Thanks to the Internet, Australia's largest retailers are being exposed to even larger competitors with bigger buying power. Maybe it'll be the wake-up call to jolt them out of a world of cosy deals and face the rest of the world head on.
Let's compare two brands. First, Marks and Spencer --- the only reason millions of poms refuse to leave their dingy isle. They have faced immense competition in the high street (yes, people still stroll the streets over there, how quaint) and from out-of-town shopping centres. Despite this, they've managed to increase their UK retail sales by 36 percent since 2000 (to Â£8,641 million this last year).
The closest comparison in Australia is probably David Jones, although it's not such a national institution. Thanks to our preference to shop in big air-conditioned shopping centres (that look like the set of Logan's Run), David Jones faces less competition, which has undoubtedly helped it to grow a tad faster than M&S --- up 40 percent over the same period, with $2,053 million in revenue last year and 12 percent EBIT (compared to 9.5 percent for M&S).
Yet Marks and Spencer seems to be working harder for its money. They are across food, clothing and household goods, with high street stores and factory outlets, and a lot of what they sell is their own brand. More importantly they have embraced online and other direct channels. M&S Direct made Â£413 million in sales last year --- 27 percent up on the previous year, despite the basket-case economy.
David Jones sells online, but it's not making enough of a splash to even warrant a mention in its latest annual report. Mind you, when I perused the books secton I found just 29 books for sale, several of which are out of stock. You'd have to wonder why they bother!
So here's a big retailer paying lip-service to online, this powerful new channel that big retailers overseas have jumped on quickly. Yet, the last decade seems to indicate that department stores in Australia have little to be complacent about. According to data from the ABS, department store sales have increased just 8 percent in the last ten years, a quarter the growth rate of the consumer price index (CPI).
Gerry Harvey and Solomon Lew missed the point when they argued for a lower GST threshold on imported goods. As I discussed last year, prices here are so out of kilter with the rest of the world that 10 percent more won't make a difference. And it's not just the current exchange rate. Over the decade the Aussie dollar has bounced about all over the place, but department store sales have risen well below CPI or other specialist retail sales.
Today people want choice --- that means a good price, but also a broad range. Why buy a book from David Jones when you can get it from the Book Repository?
Perhaps this year Aussie retailers will start building real stores online, with all products sold in all shapes and sizes. The problem is, of course, they'll need to price them to compete in the international marketplace --- how can they do that without reducing prices in-store? One way is to adopt the M&S approach of offering more own-brand goods, so there is no direct price comparison.
The other way is to push Frank Lowy for lower retail rents. After all, if online is having such an impact, the need to pay high rents to be in a Westfield Shopping Town will slowly becomes less essential. Instead you can move more of your business online --- perhaps into Westfield's new virtual online store. Yes, there is one, although disappointingly it doesn't play that innocuous piped music as you browse.
But Westfield's move into online is symptomatic of the Aussie retail approach to eCommerce. The web has provided ways of reducing the supply chain, but here the old school players all want to keep their cut by doing things the way they always have. No wonder we pay too much.
- A High Dollar is All Pain, No Gain - how a strong dollar is not reflected in lower retail prices
- Online Sales Jump Is Not All Imports | BTalk - how a wider range of products is what sells
- A Dose of Virtual Reality | BTalk - could this be the shopping mall of the future?
- Sell Online & Through the LIne | BTalk - number 28 in our Top 40 business tips series
- Exchange rates - http://www.x-rates.com
- Consumer Price Index (CPI) - ABS 6401
- Retail Trade data - ABS 8501.0
Read more By The Numbers articles by Phil Dobbie here.