Australian retailers are cutting down on costs in an attempt to appease consumers who are becoming more price sensitive due to the high levels of inflation seen in the country. Redbubble Group, an online marketplace for gifts and merchandise, announced a cost-cutting program that involves laying off 20% of its employees in January 2023. The move may provide relief for the company in the short run, but due to the non-essential nature of its products, the retailer would still be impacted as consumers shift towards essentials amidst the inflation, says GlobalData, a leading data and analytics company.
Redbubble also plans to save costs by ceasing investments in the company’s brand awareness project and cutting down general costs in line with business scale and priorities. The company plans to implement cost-cutting initiatives that are aimed to decrease its cost base by $20 million – $25 million to make its business cash flow positive by December 2023. The cost cuts come in the wake of a decline in its revenue in FY2022 and a sharp increase in inflation in Australia. In FY2022, Redbubble’s revenue declined by 12.8%, turning it into a loss-making company.
Raviteja Neralla, Retail Analyst at GlobalData, comments: “One of the key reasons behind Redbubble’s loss of revenue was its price rise by 6% in May 2022. Australia has been going through a period of a sharp rise in inflation since the beginning of 2022. From 3.5% in the December 2021 quarter, consumer price inflation increased to 5.1% in the March 2022 quarter. It continued increasing throughout 2022 to 6.1%, 7.3%, and 7.8%, respectively, in June, September, and December quarters. In such a scenario, the company’s decision to increase its prices proved to be detrimental to the demand from consumers.”
In GlobalData’s Q4 2022 consumer survey published at the end of November 2022, 90% of Australian respondents stated that they are extremely/quite concerned about the impact of inflation on their household budget. As part of the same survey, 14% of respondents stated that they will start keeping to a strict household budget, 42% said they will continue to do this, and 23% will do this more frequently in the next three months*.
Neralla concludes: “Despite the company’s ambitious cost-cutting plan for the year, investors have turned bearish because of the change in consumer behavior. Australians have become more price sensitive and likely to remain so in the first quarter of 2023. When consumers restrict their expenses, they prioritize spending on essential goods and drastically cut their expenses on discretionary items such as Redbubble’s offerings. That is the reason why the company’s shares witnessed a sharp sell-off in January, despite its massive cost-cutting ambitions.”
*GlobalData Q4 2022 Consumer Survey – Australia with 507 respondents, published in November 2022
