Forecasting, staffing, and prioritising: How retailers can ready themselves for the Christmas rush

The Christmas spending season is always a high point for retailers, and after a challenging few years for many, the festive period will likely be highly anticipated – and potentially very busy. So what are some of the key things retail business leaders should be thinking about over the coming weeks to effectively capitalise on the financial opportunity?  

The Christmas economic context 

A shaky New Zealand economy and changing consumer spending behaviours presented challenges for many retailers in 2023, with inflationary pressures increasing for households and businesses. However, there are signs of optimism. Our November 2023 BDO Business Wellbeing Index shows 81% of retail business leaders are feeling positive about their business performance over the next six months, up from 55% in March 2023. The recent change in Government, the upcoming Christmas shopping season, and synergies with the booming tourism sector likely play a part in this improved confidence. 

“The staffing issues that have permeated the sector since the pandemic are still apparent, but we’re starting to see this improve and there is hope that labour shortages will ease in 2024,” says BDO Retail Sector National Lead Divya Pahwa. 

The Government’s recent announcement to repeal the Fair Pay Agreement and extend the 90-day trial period has been welcomed by Retail New Zealand in light of its potential to further ease workforce challenges.   

On another positive note, tourism continues to rebound, with overseas visitor numbers up by 2.08 million in the September 2023 year vs September 2022 year. This increased footprint is a positive sign for retailers and welcome relief after the pandemic slowdown.  

Our tips to help stay on top of financials this Christmas – and beyond 

There are many practical steps which retailers can take to help further improve their outlook: 

  • Diversification & differentiation: The current high cost of living may present challenges for some retailers as consumers curb their spending. This makes it essential for retailers – especially those on the discretionary end of the scale - to focus on diversifying their offering for Christmas and standing out from competitors. 

  • Forecasting and cash flow: Profit margins may be squeezed as the cost of labour and cost of sales increase. This makes it essential for retailers to keep a close eye on cash flow, staying on top of forecasting and management reporting to ensure profit doesn’t slip at the end of the year. A small slip in margin can compound over time to become a much larger figure, which flows onto cash flow and net profit at the end of the year. To curb this, forecasting and reporting should happen regularly, looking both backward and forward. Over the busy Christmas season, cash flow should be examined weekly if not daily, and a full integrated forecast should be in place. For more on this, read our article on overheads, profitability, and wage costs. 

  • Inventory: Retailers typically bring in a lot of stock over Christmas, which can present issues in terms of storage and security. Security personnel and extra staff can help with this, but come at a cost. Another consideration is leftover stock at the end of the season; seasonal stock may need to be sold at a reduced rate, held back for next year, or returned to the supplier if contracts allow. Increased inventory also means increased cash outflow; some businesses will pay for this Christmas stock up front and some will have delayed payment terms, which need to be factored into cash flow forecasting. 

  • Key payment dates: For retailers with a balance date of 31 March, provisional tax and GST payments will be due on 15 January. To avoid being caught out by this, retailers should budget to put sufficient cash to one side over the Christmas period and mark 15 January on their calendars. 

  • Staffing: Retailers often scale up staffing levels over Christmas, which comes with additional administrative tasks. Business leaders need to understand holiday entitlements for temporary and seasonal staff, along with payroll matters and fringe benefit tax

  • Systems: Business owners often take on many different roles, which can result in a lack of time to focus on systems and technology. For a strong start to 2024, retailers should consider whether their financial and operating systems are fit for purpose and whether there are tasks that could be automated or outsourced to free up capacity. Inventory systems are essential in this sector, helping to forecast stock requirements and report on what is and isn’t selling, so this should be a key consideration for the Christmas period and into 2024. Read our article on retail technology for more insights. 

  • Prioritisation: The end of the year provides a prime opportunity for retailers to look at where the majority of their profits and margins sit, tailoring future supply and marketing to focus on these products. Similarly, it’s a good time for business leaders to understand the key drivers for their businesses for the year ahead in order to set their strategy. These could include increasing sales, improving margins, increasing cash flow, producing more accurate forecasts and reports, or becoming more sustainable.  

  • ESG: Environmental, social, and corporate governance (ESG) is increasingly important for New Zealand businesses, and retail is no exception. Leaders should be thinking about an ESG strategy, understanding their carbon emissions, and being aware of what their suppliers and clients are doing in the ESG space. Even for smaller businesses, if they are part of a larger supply chain their sustainability standards will be looked at. Banks, lenders, and suppliers are increasingly considering sustainability standards when having conversations with organisations. For more on this topic, read our article on sustainable retail.  

Seek advice 

Our advice to you is to be proactive and not reactive. Whether it’s understanding sustainability requirements, getting to grips with cash flow, fine-tuning your forecasting for the new year or improving your systems and processes, your trusted BDO adviser can help you reach your business goals this Christmas and into 2024. Reach out to BDO’s specialist retail advisory team or read more of our retail insights here