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Christmas peak period 'could present challenges'

24 November, 2014

With the Christmas period fast approaching, many Australian retailers are lining up stock and staff for their peak earning period. However it could present some potential challenges for hospitality businesses who aren't properly prepared to cope with demand.

Business information analysts at IBISWorld anticipate sales spikes of between 17-90 per cent over the Christmas period.

"While this strong seasonal demand and forecast sales spike is set to subsidise weaker trading periods throughout the year, the Christmas period presents both opportunities and challenges for Australian businesses," said IBISWorld's Retail Analyst, Lauren Magner.

 

 

The Christmas winners

"With total retail spending forecast to jump by 35.2 per cent this December, compared with average expenditure over the previous 11 months, all retail categories can expect a share of the spoils," Magner said.

Areas where December spending is set to increase include liquor retailing and restaurants. Liquor retail spending is anticipated to jump by 59.4 per cent, with Christmas parties driving demand and alcohol consumption rising over the holiday period. Demand for restaurants is expected to grow by 24.9 per cent, driven by corporate spending on Christmas functions.

"Dedicated Christmas lunch and dinner menus offered by restaurants, as well as strong high-margin alcohol sales during corporate events, will help boost profitability for restaurateurs during this period," Magner said.

On the other hand, December spending at supermarkets and grocery stores is forecast to rise by a modest 17.3 per cent. While supermarket purchases are essential year round, the rise in spending reflects an increase in people hosting dinners, lunches and barbecues over the Christmas period.

The Christmas challenges

The Christmas season isn't all good cheer, however, with retailers facing key challenges throughout the holiday period.

Staffing presents a traditional challenge over the Christmas period. To cover the significant spike in demand, retailers require not only sufficient staff, but also the flexibility to cut back staff hours once demand subsides after Christmas.

"If demand predictions are overstated, having too many staff may threaten profitability, especially once you factor in penalty rate payments for overtime and public holidays," Magner said.

She stated that the use of casual Christmas staff will help to manage personnel levels and provide the requisite level of flexibility.

"Restaurants will face similar challenges during the holiday period. However, Christmas functions are typically booked in advance, which helps hospitality businesses to plan ahead to manage both staff and inventory."

Another challenge over the period will be effectively managing inventory to ensure stock is available to meet Christmas demand. Overstocking leads to significant excess inventory, which may require drastic discounting and erode profitability.

"In the restaurant sector, it's essential that operators purchase enough to cater for peak demand, but avoid over-ordering, which can lead to significant waste," Magner said.

Furthermore, specific Christmas items – such as decorations, cards and wrapping paper – are particularly sensitive to overstocking, with demand declining dramatically after Christmas.

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