With the cost of living continuing to rise, putting pressure on many households, it’s timely for small business owners to think about consumer confidence. Consumer confidence is an important economic indicator for small businesses that mainly sell to households, because “consumers” is really just another word for your “customers”.
Looking at the most recent figures, the OECD Consumer Confidence Index remains below 100 in Australia, Canada, New Zealand, South Africa, the United Kingdom and the United States. This means there are more consumers who are feeling negative about the future than feeling positive.
There is some good news, though, for some small business owners, with signs consumer confidence has started to improve in Australia, Canada and the United Kingdom in recent months. Confidence levels have flattened out in New Zealand and the United States. In fact, only South African consumers continue to report worsening confidence levels in recent months.
Pessimistic customers continue to outnumber optimists
The chart below shows movements in consumer confidence, as measured by the OECD, since January 2020. We can see some common themes emerging from this data:
- In all six countries pessimistic consumers outweigh optimistic consumers, and have done so for some time. In New Zealand and South Africa the Consumer Confidence Index has not been above 100 at any point in this timeframe.
- In five of the six countries there was a decline in confidence in the first half of 2020 when the pandemic hit. Then, after a period of recovery, there was another period of declining confidence which started around mid-2021. This second confidence ‘dip’ – reflecting concerns about rising inflation, rising interest rates and slowing growth – turned out to be as large as, or even larger, than the pandemic impacts.
- The exception to this latter pattern is South Africa, where the second period of declining confidence started later (in early 2022) and was not as low as the initial pandemic hit. In addition, a third period of declining confidence is now underway.
Tentative signs of improvement in the most recent data for some
While the current level of the Consumer Confidence Index is below 100, the future looks a little more hopeful for small business owners in Australia, Canada and the United Kingdom based on an improvement in confidence in recent months:
- The April reading in Australia was 98.1 points – the highest since July 2022.
- The March reading in Canada was 97.2 points – the highest since August 2022.
- And the April reading in the United Kingdom was 96.2 points – the highest since February 2022.
New Zealand and the United States have seen little change in consumer confidence, at around 96.0 points and 97.3 points respectively, for the past four months. That means consumers aren’t becoming more confident in these countries, but they also aren’t becoming less confident.
South African consumer confidence, however, was 96.7 points in March – the lowest since August 2022.
How can small business owners overcome the current lack of customer confidence?
These consumer confidence survey results may be grim reading for small businesses, especially those that mainly sell to households. Nevertheless, there are actions small business owners, and their advisors, can think about to navigate this period where customers are not feeling confident about spending.
Many small businesses have close relationships with their regular customers. This is a huge advantage over bigger business competitors. Talk to your customers about how things are going for them and think about how you can tailor your business to meet their current needs.
Some actions you could take include:
- Reduce your stock holdings and/or change your mix of offerings to better reflect your current turnover – rather than just getting in the same quantities and items of stock that you have previously
- Offer loyalty discounts to your most valuable customers or those that buy in bulk
- Have a weekly special which allows you to move any slower selling stock while also giving customers a bargain
- Make it easier for your customers to buy from you, such as using electronic payment options
- Widen your potential customer base by selling some or all of your product range online
- Offer customers extra services like same-day free delivery in your local area
For more Xero Small Business Insights data and research, visit www.xero.com/xerosbi.