When the going gets tough, the tough get going

Let's not sugar-coat where retail is sitting right now. Bell Potter's latest retail sector review frames FY27 as the cyclical low point for most retailers, with flat to nominal sales growth, gross margins under pressure, and cost deleverage to work through over the next nine months or so. Consumer sentiment is at two-year lows in Australia and the UK, weighed down by the interest rate cycle and global instability. The August reporting season is unlikely to make for cheerful reading, with slower topline growth and rising cost-of-doing-business the recurring theme across the market. (Bell Potter’s Retail Sector Review – Framing up our coverage for August)

So far, so grim. But here is the thing about tough markets: they are also where the real winners are made.

There is a line we come back to often, from Wall Street veteran Shelby Cullom Davis: “You make most of your money in a bear market, you just don't realise it at the time.” He was talking about investing, but it applies just as neatly to retail. The moves that create outsized returns, the market share you take, the customer you win, the site you secure, the category you plant a flag in, are almost always made when everyone else is battening down the hatches. You just don't feel it in the moment, because the market is telling you to be cautious.

And most businesses do exactly that. When trading gets hard, the instinct is to pull back. Cut the marketing budget, freeze the store roll-out, defer the range refresh, wait for clearer skies. Understandable. But when the majority retreat, the field opens up for the few who lean in.

So here is the question worth sitting with: how many retailers and businesses are actually planning to take advantage of these conditions and improve their market share during these tough trading times? Clever and aggressive businesses and retailers should be thinking hard about their options right now, and now is the time to do it, while the market is down. Weaker competitors are distracted, discounting, or exiting altogether. Landlords are more willing to deal. Talent is available. Acquisition targets are more reasonably priced. The cost of standing still has rarely been higher, and the cost of making a move has rarely been lower.

History backs this up. When Guy Russo took over Kmart Australia in 2008, right as the GFC hit, the business was effectively broken, turning over around $4 billion for close to zero profit. Rather than retreat, he went the other way, stripping back the range, simplifying stores and committing to everyday low prices while the rest of the market played defence. Within about a year Kmart had doubled its earnings, and it went on to become one of the most profitable department store chains in the country (SmartCompany). The same pattern shows up decades earlier and a world away. During the Great Depression, category leader Post slashed its advertising while rival Kellogg's doubled down, moved aggressively into radio and launched Rice Krispies. By 1933, with the economy in freefall, Kellogg's profits had risen almost 30% and it had overtaken Post to become the category leader it remains today (The New Yorker).

But leaning in is not the same as spending recklessly. The businesses that come out of a downturn ahead are not the ones who simply spend through it, they are the ones who spend with precision. That means being ruthlessly clear on who your customer is, and, more importantly, who they are becoming. A soft market is not the time to guess.

This is exactly the thinking behind our recent whitepaper, The Future Consumer: Retail's Next Decade, which unpacks how the customer is fundamentally changing, the levers reshaping every category, and the human forces driving where Australians actually spend. If you are going to place bets in a tough market, these are the shifts worth placing them on.

The going is tough. No argument there. The only real question is what you do with it. The retailers who treat FY27 as a year to survive will spend it defending. The ones who treat it as a year to move will spend it gaining. History, and Shelby Davis, would back the second group.

When the going gets tough, the tough get going. The question is, will you be one of them?

At RetailOasis, we have spent close to two decades helping retailers, investors, and property developers make smart, deliberate, informed moves, especially in markets like this one. If you are thinking about how to use these conditions to your advantage rather than just weather them, we would love to have the conversation. Get in touch.