The US versus Australia in shopping dollars

A great perspective on the present and potential future state of Australian retailing played out last week in two separate media features.

Eli Greenblat ran a good article in The Age entitled “Discount giant targets Australia” explaining the international growth of Costco. Costco, one of the largest retailers in the US turns over approximately $US70 billion (about $AUD80 billion) per year.

This followed the ABC’s Hungry Beast program a little earlier in the week, highlighting the power of the two “friendly giants, Woolworths and Wesfarmers” with their combined $AUD100 billion turnover, predominantly earned from Australian retailing, but including Wesfarmers’ significant mining and rural services business.

Hungry Beast talked about all the “terrible tactics” our Australian retail giants used to open new stores, block off land and squeeze suppliers, and the fact that Australian grocery prices, just like our house, car, clothing, cigarette, insurance and liquor prices, are some of the highest in the world.

The Age reported on Costco’s CFO Richard Galanti telling analysts in the US during a quarterly earnings update that the supermarket company (it’s actually a big Box Member based retailer; a “club retailer” if you will) continued to look towards AsiaPac and Australia to support its ongoing international growth aspirations. ”We are ramping up some of our international [operations] a little bit; our success in Asia is an example, and Australia.”

Hungry Beast talked about how Coles and Wesfarmers were looking to grow via “creeping acquisition” and by entering new retailing sectors including hardware and pubs.

Why am I linking these two reports from two different media?

I thought it worthwhile to put into perspective how we sometimes need to be careful what we wish for, careful of the unintended consequences of demanding change that is “good for me” in one area, and delivering change this is “bad for me” in another. Think of spending $47 billion on worldclass broadband, while not having sufficient funding for worldclass roads, hospitals or schooling.

Most of the negative perspective around our two Australian retailers falls into two buckets. One is a shopper bucket and one is a supplier bucket. The shopper bucket says “we pay too much for our groceries (or any items at retail, really) because there is no competition in Australia.” The supplier bucket says “these two players are so dominant and because there is no competition, we get squeezed all the time.”

Let’s examine each of them through the lens of global competition. To be clear, Australian shoppers can have the same access to very low prices as US shoppers, but be prepared to accept the downsides that allows that to happen.

So what are the downsides? Well, please forget the application of the Fair Work Act and minimum state award rates for employees. In parts of the US retail space, a labour rate of $US5 per hour ($AUD5.50) is a reality. We operate in Australia on between $18 and $20 per hour including super.

Our retail zoning laws prevent huge shopping malls being constructed on the outskirts of towns in a matter of months, and thus preventing sometimes unsuccessful ventures of this kind from laying undeveloped and consequently empty eyesores for years to come. Retailers fall into and out of bankruptcy protection (Chapter 11 in the US) with all the associated bankruptcy of suppliers and impacting on retirement funds and jobs that this entails.

On the supplier side, unless you have sat in a buying office in Bentonville, St Paul-Minneapolis or Leeds then you haven’t felt the pain of true market power. WalMart, Supavalue, Asda, Tesco and Home Depot do actually make Wesfarmers and Coles look like friendly giants in Lilliput. Oh, and by the way, the self same suppliers to retailers, who complain about the market power of retailers have to “squeeze” their own suppliers too, often with no input from retailers, just to stay competitive with their own manufacturing competitors and to provide us, the shopper, with what we want. My own company is “squeezed’ by both retailers and their suppliers every month; it’s part and parcel of the business cycle.

So would you like Australia in 2015 to have three new global retailers here, no State Award structure, two weeks holiday per year, no long service leave, no leave loading, no zoning laws for development and your shopping to cost about 15% less? Or would you prefer to protect the fabric of Australian life, allow prices to fall as retailers and manufacturers benefit from productivity gains, and pay a little more than the US for your basket of shopping/grog/clothing?

It’s your call, but I like Australia, because it is Australia with all its quirks and idiosyncrasies.

In his role as CEO of CROSSMARK, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia, NZ, the US and Europe. His international career in sales and marketing has seen him responsible for business in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands. CROSSMARK Asia Pacific is Australasia’s largest provider of retail marketing services, consulting to and servicing some of Australasia’s biggest retailers and manufacturers.