What’s Happening In Retail? – Margy Osmond

Margy Osmond is the Chief Executive of the Australian National Retailers Association, which was formed in 2006 to represent, lobby and research in the interests of Australia’s large retailers. She was chair of the NSW bid for the 2009 World Masters Games and is now Chair of the Sydney 2009 World Masters Games Organising Committee. On Tuesday 25 August 2009, Margy Osmond addressed The Sydney Institute on the issue of retail and the financial downturn saying, “The future landscape will be a challenging one for the retail sector with a range of outstanding government reform to be resolved, an economy not yet out of the sickbed, and the prospect of an election.”

WHAT’S HAPPENING IN RETAIL?

MARGY OSMOND

The retail sector is an interesting beast. We were having a discussion in our office recently and trying to figure out what might have been the first point of commercial exchange. Perhaps it happened in a cave somewhere?

Whatever it was, we have clearly come a long way from exchanging a few arrowheads for a new skin to update the stylish caveman or woman’s wardrobe. It now represents the largest employment sector with over 1.5 million Australians finding a job in the retail ranks. It can also lay claim to being the training base of the nation.

I’d like to try an experiment. I want to see a show of hands. How many of you had your first job in a shop of some sort? I am happy to admit mine was in the designer frock department of DJs in Brisbane. You are in good company! Julia Gillard had her first job at Katies, Kevin Rudd’s first job was in a shopping mall and Malcolm Turnbull, I think has also alluded to working at the vegetable markets.

Retail is the incubator that gets all those kids ready for the workforce, and at the other end of the spectrum, increasingly will be the hope of a much older group looking to re-enter the workforce. Stores like Bunnings, for example, will tell you that increasingly as the super nest-egg has shrunk because times are tough, people in their sixties are looking for jobs in retail.  Many ‘tradies’ for example, feeling the strain of too many years of physical labour, are changing jobs and adding their expertise to the appeal of a wander through Bunnings on a Sunday morning. Not that most men need encouragement for a bit of hardware therapy!

The last twelve months have turned a spotlight on the retail sector asthecritical barometer of consumer confidence and an indicator of the state of what Keynes called the “animal spirits”. So after what can only be described as a difficult 12-18 months where does the sector really sit and what are the implications for the next twelve months?

The financial figures for the last year tell a sobering story. The retail slide began early last year. Soaring fuel prices and rising interest rates had consumers hitting the brakes soon after Christmas 2007. Our own consumer survey detected early signs of ‘reigning in’ and a return to cocooning and staying at home. So, by the time the Aussie airwaves were carrying messages of unemployment and financial collapse in the United States, wallets were already snapping shut.

At the same time, retail unemployment was rising. A massive 60 000 full time employees lost their jobs in the 12 months to February this year. To be fair, 47 000 part time jobs were created in that same period of time. This news went largely unnoticed. The retail turnover results speak for themselves. 2008 was the worst year for retailers since 2000. Sales grew by a meager 0.6 per cent, well below the average 3.4 per cent.

In September, the collapse of Fanny Mae and Freddie Mac and subsequent talk of rising unemployment in the United States brought home the very real prospect that Australia could enter a recession. It didn’t take long for that to reverberate through the malls of Australia. Retailers immediately felt a dip. People were still looking, but not buying, and if they were they were making what we now call “value purchases”.

We became even more reluctant to go too far from home too. International travel fell sharply, and credit card use also dropped. Instead of pulling out the credit card, we switched to debit cards and cash instead, as we opted to spend money we knew we had. The mega toy sales that are now traditionally in June and July saw the rebirth of the lay-by as families planned for Christmas 2008 expenses – buying in June to make sure the tree was stocked with gifts that had been paid for over many months.

Then in October the Prime Minister Kevin Rudd and Treasurer Wayne Swan rode in on their white horses with bags of cash, trusting that the stimulus package would keep the cash registers ticking over. And it did. Coupled with falling interest rates, consumers were encouraged to come out of their cautious shell and look at the bargains that surrounded them. And so it became a buyers market, as reluctant Australian shoppers took their pick and undoubtedly picked up bargain after bargain.

Sales abounded. Consumers were bombarded with two for one offers, day only sales, half price sales and endless clearances. Sales became the norm. Consumers, who had never haggled, began to haggle with the best of them. Over the period of five months, we monitored consumer spending intentions and found that one in two spent their handout.  Sales bounced in December last year by a massive 3.8 per cent, the largest monthly rise in eight years. Over the year to June, retail sales volumes are up 4.1 per cent. We estimate that $4.5 billion, or a fifth of the two cash handouts worth over $20 billion, has been injected into the retail sector since December last year.

Now, eight months on the stimulus effect is fading. In the June month, retail sales dropped 1.4 per cent. NSW was the only state to stay in the black in the month of June, just. Modeling by Access Economics forecasts retail sales will fall by 0.3 per cent in 2009-10 before moving back into the black by just 0.1 per cent in 2010-11. So, now all eyes are on the months ahead.

There are promising signs of a recovery. Unemployment has not risen as sharply as expected. Consumer confidence also appears to be returning. The Westpac-Melbourne Institute Consumer Sentiment Index has risen towards a two year high. Some economists say as far as consumers are concerned, the worst of the downturn is now behind us. However the lasting evidence of a strong recovery still remains to be seen.

We are of course in the throes of the annual battle of the fashion parades and you could be forgiven for seeing all that strutting glamour and feeling that a recovery is only the swipe of a credit card away. However, the down turn could be a V shaped dip, or it could be a bathtub shaped dip, or a W shaped dip with a peak over December 2009. We just have to watch and wait. We are now not expecting to see a broad pick up in retail turnover until Christmas, and that will be at the mercy of the unemployment figures. The Reserve Bank has a very difficult balancing act to manage and they are watching our ‘animal spirits’ very closely.

With the prospect that the next interest rate movement will be upwards, the Reserve Bank is concerned about “choking off confidence and demand prematurely”. So while we balance on the high wire of recovery or not, what have we learned from the last year and what sort of long term effects will the 2008 “tail spin” in confidence have on Australian retailers and consumers?

One thing that is certain is the move to value. Australian consumers are increasingly value-driven and for retailers this means they have to keep their costs under control. Dr Ira Kalish, Deloitte Research’s Director of Consumer Business says as we move through 2009 we are going to see consumers shift to more price-focused and value-orientated retailers. We have also seen a significant swing to home brands.

The massive line to enter the new Costco store in Melbourne is testament to that. Consumers began queuing as early as 4am last Monday outside the US retail giant’s first Australian store. Upon entering, they were confronted with the most diverse range of products imaginable. From digital grand pianos right through to bikes, vacuum cleaners, clothes, grocery items, even cooked chooks and jewelry. This is a new way of shopping, and Australians appear to be embracing it.

Aldi has a different model of basic necessities and very cheap prices, and it is reaping benefits. The German retailer plans to have 700 stores in Australia, placing it on even footing with Coles and Woolworths who both have between 700 and 800 stores each.

‘Home is where the heart’ is has been the theme of the last year. Cocooning and spending on the home and home based entertaining has seen the rise and rise of the plasma screen over the last eighteen months. Supported by the stimulus package, Australians went out and did their patriotic duty and bought electronics.  I think Harvey Norman and JB Hi Fi most definitely have Kevin Rudd and Wayne Swan on their Christmas card list.

Trends in sales have also told an interesting story about how consumers were feeling.  Booksellers have done very well.  A book is a real value-packed form of entertainment. In case you are curious, I am told romance in particular has been a winner.  Don Grover the CEO of Dymocks tells me that the fastest growing category is vampire and supernatural romance. I’ll leave that to your imagination! Cook books were booming in the early part of the year supporting the trend in the critical growth sector – food.  Families stayed close to home and entertained the family to a barbie, rather than go out.   Generation X and Y rediscovered a previously unused room – the kitchen. Just look at the success of the TV show Masterchef! You only need to look at the most recent figures for Coles and Woolies to see how strong the food sector has been.

Increasingly consumers are taking the careful approach to spending on their credit cards.  They have paid off the card and concentrated on creating a buffer in relation to their mortgage. In fact, the household saving ratio more than doubled in the last six months of 2008 to reach its highest level since the last recession. Figures from the Reserve Bank last week confirm this trend is continuing. Eftpos and debit card purchases are up 17 per cent on a year ago – while credit card usage has shrunk by 11 per cent.

Back to those animal spirits for a moment.  While we are all shining up our crystal balls and looking at what might be a recovery, it is worth noting that for Generation X and Y this is their first real brush with what a downturn looks like. I think we are a long way from understanding the lasting effect that this fright will have on that group.  Once again jobs will be the critical issue.

The spectre of rising interest rates must soon start to have an unsettling effect. Over the last twelve months many consumers have given themselves a mortgage buffer. However the prospect of higher rates will impact significantly on the first home buyers and will have a larger effect in NSW than anywhere else. Confidence will once again take a hit and most are savvy enough to realize that more cash handout are not on the agenda.

Jobs will be the centre of attention over the next twelve months.  At a time when the capacity to retain and create jobs is pivotal to our capacity to follow the first ‘green shoots,’ you would think the biggest employer in the country is worth listening to.

When we sounded the warning on award modernisation, the government seemed to be listening, but there hasn’t been a great deal of action. The task of reducing 100 outdated awards into one is no easy feat and the intent of harmonisation has to be applauded, but the Federal Government made a commitment that the reform would not mean higher employment costs. However, this is clearly not going to be the case.

In January next year, retail employer costs are going to skyrocket. And that is not an exaggeration. The new award will add hundreds of millions of dollars to labour costs in exchange for NO productivity gains.

On Sundays alone, higher penalty rates will cost retailers an extra $100 million a year.  NSW will be shouldering the lion’s share of this new cost – around two thirds. Retailers will be left with one of two decisions. Either cut hours and jobs, or put prices up. Neither of those options is palatable at the moment. Retailing is a 24/7 business. Shops need to be opened when consumers want to shop and that means Sundays.

Given the immediate future facing the retail sector is still largely unknown, we are and have for some time been urging the government to grant a two year moratorium on the award modernisation changes. Even the Fair Pay Commission recognised how volatile the employment situation was and is, deciding in July this year to leave the minimum wage unchanged. It therefore seems counter-intuitive for the Government to push ahead with these new costs in just four months time.

The Federal Government is aware of our concerns but there are still no signs that the largest and potentially most vulnerable employment sector, will have the support it needs to protect Australian jobs. As the biggest employers of young people and women, these groups will feel an unreasonable impact from these reforms. We hope the government will act soon because time is running out.

What also needs to be remembered in this debate is that Australians want to shop in a very different way to the way they did in the 1960s and 1970s. Supermarkets’ busiest shopping day is Saturday and Sunday, and Thursday and Friday after 5pm. There is no shortage of people willing to work during these times.  In light of this changed retail landscape, in the course of their enterprise bargaining agreements, many large retailers have already paid out the penalty rates so the average worker is getting a better deal than just being on the award. For some of our members, these EBAs happened 10 to 15 years ago.

In South Australia, the new award will reintroduce penalty rates. These were cashed out some time ago. So there is double dipping happening. For Woolworths, the new award will cost 1000 jobs. Coles expects it to put at jeopardy another 1000 part time and causal jobs. This is just in the food retailing sector and is just the tip of the iceberg. Small employers, who have less capacity to absorb these extra costs in the current climate, will be hugely disadvantaged. We are in discussions with the Deputy Prime Minister’s office to see how retail jobs can be protected.

While retail sector has been experiencing buoyant times with the stimulus package, we’re starting to see that wash out of the economy now.  The prospects for the next 12 months are fairly flat. This is not a good time to be applying extra costs to the retail sector.

The Federal government needs to step in and protect retail jobs.

I would like now to touch on an issue that just does not seem to want to go away – trading hours. Retailing is all about convenience something that seems to have escaped your average politician. We are juggling work and family and other commitments so time is increasingly precious. So, we want to shop when it’s convenient for us.

While massive inroads have been made to deregulate trading hours – especially in ACT, Northern Territory and Tasmania, many states are yet to wake up and notice the twenty first century particularly South Australia and Western Australia. Just last week the WA Labor Party caucus decided they would vote against a bill that would level the playing field in the Perth metropolitan area and allow all retailers to be opened to 9pm.

Labor has denied shoppers choice, lower prices and new retail jobs and condemned Perth shoppers to a last minute scramble to do the grocery shopping and the near impossibility of shopping as a family. The blame should be equally aimed at independent grocers – who currently enjoy extended weekday trading.

While the local Coles and Woolworths in Perth have to close their doors at 6pm, the IGA owned independents can trade right up until 10pm. Hardly an even playing field. And, if you follow the WA Labor argument that no-one wants to shop on week nights, why are the independents open? Our survey of 500 Perth residents found that 80 per cent of people aged between 25 and 44 wanted extended trading hours. It is not rocket science.

An overwhelming amount of evidence shows that if you deregulate trading hours, allowing businesses to serve their customers when it suits both parties, you increase competition, and help drive down prices. You just have to look at what’s happening on the eastern seaboard. As I mentioned early, Aldi plans to have 700 stores in Australia, and Costco opened its first store in Melbourne just a few weeks ago. This is clear evidence of competition.  But we still have some way to go.

Sunday is regarded by consumers as just another business day. Retail figures show that up to 20 per cent of weekly trading volume occurs on Sunday and yet in places like Perth, retailers are FORCED to be closed.

One last thought on Western Australia. When I was preparing this speech I did some Google work looking at the history of shopping.  When I put “shopping” and “Dark Ages” into the search, the first few pages all came back with stories about trading hours in WA. And for the record, in the real Dark Ages they did have extended trading with shops opened up on the first Angelus bell in big cities, that’s about 5am.

With the exception of specified public holidays, we support what customers want – the removal of all trading hour restrictions – and we’ll continue to battle on. Another looming battle is the horror story which is the planning regime. There is a strong desire within the Department of Planning in this state to create more jobs and they’re very aware of the planning restrictions and are making some good progress. However, it can take up to eight years between a need for a new store being recognized, and it serving its first customer.

The process is much tougher in what the industry call ‘infill locations’ where retailing zoning has been already dedicated, compared to newly developed areas. A report by the Urban Taskforce last year found that in Sydney alone, we will need 50 per cent more retail space over the next 25 years. A 10 per cent increase in retail floor space would result in 16,500 jobs in metropolitan Sydney alone.

But getting that extra space will prove difficult especially with local planning restrictions. Just last week, we heard about the battle between retailers and councils over store proposals in Pennant Hills, Bankstown and Windsor. As more players, with different store layouts and designs enter the market, this will continue to be a problem.

The ACCC found in it’s report on grocery price competitiveness last year that council zonings and planning laws were preventing new supermarkets from opening. And we know that new supermarkets mean more competition.

What needs to be remembered is retailers would only be opening new stores if there was the demand for it. They understand their businesses and their customers and know what they want. We run the risk of stifling competition for the sake of a few vocal opponents which does not put downward pressure on prices.

Credit must be given to the Federal government which is reducing barriers to entry. In April last year, the government extended the time frame for the development of vacant commercial land from 12 months to five years to help new players like Aldi. So, credit where credit’s due.

Planning reform will be the new battlefield. So pushing on from the day to day issues of planning and trading hours let’s take a look at the longer term and what the future might hold for consumers and retailers alike, beyond the financial woes and greenshoots.

We are time-poor and technology rich and as consumers we are looking for experiences and convenience. Supermarkets and specialty retailers have self check outs and self scanners for all those keen do-it-yourselfers. Consumers can swipe and pay for petrol without entering the station now.

Twitter, Facebook, MySpace, Flickr, LinkedIn, YouTube are as much part of our vocabulary as Google. We are increasingly in touch with friends and businesses at the click of a mouse or the roll of a thumb over the screen of your iphone. Research from Google has found that half of Australia’s shoppers search online before purchasing and the internet is now more important than any other type of advertising.

We are increasingly entering stores with more information about the type of product we want to purchase which has implications for retailers and their staff. Just last week, the Australian Centre for Retail Studies released a report which warns that a surge in online trading could see some retailers close up shop. This is the trend we are already seeing in the UK and the US.

There are transmitters on products that communicate with consumers phones. For example a dress will suggest accessories to go with it! Or the groceries can be read by your phone and tell you about how it was made and potential recipes.

Tesco expects to be providing mortgages by the end of 2010. The brand is being expanded in all directions.

It is no longer just about the length of the hem or the best coffee it is about understanding your consumers lifestyle and being relevant to them and tapping into that demand.

MacDonalds, for example, offers free wireless to their customers. Instead of dropping in for a take away coffee, Generation X and Y are taking their laptop, dining in and studying on premises. It’s cheaper and more convenient than any old café. In Germany now retailers are designing special geriatric stores for older shoppers with wider aisles and massages in the checkout cue.  I understand that Tesco is also looking at this space.

Even today in the paper you may have seen the introduction of ButtCam to help female shoppers answer that age old question that many man just don’t want to answer. In the UK it is now possible to shop for clothes using an avatar fitting your measurements in the cyber space rather than hitting the high street. In Denmark, shoppers in Ikea have a new option for bringing home their purchase. Market research found 20 per cent of their customers rode their bikes to the store. Ikea partnered with a trailer company and now loans out free trailers for bikes so shoppers can bring their purchases home. It makes the retailer relevant to an increasingly eco driven customer and adds incredible value to their brand.

Tescos is so conscious of its carbon footprint that it has cattle fitted with ‘rumination collars’ to measure the belching of the cattle and the carbon footprint of the final steak on the plate. Asda only a few months ago, announced the launch of ‘low carbon beef’.

Retail is a dynamic sector that touches the everyday lives of us all. It is filled with surprises and possibilities and even in the toughest of times over the last few years, part of the sector have done very well and managed to create jobs. It is the backbone of the employment market and fills a vital role in regional communities where it is one of the very few providing jobs and prospects for young people. It is the sector that literally has its finger on the pulse of consumer confidence and the feelings of the ordinary citizen and that knowledge has never been more important than right now.

The future landscape will be a challenging one for the retail sector with a range of outstanding government reform to be resolved, an economy not yet out of the sickbed, and the prospect of a election. Elections have a slowdown effect on spending as people tend to hold off major purchases until the result is known. I hope that in the next twelve months Australian consumers will follow Imelda Marcos’s advice.  And you have to admit she was a genuine shopping phenomenon. Imelda suggested that “win or lose, after the election we go shopping”.