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Leon Gettler
Business Journalist

Leon Gettler is an independent journalist, author and public speaker

Leon Gettler
Business Journalist

Leon Gettler is an independent journalist, author and public speaker

Figures show that retailers could be in for a rocky ride for the next six months. But being adaptive and online can help manage a difficult period.

In the months ahead, retailers be will affected by two primary forces: Cyclical forces – things like interest rates, consumer confidence, labour conditions and currency fluctuations – as well as the continuing impact of structural changes – such as online shopping and digitisation.

Andrew Gorecki, managing director of Retail Directions, says business can survive cyclical changes provided they are well run. But structural changes can be challenging for good businesses if they aren’t adaptive.

“Any business and any society are affected by two kinds of change: Structural and cyclical,’’ he says.  “Retailers too, are subjected to these two driving forces. 

“[Retailers] need to modify their business formulas to align them with the structural changes, and make sure their businesses are strong to withstand cyclical wobbles."

So the question is, what’s cyclical and what’s structural in the current retail market place?

A couple walks through a store holding shopping bags

Structural

  1. Growing labour costs
  2. Growing cost of stock coming from China
  3. Shift of some merchandise sales to online (e.g. books, music)
  4. Web searches as a prelude to a brick and mortar purchase becoming the norm. This involves people researching the products before going out to buy them

Cyclical

  1. Increased labour laws and regulations, that are predicted to be eased at some stage
  2. Major issues with technology, as omni-channel retail model continues to push innovation in the traditional supply chain

Assessing the changes

Cyclical changes are easier to survive but can be challenging to manage and harder to predict. For example, small businesses were winners in the Federal Budget, with changes to depreciation expected to boost capital investment. And yet capital investment remains low, and the latest Dun & Bradstreet Business Expectations Index (a measurement of business’ broad expectations across sales, profits, employment and investments) has dropped to 13.4 points, down from 20.7 points in the previous quarter and 19.5 points at the same time last year.

But consumer confidence is another story.

Retail sales were flat in April, in defiance of analyst expectations of a small rise. The lack of movement was broadly based across food and department stores. The only sectors experiencing growth were cafes, restaurants, takeaways and clothing.

According to the economics team at ANZ, these figures combined with GDP data shows that overall household spending remains soft. Slow wage growth is presenting a formidable headwind to the household sector and that will hinder retail sales.

At the same time, changes like the Fair Work’s Commission’s decision to raise the minimum wage by $16 to $656.90 per week, or $17.29 per hour, will affect retailers, as many are reliant on a minimum wage workforce. There is a feeling in the market that this could have a significant impact, especially when consumer confidence and growth is low. 

It means many will have to adjust their business models. 

Managing structural changes

Gorecki says structural changes are more challenging to manage but they can be done. That requires a change in the way they operate.

The big change he says, is people these days check out the item before buying it in a store. That doesn’t necessarily mean they will buy it online.

“If I’m buying furniture, I’m not going to buy it online,’’ he says. “But I will investigate it first to see the prices and what’s available.”

At the minimum, he says, it means retailers need to have a good presence online.

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