Why retail’s not down and out – 10 glimmers of hope

Retail stocks were hammered again yesterday on the sharemarket, with beleaguered surfwear brand Billabong off another 15% and Myer and JB Hi-Fi shares down again.

But after looking at the 11 ways the retail sector would change in 2012 (and most of them were negative) we wanted to turn the tables and search for glimmers of hope in the gloom.

Here are 10 good signs for retail in 2012, with thanks to the Retail Doctor Brian Walker.

It’s not all bad news on consumer spending

For starters, the latest small business sales figures show that small business retailers have been holding up over the past few months.

Yesterday’s small business sales trend report from ANZ showed retail-related sales growth of 2.4% in November. Although this growth is well below the 5.8% jump for non-retail and services, and 4.5% lift for all small business, it’s growth nonetheless.

The Commonwealth Bank’s business sales indicator, also released yesterday, showed monthly sales growth of 0.7% for retailers, versus a 0.3% lift in trend terms overall.

Not convinced?

The Reserve Bank, in its December meeting minutes released yesterday, noted that “measures of household and business confidence had improved in recent months.” The central bank added that “some of the recent economic data had been more positive”, with overall growth consistent with trend.

And consumer confidence isn’t completely shot

There’s a convincing line of thought that the downturn in retailing is about a shift in consumer spending, rather than a genuine lack of consumer confidence.

As we all know, Australians are travelling overseas in increasing numbers, saving more than 10% of their income, putting more into their mortgage, continuing to eat out, and spending serious cash on one-time discretionary items such as pay TV, broadband, mobiles and gadgets.

The bad news is retailers are losing the battle for the consumer dollar. The good news is that the dollar is still waiting to be won.

Interest rates are on the way down

Interest rate cuts make mortgage-holders feel richer, even if the reason behind them – in our case, slowing global growth – isn’t a good thing for the country. Punters are hoping the expected rate cut in February will have a similar effect as the November Cup Day one.

International and new retailers show there’s an appetite for retail excitement

As Zara, Topshop and Woolworths’ new hardware chain Masters can attest, there’s still an appetite for exciting new retail offerings.

From a glass half-empty perspective, these retailers are stealing customers from established players. From a glass half-full perspective, they’re taking people away from online and mobile sales, and into bricks and mortar.

If you’re near an anchor tenant, capitalise on that popularity and make your shop the next stop. If you’re not, what can you learn from buzzing retailers? What ideas are worth giving a shot?

The revival of community shopping

Farmers markets are one way of giving shoppers that warm and fuzzy “village” feel; shopping strips are similarly well-placed to create goodwill among their visitors.

Walker says strip shops could make a comeback next year. If you’re part of a high street, work to your advantages over shopping centres or online: sunlight and fresh air are the first things that come to mind.

Start in your own backyard, and make sure your shop is attractive and welcoming for customers. And then think more broadly about why shoppers come to the strip. Is it a flagship café or service provider that keeps people coming back? Can the street work together to draw people in?

Embracing online

The “us versus them” attitude towards online sales is dying, which is sensible because the greater confidence in and ease of online sales will almost certainly propel online sales to the higher levels seen overseas. Get involved.

Time for innovation and reinvestment

Now that pre-GFC sales growth for the sector can no longer be relied on, innovation will come to the fore, which is only a good thing for customers. Experienced retailers Premier Investments, David Jones and Myer are sure to jazz up their offerings in their fight for the consumer dollar; make sure you do too.

The rise of specialisation

There are pros and cons to diversification, but Walker reckons trying to be all things to all people is on the way out. Make sure your flagship products soars.

Private equity interest

Private equity is often waiting in the wings when a sector is out of favour. We expect more private equity investment in retail next year, providing welcomed cash and sales options for the sector.

Lower rents

Retail tenants are publicly baulking at rate increases that are better suited to boom days, and the Franchise Council of Australia has tapped into discontent with its proposed retail tenancy code of conduct.

Anecdotally, rents are falling; the Australian Retailers Association has argued that despite Westfield’s shopping centres being almost full, many tenants are not temporary tenants but are rather a company with a business in one Westfield offered a lease in another at reduced terms.

As Simon Fonteyn, of Leasing Information Services, put it some time ago: the question is whether rents are sustainable.