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December 4, 2019
If You Think Retail Is Tough Now – Consider This – You Haven’t Seen Anything Yet

The plethora of retail statistics available in 2019 regarding retailing paint a similar, and largely distressing picture – especially if you are a bricks and mortar retailer. While there are still some retail stars like JB HI FI that are doing very well in 2019, the majority of retailers and in particular bricks and mortar retailers are feeling a lot of pain – and will continue to feel pain for some time to come.

My prediction is that bricks and mortar retailing in Australia will never recover fully from the current slump. There are thousands of retailers today that will not be in business in 12 months and many more who will not be in business in 24 months. While great retailers like those owned by Premier Investments will continue to generate profits, those that don’t get the changing world will die.

My prediction is that Myer will be among those that go by the wayside.

Like any business there are two factors impacting on the profitability of retailers. Expenses and revenues. Expenses are currently too high for the revenues being generated. But while retailers have developed ever improving skills in terms of developing and implementing strategies to drive costs down, they are struggling with driving revenues up, in a very tough market.

Making the bricks and mortar retail market tough, in my view, are the following:

  • Stagnant wages and economic uncertainty
  • Increasing competition from incompetents
  • The changing habits of consumers

Wages in Australia have been stagnant for some time and are likely to remain so for some time to come. As the Reserve Bank reduces interest rates – as it has been doing for 5 years now – we should see an increase in consumers spending – but instead we are seeing people paying off debt – reflecting a high level of uncertainty. When consumers are uncertain, they don’t spend.

This in turn has put pressure:

  • Upwards on advertising budgets for retailers who don’t understand the alternatives
  • Downwards on margins, for retailers who think it is all about lower prices
  • Downwards on the value of customers for retailers who don’t embrace LTV

There are so many bad retailers out there, all of which, even if only for a short period of time, are taking a small share of the market, making it just that much harder for good retailers. In addition to taking a share of the market, at least for a while, these poorer retailers also help to prop up rents making it more expensive for better retailers to survive.

Poor retailers include those who:

  • Sell what they want to sell rather than what the market wants to buy
  • Really do not get the growing importance of genuine service
  • Have not yet embraced omni-channel retailing – and making it easy to buy

The changing habits of consumers are numerous and the changes taking place will continue to impact negatively on any retailer that does not understand changes like:

  • A move from goods to experiences
  • A remand for getting what they want
  • A demand for immediacy and convenience

There is growing evidence that the X and Y generations are increasingly preferring to buy experiences over goods. In 2019 younger people want to eat great food, travel the world, shock their system with a great ride or embark on a unique adventure. They are much less interested in a new watch, anew phone or a new car. Indeed, many Y and Z generation have no interest in owning a car.

When a consumer wants to buy in 2019, they do not want to wait. They want what they want now. This has two aspects to it. Firstly, they want exactly what they want – and do not want to compromise. If they have to buy online to do this – so be it – in part explaining why 40% of all online shopping in Australia is from an overseas website. Secondly, they want it now – not when a shop is open, but now – and increasingly, they do not give a dam about trying it on. They can always send it back. This is encouraging shopping online – and killing retailers without a retail option.

E-commerce is part of the answer to addressing these issues as it offers access to a wider range, 24- hour access and absolute convenience – in addition to keener pricing in many, but not all instances. Consider the following statistics:

  • 80% of Australians now shop online
  • Online shopping now sits at 10% of retail in Australia
  • Online shopping will grow to 22% of retailing by 2021

No main-stream retailer in Australia in 2019 can afford not to have an online store and by the end of 2020 there will be an expectation that all retail businesses offer an omni-channel experience – another step up from simply having an online shop. There are two very important reasons for this:

  • Consumers expect an omni-channel experience
  • Retailers will need every avenue possible to secure sales

The major barriers for most retailers wanting to get online are:

  • Cost of the technology
  • Management of the site
  • Cost of driving traffic to the site

It is the knowledge that online retaining is essential and these tree legitimate concerns that have, in the last 12 months, driven the number of online marketplaces up by 74%. Online marketplaces are increasingly becoming for online retailers what shopping centres are for offline retailers – but without the outrageous costs. Indeed, many shopping centres are now establishing an online marketplace for their retailers.


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