What’s the secret to a successful Christmas season for businesses? While the cost of living has eased slightly over the past year, consumers are still feeling the pinch. For businesses, strategic planning is crucial to manage the volatility that comes with the festive season.
As the countdown to Christmas begins, businesses are in a race to make the most of every opportunity before the traditional holiday slowdown. Whether it’s a bustling or quiet period, the festive season often leads to disruption and instability for many businesses. This deviation from the norm can spell trouble if not managed carefully.
Compounding this disruption are ongoing cost of living pressures affecting consumers. Households with mortgages are feeling the squeeze, particularly as fixed-rate loans transition to higher variable rates. Despite some relief from energy subsidies and lower fuel prices, underlying inflation remains stubbornly above the Reserve Bank of Australia’s target. Services inflation, encompassing essentials like rent, insurance, and haircuts, hovers around 5%. With the RBA holding rates steady for now, consumers are seeking value for money before they open their wallets. Interestingly, a recent Roy Morgan poll suggests that Australians are inclined to spend big this Christmas. However, this increased spending could potentially delay future rate cuts, as some of it merely offsets inflation, requiring more expenditure to match last year’s levels.
The Discounting Dilemma
Today’s consumers are on the hunt for bargains, and they’re likely to find them. If your business opts to offer discounts—or if market conditions compel you to—it’s vital to understand your profit margins. For instance, a business with a 20% gross profit margin offering a 15% discount needs a 300% rise in sales volume just to break even. The worst-case scenario is trading below the breakeven point and incurring losses.
Discounts can boost sales if you understand your figures, have excess or ageing stock to move, or aim to attract new customers. Consider alternative value propositions instead of direct product discounts. Bundling items can drive sales of multiple products, particularly if you pair high-demand items with lower-demand ones. Quantity discounts and value-added offers are other viable strategies.
Avoiding the Christmas Cost Hangover
The festive season often brings increased costs: more staff, reduced efficiency, downtime from non-trading days, and heightened promotional expenses. Embrace the Christmas spirit, but avoid a financial hangover in the New Year. Cost control is key.
Many businesses hire casual staff for the holidays. Ensure you pay these employees correctly and meet your Superannuation Guarantee obligations. Use a pay calculator to double-check your figures.
New Year, New Cashflow Challenges
The New Year often ushers in a quieter trading period and tighter cashflow. The March quarter is typically the toughest for cashflow, so it’s wise to have a financial buffer. Avoid overcommitting as the year ends to start the New Year on stable footing.
Learn from Scrooge
If you extend credit to customers, begin debtor follow-ups early. Customers facing cashflow issues will find the Christmas period even more challenging. The suppliers who pursue debts early and assertively are the ones who get paid first. Don’t be the last on the list, as the money might run out by then.
Christmas is a wonderful time of year, but it’s essential not to lose sight of the basics amid the festivities.
Trading Stock Trials
If your business sees a surge in activity over Christmas and sells goods, you might be tempted to boost stock levels. This approach makes sense as long as it’s controlled. Excess stock post-Christmas can leave you with out-of-season products or too much cash tied up in inventory. Collaborate with suppliers who can deliver on short notice.
Managing your inventory isn’t just about controlling costs. If customers visit your store but can’t find what they want, ensure you have an online option available in-store to capture the sale.
By keeping these insights in mind, businesses can not only survive but thrive during the festive season.
