Published in Fairfax Business on August 15, 2015
Rumours about the death of Australian retail have been greatly exaggerated in recent years. In fact, most of the vital signs for local retail are looking healthy - healthier than they have been for some time.
For a start, the worst trading environment in retail for over 25 years is largely behind us, we have a much lower Australian dollar and as a result higher net inbound tourism is buoying the domestic market.
The early impact of digital disruption has also now been absorbed by traditional retail, with a slow but steady conversion by Australian retailers to omni-channel retailing starting to deliver genuine returns.
One could argue that consumer confidence is slowly returning to our local economy.
As for the threat of offshore retail competition? Australian retailers have a number of natural advantages in their favour. It may not be obvious but our extreme weather and the tyranny of distance often has a positive impact on our local shopping choices and behaviour and this makes Australian retail unique.
Here’s are seven reasons I believe local retailers can feel confident about the future.
1. The Australian dollar is lower than the $US, in fact it is at a six year low. It has dropped by 21 per cent against the US dollar in the past 12 months. There are no signs in the coming years of the $A being above parity to the $US and in fact the RBA suggests that if anything the $A will get lower. This means that Australian consumers are more likely to shop locally rather than offshore.
2. Premium department stores are cyclical and they are also a great barometer for retail. Department stores like David Jones see the down cycle first and the up cycle first. Recent quarterly sales data at David Jones has continued into positive territory and this has complemented the previous year of revenue growth. This is hard evidence that consumer confidence is getting better.
3. Australia’s population is expected to double to 47 million people in the next 40 years. By 2025, it is expected that Australia’s population will be closer to 30 million. These people will need clothes, food and housing.
4. Most Australian retailers by now have transformed themselves into contemporary omni-channel retailers. With the government’s plan already underway to deliver on the rollout of the National Broadband Network, this will speed up the internet and make online shopping all the more enjoyable, driving more sales. Most people will always prefer to shop online locally assuming the price is right as they want to be able to shop with confidence.
5. The unemployment rate by comparison to most markets in the world is still relatively low. Accord to the ABS, the unemployment rate in Australia averaged 6.90 percent from 1978 until 2015. Obviously, in any given market when people are working they are more likely to shop.
6. Competition in Australia has increased and remained intense but at least now is largely understood. With Zara the first of almost a dozen international retailers to arrive in Australia and who were also the first to post a profit downgrade in the twelve months ended in January this year, signalling that the lustre of newness for international retailers has now been worn and the impact completely understood.
7. Australia is a stable, democratic and culturally diverse nation with a highly skilled workforce and one of the strongest performing economies in the world. As the only nation to govern an entire continent, we do not have the volatility that other countries may have.
All these factors considered, Australia over the next horizon is a great place to be a local shopkeeper.
With the worst of the downturn behind us, it’s time to revel in our differences, rather than our similarities with the other shopkeepers of the world.
This article first appeared in Business Review Weekly on the 7th August, 2015.