It shouldn’t have taken yesterday’s profit warning from Billabong to alert the market that the retail sector is in trouble.

It was obvious over the course of this year that retail conditions have been deteriorating and it was becoming obvious that despite the usual retail optimism, this Christmas period wasn’t going to produce a reversal in their fortunes.

Department stores and speciality retailers alike — witness last week’s shock earnings downgrade from the previously impregnable JB Hi-Fi group — have been struggling against the tide of consumer conservatism and price deflation. Those unprepared — and Billabong and David Jones have admitted to excess inventories — will carry a particularly unpleasant legacy into the New Year.

There is a cyclical element to what is occurring. Households have, ever since the financial crisis erupted in 2008, adopted a safety-first approach, saving at rates not seen for generations. The two Reserve Bank rate cuts haven’t altered that stance.

A sense of unease about the peculiar balance of power in federal parliament and the quality of policy making it is producing may also be a factor. The carbon tax is, of course, on the horizon.

The strength of the dollar also hasn’t helped retailers, given that is has been reflected in price deflation within the intensely competitive environment rather than a lowering of costs and a widening of margins.

Billabong, of course, has the additional problem of having a major exposure to Europe, where the sense of crisis and of impending doom have been escalating month by month.

Beyond the cyclical influences (and accepting that it is a protracted cycle), however, there also appear to be elements of the structural. Online retailing may still represent only a relatively modest proportion of overall retail sales but it does appear to have reached the point of take-off.

Myer’s decision to close some stores and re-think its future stores program is significant. While Myer will still open some new stores, it appears to have decided that in the face of the growth of e-tailing it is going to need to be more proactive and aggressive in managing its portfolio of physical stores, closing some and downsizing others when the opportunity arises.

Myer’s Bernie Brookes, rather than continue to complain about online retailers and the absence of GST on online purchases, has decided to join them and is now aggressively expanding Myer’s online presence.

Solomon Lew’s Premier Investments had already adopted a similar approach, with chief executive Mark McInnes telling Business Spectator earlier this year that he planned to close 50 stores and downsize others, while also building on an already strong Just Group internet strategy and presence.

With weaker business models like Colorado, Border’s and Fletcher Jones, among others, now broken and the bigger retailers rethinking their strategies for responding to the growth in online retailing, the pressure on landlords to end the spiral of ever-increasing rents will continue to grow.

Premier and Myer appear to be taking similar stances in relation to the need to reverse the spiralling cost of their retail spaces, renegotiating deals or walking away from onerous rental agreements when their leases expire and shrinking the size of their store footprints to lower costs where possible. Most of the bigger retailers are also narrowing the range of products offered, particularly in the difficult electrical and white goods segments.

McInnes said it would be a “five to 50-year” change program to get landlords to recognise that the model of ever-increasing rents wasn’t sustainable long-term in the face of the rise and rise of e-tailing. The landlords have the luxury of a product for which demand still outstrips supply.

If all the major retailers follow suit, however, and retail conditions continue to remain depressed, it may not take up to half a century for landlords to recognise that the growth in online retailing doesn’t just threaten their tenants’ business models but also their own.

*This article first appeared on Business Spectator