By Jessica Yun
IKEA Australia chief executive Mirja Viinanen intends to lower some furniture prices. She can’t say exactly when or which items, but wants to make this clear: it won’t be in the form of a flash sale or a temporary “prices locked-in” period.
“We would like to be actually on the level of prices before COVID-19. It takes a while to do that, and we will be there end of next year fully. But we are on the way,” Viinanen said, adding that many prices have already been dropped.
IKEA Australia chief executive and chief sustainability officer Mirja Viinanen intends to bring product prices back down to pre-pandemic levels.
“I think the biggest difference is actually that we are not discounting and doing that randomly. We would like to have the level of everyday prices lowest as possible, with the good quality.”
The chief of the Swedish-born furniture giant’s local business says customers are responding to the combination of affordability and functional design. It has the numbers to back it up: sales lifted by nearly 5 per cent for the 2023 financial year, even as Australians traded down and curbed spending. Excluding the early settlement of a loan with its parent company, the local business booked $53.3 million in profit.
Anko’s $15 version of the popular Stanley cup: Kmart’s strategy of producing an affordable version of trendy products has won favour with customers.
“I think many customers are probably asking, if you are discounting your product 70 per cent and you are doing that all the time, what is actually the real price?” she said. “The only way out is actually to tell the people we are keeping prices as low as possible.”
After almost two years of rising cost-of-living pressures, Australians have become more deliberate about opening up their wallets. Some retailers, in particular, are winning favour with cost-conscious customers: the ones that employ a strategy called “everyday low pricing”, rather than “high-low pricing”, where regular markdowns are built into the business model.
According to consultancy RetailOasis strategist Emma Easton, the shift boils down to the basic principles of trust and reliability. “Consumers … are more hesitant and reluctant to believe retailers’ discounts and deals,” Easton said.
“We’re in this phase where we don’t want to have to wait around, and we want it now, and you can trust those everyday low-price brands … are giving you the best deal, and there’s not going to be another deal two weeks later on the same product for half the price.”
Specials in the spotlight
As mounting grocery bills thrust supermarket giants Coles and Woolworths into the spotlight, some consumers have started turning their backs on seesawing prices during promotional periods, and towards brands that are affordably priced all year round.
Some are doing this better than others: Kmart’s half-year sales hit a record high of nearly $6 billion, thanks to the popularity and scale of its own-brand Anko, which reportedly counts Australians across all demographics in its customer base, not just lower- and middle-income families. Meanwhile, rival Big W saw half-year sales slide 4.1 per cent and earnings tumble 60 per cent.
Discount supermarket Aldi has reported an uptick in foot traffic as Australians venture further for cheaper groceries – a trend that Coles’ chief executive officer Leah Weckert is keenly observing.
Australians’ growing suspicion of the so-called specials of the major grocery retailers is getting recognised. In a submission to the Senate probe into supermarket prices, consumer advocate CHOICE called out a number of questionable pricing tactics utilised by Coles and Woolworths, such as advertised discounts where there were none.
These promotions are squarely in the regulator’s sights. Australian Competition and Consumer Commission chair Gina Cass-Gottlieb said the watchdog would be examining reports of potentially misleading “was/now” specials, separate to its year-long probe, as a key priority in the coming financial year.
Discounts and deals still in demand
It’s not that discounting is no longer attractive. Far from it: Australians still love a good bargain. Last year’s Black Friday sales were a key period for retailers (and Australia Post), though it pulled forward some Christmas shopping. Even IKEA Australia, which had never participated in Black Friday before, experimented last year with a 15 per cent storewide markdown.
Weekly supermarket specials and price-lock promotions allow for households across all demographics – even the chair of the consumer and competition watchdog – to plan their weekly shop. “I know in my household we do buy six bottles of olive oil at a time when it’s at the discount price,” Cass-Gottlieb said.
Regular discounting is here to stay, though at the potential expense of margins. “This strategy cannot go on forever,” said Deloitte Access Economics partner David Rumbens.
“Over the year, profit growth in the retail sector was pretty negligible. Retailers will be looking to deliver better returns for their shareholders over time as the market allows. Most retailers are in pretty competitive segments.”
However, the future looks more rosy for penny-pinching consumers: Rumbens expects the second half of the year to bring some cost-of-living relief to Australians, pointing to the federal government’s forthcoming Stage 3 tax cuts, potential interest-rate cuts and wage increases.
Customers are still keen to shop around for meaningful discounts, he said. “There’s still quite a lot of stress out there among households.”
Electronics retailers JB Hi-Fi and Harvey Norman were both forced to cut more deals in the back end of last year, with both reporting a fall in half-year profits. JB Hi-Fi chief executive Terry Smart observed a rise in “on-floor discounting” and price matching and said he would be adjusting the retailer’s range and promotions to suit bargain-savvy shoppers.
Harvey Norman executive chairman Gerry Harvey says the retailer targets higher-income Australians.Credit: Louise Kennerley
Meanwhile, Australians are buying more tech devices from Officeworks, which has a price-beat guarantee, suggesting it’s picked up customers who might normally shop at the consumer electronics retailing giants.
“Technology is now a more meaningful part of the Officeworks business,” parent company Wesfarmers chief executive Rob Scott told reporters in February. “[Officeworks] seem to be capturing more than their fair share.”
While consumers have no doubt become more cost-conscious in the past 18 months, consumer behaviour expert and QUT Professor Gary Mortimer says the price tag is not the only factor customers consider.
“I’ve always maintained that you don’t always have to be the cheapest in the market. You just need to offer better value than your competitor, and I think shoppers are now looking for greater value,” he said.
That value might come in the form of certain services or perks, such as paying over multiple instalments, free extended warranty, or free delivery, for example, he added.
When the economy improves and Australians feel more comfortable about spending, will Aldi’s recent foot traffic boost and the higher sales volumes of IKEA and Kmart reverse?
According to KPMG Australia head of retail and consumer James Stewart, consumers would likely stay “sticky” – if history is anything to go by.
“The global financial crisis pushed Aldi into the consciousness of many Australian consumers, and it has gone gangbusters since then. That’s a trend around the world,” he said. “Those value-based retailers like that – that stickiness is real.”
“Once you’re educated at a way of shopping, and you recognise the value proposition, not many customers then go back and say, well, I’ll happily wander down the road and pay X per cent more, unless it’s convenient.”
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