Michael Baker
February 6, 2013
In murder mysteries, victims meet diabolical endings. In retail it can be the same, and many independent retailers found December to be a diabolical ending to the year 2012.
According to ABS data released this morning the “sample” sector of Australian retail – the closest proxy we have for the independent retail sector – saw its sales slump by 3.4 per cent in December on a year-over-year basis. Sales for the indies grew by just 1.6 per cent for the year, the fifth consecutive year in which annual turnover went more or less sideways for small retailers.
At the very minimum, small retailers need a significant turnaround in consumer sentiment this year, or there won’t be enough “for lease” signs to meet the demand on the nation’s commercial strips.
The ABS numbers are estimates only and subject to a large margin of error but even if they are crudely indicative of what is going on in the independent sector, then there is cause for a lot of concern. Christmas is often the last hope that struggling retailers cling to, and if it doesn’t work out then bankruptcies and store closures are sure to escalate in the following months.
This past Christmas clearly didn’t work out for many. The only categories that kept their heads above water in December for small retailers were food and cafes/restaurants/takeaways, which experienced year-on-year sales growth of 2.0 per cent and 1.5 per cent respectively.
It was all downhill after that. The independent household goods sector turned in a shocker with sales down 11.2 per cent in December. Sales were off a more moderate 3.1 per cent for the year as a whole.
Clothing and accessories, which seemed to be staging a weak recovery in the preceding months, saw sales decline by 3.3 per cent in December.
The “other” category that includes a range of discretionary merchandise such as sporting goods and toys, saw its sales decline by 6.2 per cent.
How did the chains fare by comparison? A fair bit better though hardly stellar. Sales in December rose 3.0 per cent and for the year by 4.2 per cent.
The performance of the chains meant that as a whole the retail industry delivered its best year in 2012 since stimulus-assisted 2009.
But many small retailers have little to celebrate. There are many factors contributing to their problems. Only part of it is consumer psychology and sentiment.
Escalating price competition from both existing and new players in the market is taking its toll. E-commerce continues to have a growing impact. Small retailers are often unable to adopt new technologies that would help them adapt and compete, either because the investment is too high or they think the investment is too high when it’s not. Some just don’t have the knowhow to adapt to circumstances that were different when they started out.
Operating costs – primarily labour and rent – continue to pressure the bottom line. One of the biggest weapons small retailers have is their connection to the local community and the ability to form relationships with consumers. Yet too many are spurning the opportunity by doing what Australia’s large chains have always been famous for: trying to bend customers to what they want rather than accommodating what the customer wants.
In both the household goods and clothing categories, total sales for small retailers in 2012 were roughly at the same level they were in 2003.
Even accounting for the unreliability surrounding the ABS sample sector data, this is a sorry statement about the condition of Australian retail.
At the very minimum, small retailers need a significant turnaround in consumer sentiment this year, or there won’t be enough “for lease” signs to meet the demand on the nation’s commercial strips.
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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