The darkest hour in Australian retail – and why it may have passed

Despite the cold and dark, I am an early riser; I paddle and train at around 5.30am many mornings and my favourite departure time when I fly is 6am, no matter where I am going to or coming from. This makes me an unpopular person to travel with. Oh, and it’s true, the darkest hour is just before dawn.

In some parts of retail it doesn’t feel like we’re close to dawn. It feels like it’s 3am and we just woke up in the middle of a nightmare. In the last three months, Retravision, Pets Paradise, Darrell Lea, and a whole shopping mall, Spencer Street Fashion Station in Melbourne, have all been placed into the hands of receivers. Big names like Billabong and Target are both struggling with the new world order, endeavouring to unravel historically high lease costs, labour costs, supply models and innovate into the new omni-channel world of retail.

Last week, Harvey Norman announced that its global (ANZ and Europe) same-store sales were down by 6.5%, with the second half of the financial year showing an even greater decline than the first. And if Harvey Norman’s global picture looks tough, analysing the businesses by region pinpoints Australian sales declining by 10% in the fourth quarter 2012 when you compare it to the same period in 2011, giving a full year-on-year decrease of 8.2%. There is no doubt it’s tougher in Australia this year.

Harvey Norman talks about “deflationary headwinds” impacting on the sales drop in Australia, which is retailer-speak for “stuff continues to get cheaper for shoppers”. Many manufacturers and suppliers are introducing new items at lower prices, but that doesn’t have to mean lower profits for retailers.

Kmart has increased its team of direct import buyers from 30 to 300. Their task is to “find the factory” in order to lower shelf prices to shoppers whilst improving profits for their stakeholders: new suppliers, store associates, management and shareholders. And there isn’t a retailer around that isn’t focused on parallel import and direct sourcing; they have no choice. They need to accelerate the move to lowering shelf prices while protecting profitability, otherwise shoppers won’t shop with them and they will go the way of Retravision et al.

So when will the dawn arrive? When again will we see a brand new day of profitable and growing retail in Australia?

Interestingly, since June, Myer, Kathmandu and JB Hi-Fi have all started to attract market interest and their share prices are rising. Brokers and institutions are picking that the darkest hour in retail is upon us, or has passed. Investors have noted that the weaker players in retail have closed and the survivors have more of the – albeit smaller – sales pie. The surviving retailers have learned and reshaped themselves sufficiently to allow investors and institutions to put money behind those that have evidenced positive change and proven to be innovative.

Hopefully, retail dawn, and spring, will arrive soon in Australia.

As CROSSMARK CEO, 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 and across the world. His international career in sales and marketing has seen him responsible for businesses 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.