Wednesday, 5 January 2011

The roar of the business dinosaur

“If you can outsource my job overseas, I can outsource my shopping there too” was one of the many angry online reactions to the latest phase of a campaign by some of Australia’s largest retailers to reduce GST thresholds on imported goods.

This campaign started last year with Harvey Norman co-founder Gerry Harvey and Myer CEO Bernie Brooks threatening to setup Chinese-based online stores to overcome the claimed tax and tariff disadvantages of Australian retailers.

At the time there was little sympathy for this view and the latest campaign from the retailers has attracted even less support from consumers quickly pointing out the main reason for going online are the poor sales experiences and high prices on offer to from Australia’s larger shopping chains.

In Australia and globally we’re seeing two contradictory trends happening – a move to commoditised, global markets driven mainly on price and niche markets based around convenience, locality and service – the Internet drives both of these to some extent but globalisation and changing customer behaviour have also played their part.

For the last decade the retailers have chosen to ignore these changes. Gerry Harvey proclaimed two years ago that online retailing was “a waste of time” while both Myer and David Jones shut down their online services when it became apparent their competitors had been seriously wounded by the dot com crash in 2001.

The demise of many online traders in the post-2001 tech wreck gave the major retailers nearly ten years breathing space to build their online presences and anticipate the return of e-commerce. Instead Harvey Norman stuck with their cheap credit strategy, Myer with their perpetual discounting model and David Jones with their aura of exclusivity.

In the meantime, the online traders learned their lessons and rebuilt their businesses. Amazon expanded from books to everything, online auction sites became popular and new business models like the “deal of the day” websites came along. At the same time, consumers and overseas retailers became relaxed about accepting payments and dispatching goods overseas.

Now the retailers realise they should have adapted while the going was good. That they are reduced to special pleading to the government indicates the bind they now find themselves.

Strangely, were the shopping magnates not complaining about GST but about many of the other problems faced by the retail sector, such as high wholesale costs and rents, they’d probably be a lot more sympathy.

Australian commercial rents are excessive as we see with Sydney’s Pitt Street Mall regularly being listed as having some of the most expensive shopping rents in the world and shopping centres in other cities, suburbs and regions aren’t far behind central Sydney. This all feeds into the cost structures of our retailers.

Wholesale markups by distributors and licensees are probably the biggest problem for Australian retailers competing against foreign online stores, that brand names are a third or a quarter of the price in Europe, Asia and North America illustrate just how rapacious the entire supply chain is.

Those supply chains too shouldn’t be overlooked, either. The ACCC and successive Federal governments have allowed our industries to consolidate into two major players; in supermarkets, breweries, logistics companies, agriculture and many other fields we’ve seen a lessening in competition and innovation, which has pushed up costs to the Australian consumer.

Hopefully the Productivity Commission inquiry will look at these aspects as well as the effects of the Internet on the retail sector.

Whatever the government discovers, it’s not going to get better for the retail industry: location aware services, recommendation engines and virtual reality equipped smartphones are already changing the travel and hospitality industries with the retail sector beginning to feel the early effects of these technologies.

All of this isn’t to say that the future of retail is dismal, there are many innovative stores, both new and established, using the Internet and providing the service, range and experience Australian customers deserve from their shops.

Just last month a Sydney butcher won an international design prize for their shop fit out, likewise many smaller retailers have identified where their strengths lie and how they can use them to grow their businesses in the face of global, price sensitive competition.

The “Fair Go for Retailers” alliance isn’t really about GST – it’s about middle-aged retailers clinging to a 1980s model of doing business while failing to understand how the economy, society and their markets are changing. Just their miscalculation in the public mood indicates how out of touch these folk are with their customers.

We could dismiss the complaints of the large retailers as being the first dying roars of business dinosaurs who failed to recognize and adapt to a changing market place, this would be a mistake as many other Australian industries are displaying the same willful ignorance of the new economy.

This should be the biggest concern for all Australians: that our employers and those our superannuation funds are investing in are ill-equipped to deal with the 21st Century. We need business leaders capable of recognizing and dealing with change before more industries follow the big retailers onto the edge of irrelevance.

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