If you can’t beat the whingers, join ’em

Michael Baker was a presenter at the recent AACS Convenience Leaders Summit

Michael Baker
December 5, 2012
The Age

ANALYSIS
In mid-2010, at a conference attended by the CEOs of Australia’s biggest retail chains, Gerry Harvey took his counterparts to task for whingeing about how bad things were when Australia was in the throes of an economic boom.

The problem for many retailers then is not so much consumers as inertia.

But hey, if you can’t beat ’em, join ’em.

It’s taken Harvey more than two years to come around, but now he too has joined the ranks of the whingers. His comment to the effect that retail conditions were the worst in 50 years were widely reported in the media last week. As were his musings that maybe some sizzling hot weather could save his bacon by enabling him to sell more airconditioners.

Meanwhile, Solomon Lew over at Premier Investments seems to have a different view of what will save his bacon. For him, a 10 per cent increase in the cost of merchandise purchased from offshore internet sites will surely do the trick. And save jobs. Yesterday he renewed his call on the government to lower or eliminate the tax-free threshold on purchases from overseas. (Lew, by the way, says Premier has enjoyed 67 per cent growth in its own online business this year, suggesting that stiff competition from overseas has driven him to technology investments that will ensure his continued profitability.)

Amid this silly season of big retailer-pleading-poverty, the latest ABS retail stats appeared, at least on the surface, to support their gloomy world views. Sales did not grow one iota from September to October and were up just 3.0 per cent year over year. Small retailers enjoyed year-over-year growth of only 1.3 per cent.

In the consumer electronics sector in which Harvey’s chain is a leading player, October sales dropped 1.5 per cent.

As usual the pain has been felt more deeply by small retailers. In the year to date their retail sales have grown by 2.4 per cent for independents compared with 4.2 per cent for the chains.

Biggest drag on growth for the independents in October was the household goods sector, which fell 1.4 per cent.

Food improved slightly in October (up 3.2 per cent) after three consecutive months of declines, but the pressure from the major supermarket players is unrelenting.

Clothing also continued a muted recovery of sorts. Sales for small retailers in the clothing segment grew by 5.2 per cent but off a very weak base. For perspective on how shaky the independent clothing retail sector has become, the ABS estimated October sales of $559.0 million, which is lower than the level achieved way back in October 2004 ($588.3 million).

Vacancies in independent fashion strongholds like Oxford Street in Sydney’s Paddington neighbourhood tell a graphic story of things going wrong.

Yet Gerry Harvey’s commentary about adverse retail conditions is only a small piece of the story. The bigger and more important piece is not going to just be blown away by the revving up of one of his airconditioners. It’s called “radical sector transformation.”

Australians are still on the move, travelling abroad in record numbers and presumably taking advantage of the huge bargains available to them by shopping overseas. They are also spending up big on restaurant meals, non-retail services and salting money away in their piggy banks. Consumer fundamentals are actually very sound.

The problem for many retailers then is not so much consumers as inertia. First, they did not anticipate how the structural changes emanating from the technology revolution, global recession, international retailer arrivals and price transparency would flow through into consumer behaviour as they have in the past two years.

And when they did realise what was happening they didn’t move fast enough. Some are still sitting on their hands, wondering where things are all going. The retail models that made them successful in the past are now threatening to pull them under.

No one is sure where it will all end but one thing is for sure. Investors in companies run by the captains of Australian retail should scream bloody murder whenever they hear a retailer CEOs sitting around blaming the weather, consumer sentiment and offshore internet sites for poor results.

Michael Baker is principal of Baker Consulting and can be reached at michael@mbaker-retail.com and www.mbaker-retail.com.

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