Inflation and its impact on rental and resale retail services

Just like the rest of the world, Australians are feeling the pinch. With increasing energy costs, higher food prices and the biggest jump in interest rates in decades, households are expected to cut back on discretionary spending.

Reuters reports that rising inflation is putting the brakes on household consumption and the country’s economic growth will rapidly slow, as outlined by Australia’s Treasurer, Jim Chalmers, in the Government's October 2022 budget.

For retailers, this rise in inflation is seen as bad news but those who offer rental and resale services can actually benefit from customers with less discretionary money to spend. Despite the economic downturn, resale platforms like Gumtree, eBay and Facebook Marketplace are reporting increased activity.  Necessity, combined with increasing environmental concerns, are leading customers towards a new era of second-hand buying and selling.

So how can you make sure your business is well placed to benefit from this?

Embracing the change in customer behaviour

The classifieds platform Gumtree, which publishes an annual snapshot of the economy, estimates the total value of the ‘circular economy’ is up 29 per cent year-on-year. Facebook Marketplace also saw a 72 per cent increase in second-hand listings in Australia in the first half of 2022, compared to the same period last year.

It is clear that customers are still spending — however  in a different way. There is an opportunity for retail business to leverage that trend by embracing this change.

Big retailers are getting onboard

The saying goes, ‘If you can’t beat them, join them’ and larger retailers are leaning into the pre-loved trend with their own trade-in businesses.

High-street retailer Assembly Label launched its ‘re-worn’ initiative where customers can return their old Assembly clothing items for them to be re-sold by the chain.

Customers receive 10 per cent off their next Assembly purchase and Assembly Label benefits from selling these returned clothes to new customers.

More than 700 items have been returned by customers to its Melbourne store, where it launched the scheme. In less than a month, all of these were re-sold and the scheme has now been expanded to the chain's network of Australian stores.

Outdoor clothing retailer Patagonia, which opened its first Australian store in 1994, has its own ‘Worn Wear’ programme that aims to keep items in use for as long as possible. A circular retail model approach means that a down jacket with life left will not go to a landfill but instead can be resold. Customers who return items receive vouchers to use in stores or online. This makes the offer accessible and keeps customers coming back to their stores.

It’s not just about saving money

For any retail business, adapting to the current environment is key. With rising inflation and a forecasted reduction in consumer spending, businesses that rethink their strategy and offer new avenues for purchase are likely to experience further growth.

Interestingly, for consumers, it is not just about spending. Brands that are embracing the second-hand economy are also linking this new direction to environmental, social and governance (ESG) goals. Recycling clothing is good for the planet, as well as consumers' pockets and brands who have this philosophy at their core, will only benefit from the rise in resale retail services.

Better to hire than buy?

Another way that companies can profit from price-conscious consumers is demonstrated in the rise of the ‘Designer Rental’ retailer. These businesses, like GlamCorner, one of Australia's leading fashion rental businesses, are often an online model and enable customers to rent items of clothing or even footwear for a one-off event.

These services are popular with money savvy young individuals, and environmentally conscious Gen-Z consumers, who prefer to wear premium designer labels at affordable prices for one-off events like weddings, office events and clothing shoots.

BDO’s retail specialists can help

The rental and resale model is on the rise and retailers need to keep pace with the changes that an expected reduction in consumer spending is having on the industry. All retailers have the opportunity – and the challenge - of leveraging permanent shifts in consumer behaviour, re-inventing their organisational model and filling the gaps in the market as new opportunities arise.

BDO’s team of expert advisers can help you address these challenges and capture opportunities specific to your retail business such as:

  • Cost and margin transformation
  • Product optimisation strategies
  • Inventory management
  • Supply chain solutions
  • Advanced data analytics
  • Sustainability reporting.

Contact a member of BDO’s retail team to learn more about how we can help.