to just good old fashioned service, make it easy for your customer to buy and you can start competing against the bigger retailers. So when we look at Black Friday overall, Devika, we've seen a lot in the news and you both mentioned cost of living, cost of living driven by interest rates.

Andrew Sykes (38:47)

If we have a massive Black Friday coming up, how does that impact on the outlook for interest rates?

Devika Shivadekar (38:54)

Yes, so here I will perhaps correct you slightly that cost of living is not a result of interest rates, interest rates for a byproduct of cost of living pressures. So we've had this challenge of inflation for a while now simply because there was a mismatch in demand and supply which actually pushed the Reserve Bank of Australia to start increasing interest rates to bring inflation down faster.

This year particularly, I think we are going to see a significant spike in November, simply because if you even look back at the last month's data in August, where we had a much warmer winter, a lot of the people chose to stay out, eat out, go out more often, shop more often, which saw retail sales numbers pick up very sharply. Not to forget, beginning July, we've also had the Stage 3 tax cuts.

We've had a lot of fiscal subsidies in place such as the bill rebates and whatnot. So, when you add all that up and you move towards the tail end of the year when, along with these cash incentives that people are already having, a central bank which has pretty much said that it's comfortable staying on hold for now because inflation seems to be coming down, albeit it's coming down slowly.

And the fact that we're going to have some massive sales, we are definitely going to see a spike in retail sales numbers in November. Also, because the third quarter inflation data is also likely to be a lot softer than what we saw in the first quarter and the second quarter simply because all of these subsidies are bringing down prices quite fast. So when you bundle all this together, retail sales are likely to shoot up.

But then what does that mean for interest rates? Well, interest, look, the main target for the Reserve Bank of Australia is to bring price pressures down. They are targeting core inflation. Now core inflation is inflation minus all these one-off factors, minus all the fiscal subsidies. So as long as that, if that really comes down to the desired range of 2 % to 3 % that the RBA is aiming for, we could expect potential relief towards say early next year.

But then on the flip side, we also have an extremely strong labour market, which can be evidenced by the most recent data where we added almost 60,000 new jobs in a single month. Now, when the labour market is tight, it means more and more people are earning wages. And when more and more people are earning wages, they demand more goods and services. Now, how this cycle moves is tight labour market, greater wages, more demand for goods and services.

But if supply does not match that increase in demand for goods and services, we have the problem of inflation. So the RBA is going to be very, very careful evaluating how consumer behaviour develops, how businesses are setting their prices, how the labour market changes. So the single data point of retail sales is not going to materially change anything for the RBA.

It is going to look at the retail sales numbers in the upcoming months in accordance or with respect to the other moving parts of the economy as well. So in the near term, I think we can expect the interest rates to remain unchanged, but perhaps there is some hope in the new year for us. Yeah, perhaps we're all hoping.

Andrew Sykes (42:21)

Yeah, well, we're all hoping. So what you're saying is that because we do tend to confuse interest rates with cost of living but cost of living and price increases are driven because there's more buyers and sellers. It's as simple as that, is it? And interest rates are the reaction to that cycle.

Devika Shivadekar (42:39)

Usually, yes, that is how it begins because that mismatch in supply and demand is what drives prices up and then the central bank needs to step in so that it tries to curb that demand so it matches the supply level, which then brings prices down. So that is how the mechanism of interest rates works. So currently, of course, I mean, the interest rates do feed into the broad cost of living pressures picture because it's not just inflation but it's also higher mortgage payments.

But then it's just that it's so closely interlinked that it often gets overlapped and cost of living is oftentimes referred to as interest rate pain, which is not 100 % correct, but it's not 100 % wrong either. It's like a mix.

Andrew Sykes (43:27)

Yeah, but from what I'm also hearing from you and give you some details and your views on it, from the data you're seeing, should we be expecting a good retail period through November and into Christmas?

Devika Shivadekar (43:45)

Yes, if we look at the data that we've had access to over the last couple of years, particularly post-COVID, and when we understand how fast the Black Friday sales periods are picking up, how fast they are being accepted, I think coming this year as well, we should see some increase in retail sale activities.

Also because this year we have the added advantage of stage three tax cuts and the other various fiscal subsidies in the space of, say, energy rebates, childcare assistance, rental assistance. So a tight labour market, greater wages, lots of fiscal subsidies and a sale period. We are definitely going to see a spike in retail sales towards the tail end of the year.

Andrew Sykes (44:29)

So, potentially some good news for retailers. And Ian, going back to data, when we look at Black Friday, what does that, does that give us any lessons or views on the future of retail and how retail is changing?

Dr Ian Tho (44:44)

Absolutely. Yeah, absolutely. To respond to that question, let me just refer also to the fact that typically the people who shop online are younger. The baby boomers, for example, only represent about 20, 25 % of total shopper experience. So what you want to do is to convert people's intent to shop into a specific action to buy.

So we're talking about deals especially. So people are looking for items on sale. People are looking for local, easy. People are looking for consumer reviews, recommendations. But we've also found that one in 10 look for something new to buy.

So it's about looking and leaning on tools like AI, which is generally widely available, not only to the very, large and top end of town, but to the small, medium sized retailers, as well as customers. So we're talking about an ability then to share that data. Finally, I think we're talking about all these retailers finding a way to protect people's privacy and encourage trust with our customers.

Because the people who can do that successfully, I think would be the winners.

Andrew Sykes (45:55)

So there's a lot of strategies that retailers can adopt. And I will say that one of the great things about talking to both of you today is sort of a renewed view on how small retailers can use the tools that we see big retailers use and do it well. But Ian, are there any strategies that you think that small business retailers should avoid?

Dr Ian Tho (46:18)

Yeah, absolutely. think the first one is to breach of trust in terms of the ability to handle data, private data particularly. And secondly, trying to be more transparent in the pricing policies and the way they do it.

Although we're trying to engage shoppers on more timely promotions, I think the last thing you want to do is to try to, I wouldn't say cheat or lie, but, make sure it's Exactly right, exactly right. And then connect with the customers online, inspire more offline shopping and consolidate your data to better understand your shoppers. And the data we use can be very much easily available and publicly available.

Andrew Sykes (46:46)

Make sure it's a genuine discount. We want to offer genuine discounts. 

Dr Ian Tho (47:10)

It doesn't have to be private or personal at all.

Andrew Sykes (47:13)

Yeah, I love that idea, just using open source information that you can readily find on the internet. That informs your strategy. We then start getting ready for the big day and hopefully it becomes a very profitable day for small Australian retailers. Thank you both for your time today.

I was joined today by Dr Ian Tho, a Partner in our data analytics division, and Devika Shivadekar, the RSM Economist. This has been the RSM talk BIG podcast. You can subscribe for us wherever you get your podcast from regularly. Look forward to talking to you again. And thank you, everyone, for listening to the RSM talk BIG podcast.