Michael Baker
February 8, 2012
The Age
ANALYSIS
Researchers have reportedly determined that the orange-bellied parrot, Neophema chrysogaster, a Tasmanian-bred species, is on the brink of extinction. Numbers in the wild have dwindled to just 21, including eight females.
The hapless orange-bellied parrot is not alone. Also on the brink of extinction, but in this case sneaking under the radar, is the species Propola independens vestimentum, better known by its common name ‘independent clothing retailer’. The decline of this population is not getting as much attention as the orange-bellied parrot, perhaps because business economists are less vigilant than biologists.
According to Australian Bureau of Statistics (ABS) estimates for the non-chain component of the retail industry, independent clothing, footwear and personal accessories retailers saw their sales decrease by 4.6 per cent in December on a year-over-year basis. This capped off a year in which their sales failed to rise in any month.
From a longer term perspective things are a lot bleaker even than those numbers suggest. The sector’s cumulative sales loss of 11.5 per cent in 2011 was its third consecutive annual decline.
Improbably, if the ABS numbers are to be believed, small clothing retailers captured approximately the same nominal sales value in 2011 that they did in 2002 ($6.3 billion). But the world has moved on and left them behind. Back then, in 2002, $6.3 billion got you 45 per cent of the clothing and accessories market – now it only gets you 33 per cent, an incredible 12 per cent market share shift in the space of nine years.
As one of the scientists on the recovery team for that orange-bellied parrot pointed out, an endangered species might be able to ride out a bad year occasionally, but when you string together a few in succession it becomes a huge problem.
The independent clothiers were not alone in their distress. Sales for discretionary retail in total rose by just 1.9 per cent for December on a year-over-year basis, and a pitiful 1.1 per cent for the whole year 2011. This was the lowest annual gain for the discretionary side of retail in the 30 years since ABS has been publishing the numbers.
For the independents as a whole, sales rose 1.3 per cent in 2011, compared with 3.0 per cent for chains. This suggests small retailers are bearing more of the brunt of the shift in consumer spending behaviour away from merchandise in stores to experiences beyond them.
However, it was hardly a ringing endorsement for Big Retail, either.
Investors who prefer results to excuses are likely to be disappointed by the usual drivel-fest they’ll get from the retail chains in the weeks ahead about “cautious consumers,†“challenging conditions†and “deflationâ€. (The NSW government is asking the navy to make more room in Sydney Harbour for the cruise ship boom and Australians are heading off overseas in record numbers in whatever conveyance they can squeeze themselves into. Purchases from offshore e-commerce sites are known to be booming. The “cautious consumer†mantra looks hollower by the day.)
Huge challenges confront all retailers big and small this year. The costs of binge discounting and the increasing transparency into pricing gifted to consumers by technology are pushing retailers overseas increasingly toward an everyday pricing model that relies less on constant markdowns. Australian retailers will need to do the same, so coming up with competitive pricing strategies for store versus online will be an important hurdle to overcome.
Differentiating on non-price attributes also looms larger than ever if we are not to have a race to the bottom where “cheapest†is the only marketing tactic. That is a sure-fire way to kill off what remains of the vitality of the retail sector.
The other ongoing challenge is to give people better shopping experiences so that they have an incentive to come back to stores. At the moment, cruise ships look like a lot more fun.
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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