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Nov 23, 2017

Amazon isn’t the only predator in the retail jungle

The arrival of Amazon is only the latest threat to retailing, which has been enduring structural change in the economy now for years.

Bernard Keane — Politics Editor

Bernard Keane

Politics Editor

Amazon jobs in Australia

Some future economic historian, or at least an honours student, will presumably write about what happened to Australian retailing between 2000 and, say, 2025, and chart how a lazy industry that exploited its customers’ distance from, and ignorance of, other markets to gouge them was brought down by globalisation. The arrival of Amazon — said to open today — will be a key milestone. But it’s only part of a much longer-term story that’s about more than the internet.

Australian retailing was for a time around 2009-10 Australia’s biggest employer, and still remains the second-biggest, with around 1.2 million full-time and part-time jobs. In recent years, however, it has been infected by a nasty mix of intensifying competition, technological change, weak consumer spending and the shift of spending away from retailing and managerial incompetence. 

Dick Smith stores collapsed amid a managerial bungle. Both Wesfarmers and Woolworths have had major stuff-ups with key retail chains. Myer is in desperate straits (and notice most reporters of the current Solomon Lew-Myer stoush do not go too deeply into the long history of Lew’s involvement with Myer, especially the controversial Yannon deals, which surfaced in the mid-1990s and eventually contributed to his departure from the board).

Then there’s David Jones, where sales are falling by 5%, faster than at Myer, and the small Sydney-based fashion chain, Specialty Fashion, with weak sales, falling to non existent profits, a collapsed share price and now plans to close 300 of its 1019 stores in the next two years to stay alive.

The cross-industry woes of retailers have caught the attention of the RBA. On Tuesday, night Reserve Bank Governor Philip Lowe laid out the sector’s issues:

“[G]lobally, increased competition is affecting pricing dynamics. Australian retailing provides a very good example of this. Competition from new entrants is putting pressure on margins and is forcing existing retailers to find ways to lower their cost structures. Technology is helping them to do this, including by automating processes and streamlining logistics. The result is lower prices.

“For some years now, the rate of increase in food prices has been unusually low. A large part of the story here is increased competition. The same story is playing out in other parts of retailing. Over recent times, the prices of many consumer goods — including clothing, furniture and household appliances — have been falling. Increased competition and changes in technology are driving down the prices of many of the things we buy. This is making for a tough environment for many in the retail industry, but for consumers, lower prices are good news.

“A question we are grappling with here is how much further this process has to run. It is difficult to know the answer, but our sense is that the impact of greater competition on consumer prices still has some way to go as both retailers and wholesalers adjust their business models. So this is likely to be a constraining factor on inflation for a while yet.”

That is not good news for retailers, shopping mall owners and employees. It means further pressures on wages and employment at a time when one of the problems facing the sector is lower demand due to low wages growth. It will mean weaker profit margins and dividends for shareholders (many of whom are super funds) for years to come and weaker share prices.

It’s also unclear how much further secular changes in how we spend money have to go. Retailers not just in Australia but in countries like the UK, the US and India have been hit by the shift to the “experience economy” whereby people are spending more on things they do (eat, holiday) and less on things they own. We’re also spending a lot more on food than we used to.

Between weak demand, the experience economy, the internet and dud management, Australian retailing has faced a perfect storm in recent years. The arrival of Amazon is just one more factor, albeit a big one, that’s now in the mix. Consumers have enjoyed the benefits of the storm and will do so again with Amazon, but it has left shareholders and retail workers to pick up the pieces. And for a sector that employs so many Australians — especially lower-income Australians who spent more of their income than wealthier people — that will put more downward pressure on wages.

 

 

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4 comments

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4 thoughts on “Amazon isn’t the only predator in the retail jungle

  1. Draco Houston

    Is there anything more insane than a conflict between what is good for employees and consumers? Meanwhile, the investors in these companies roll on just fine.

    1. AR

      An age old tactic, divide & rule. Consumers are employees are consumers as that great humanitarian, and all round good guy, Henry Ford twigged.
      Meanwhile we race to the bottom, only keeping our heads above the slurry coz we’re standing on the heads of others less ‘competitive’.

  2. klewso

    Now Woolies is blackmailing those companies that might be thinking of supplying this new competition – “do that and lose Woolies” (The Business tonight)?

  3. rumtytum

    I keep reading about lower prices but perhaps because I don’t buy a lot of consumer durables I can’t see that life has got less expensive. Meat has doubled in price in recent years and so have vegetables. Seafood prices have soared as Asian customers who can pay the price of a small car for a small abalone divert our crayfish, prawns and oysters to their own markets. Doyles at the Sydney Fish Market are selling oysters for $40 a dozen. $40! And at another outlet live “lobster” from the tank is $180 a kilo. I haven’t bought a TV set, a home computer, a rice cooker or a frig that sends emails recently and to me the cost of living has rocketed up.

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