Australian retailers absorb rising costs, Lightspeed says

Lightspeed has released research showing that more than six in 10 Australian retailers are absorbing at least half of their rising operating costs. The findings are based on a survey of 300 retail decision-makers and 502 consumers in Australia.

The results highlight pressure on margins across the sector as businesses try to hold prices steady for shoppers facing tighter household budgets. Almost all retailers surveyed said their operating costs had risen over the past year, with 46% reporting increases of between 6% and 10%.

On the consumer side, the research suggests shoppers remain cautious rather than pulling back altogether. More than half, 54%, said cost-of-living pressures were changing how they shop. Even so, many said they still weigh quality, trust and local support alongside price.

Customer reviews form part of that decision-making. The survey found 49% of consumers check reviews before making a purchase, while 46% said supporting local businesses influences where they shop and 45% said they are still willing to pay more for better-quality products.

In-store preference

Physical retail continues to hold its place in Australia despite the growth of eCommerce. Among consumers surveyed, 73% said they prefer shopping in-store at major retail chains, while 37% said they prefer local independent stores.

Online marketplaces also account for a significant share of spending. Some 42% of respondents said they shop through marketplaces such as Amazon and eBay, ahead of Australian online retailers at 33%.

These figures show that bricks-and-mortar stores still matter to Australians, even as digital channels remain important for discovery and purchasing. They also suggest local retailers are competing on several fronts at once, from global platforms to large domestic chains.

Generational differences are also emerging in newer channels. Social commerce remains a small part of the market overall at 8%, but the figure rises to 23% among Gen Z consumers.

Margin pressure

Retailers are responding to higher costs by sharpening their offer rather than relying solely on discounts. International marketplaces, shipping, utilities and rent were cited as major sources of pressure.

Many businesses said they were investing in store environments and digital operations. The research found 68% are placing greater focus on the in-store experience, 67% have invested further in their online presence and 63% are leaning more heavily into building a stronger local identity.

That combination reflects the balancing act facing the sector. Retailers are trying to protect customer loyalty while managing rising expenses that affect daily operations.

Technology use

The survey also found that retailers are using technology to address labour and efficiency pressures. Across nine digital tools covered in the research, retailers estimated that a single tool could save an average of 1 hour and 24 minutes a day.

Artificial intelligence is moving into routine retail tasks rather than remaining at the trial stage. The report found 32% already use AI for supply chain and logistics management, while 31% use it for demand forecasting and product recommendations.

Marketing is another area of adoption. Some 41% said they plan to use AI for marketing content in the next year, compared with 30% who currently do so.

Nicole Buisson, Managing Director, International, at Lightspeed, commented on the findings.

"We are witnessing a period of change, but also clarity. Consumers are still spending, but they're spending carefully. What stands out in this year's findings is the way retailers are responding. They're not just reacting to economic pressures; they're actively re-engineering the way they connect with their customers. The 2026 State of Retail report highlights that while the 'how' of shopping is evolving, the 'why' - connection, value and trust - remains at the heart of the industry. Retailers that refuse to let efficiency come at the cost of experience can be better equipped to succeed right now. Digital tools, like AI, are being employed in a way that helps ensure that every interaction is seamless, efficient and meaningful," Buisson said.