Economy

Jun 12, 2014

Retail, labour, and getting what you wish for

The state of retail isn't as bad as business likes to make out -- and any fault lies with governments and poor management as much as high labour costs, Glenn Dyer and Bernard Keane write.

Judging by the continuing complaints from business and its media mouthpieces, Australian retailers are doing it tough and need help from government to fight nasty unions, workers who foolishly value their weekends, internet competition and evil invaders from offshore. And once he’d got his feet under the desk, Treasurer Joe Hockey asked the Productivity Commission in April to go off and look at the cost structure of retail and how it fared against foreign competition. The PC last looked at retail in 2011; since then, foreign competition has risen along with the dollar, and consumer demand has continued to change -- most significantly in the shift to food consumption. Last week the commission produced an interim report. Unfortunately for retailers, the PC didn’t quite get the message about the required narrative. The underlying tone in the report is that for all the whingeing from industry, it remains very profitable, productive and attractive for offshore rivals. The commission points out that "in recent years, prices of labour, rent and energy have risen more than the retail price index. As a relatively labour intensive sector, retail is particularly exposed to increases in labour costs."  But that’s not the major problem confronting the industry -- it’s government. The very start of the report states bluntly:
"Costs of doing business in the retail sector are inflated by unnecessary regulations, and governments' progress to address costly anticompetitive provisions has generally been slow and patchy." “The costs of doing retail business -- the subject of this study -- are largely driven by geography, markets and commercial decisions. However, there are some costs that are heavily influenced by government regulations such as those affecting trading hours, the transport and delivery of goods, utility charges, product labelling and food safety.”
Somehow you can't see retailers being game to push for lower food safety standards. But strangely, the PC fails to echo retailers’ lamentation about labour. In fact productivity in retailing -- both labour and so-called multi-factor productivity -- are very solid:
"Labour productivity growth in retail trade from 1993-94 to 2012-13 has been comparable to that of the 12-industry market sector (2.5 per cent in retail compared to 2.4 per cent in the 12-industry market sector)… and although retail multifactor productivity growth has slowed, it is strong relative to the market sector as a whole … retail trade MFP growth has been higher than the 12-industry market sector for most periods since 1993-94 and has, on average been double the growth rate of the market sector as a whole.”
That’s one reason why, despite all the wailing from the sector, in the last 20 years, the industry's net profit margins have remained fairly stable at just under 6%. And that's despite the slowing in sales growth since the financial crisis, with growth in retail trade turnover averaging 2.2% per year compared to 4.8% in the five years before the GFC ...

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3 comments

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3 thoughts on “Retail, labour, and getting what you wish for

  1. klewso

    So they’ll ignore this one?

  2. StefanL

    Imagine how low the demand for fancy stuff would be if we were on Gina’s preferred wage of $2 per day.

  3. AR

    A body-form tee-shirt with epulets?

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