Retail: five things to look out for in 2013
Anyone left standing after what small retailers have been through in recent years is a hardy operator indeed.
Some of the retail commentary in the business and trade media recently has been half-heartedly talking up the chances of a modest improvement next year. So if you're a small retailer in Australia, is 2013 a year to look forward to or does it promise more of the same?
One thing that will not change is that small retailers still hold three huge competitive trump cards. The first is being able to credibly connect with their local communities on a personalised basis, now aided by social media tools.
The second is their ability to provide a fresh and differentiated merchandising point of view on the category in which they operate.
The third is the proximity of owner to customer in an independent retail business. Small business is better placed to understand what its customers want and what they are saying. The message doesn't get lost somewhere in the food chain between a selling floor and an executive office as it tends to with a larger organisation.
These advantages still mean more than they ever did and every small retailer has to find a way of making them work for him or her.
The platform is certainly there for an improvement in sales growth next year. According to ABS statistics, independent retail has now suffered five consecutive years of sub-3 per cent growth, assuming this year ends on the same sales tempo it has experienced through the end of October.
Market share for small retailers over the period has slumped from 40 per cent to 36 per cent.
In some retail segments such as clothing, market share for independents had fallen so low that there have been some recent signs the bottom was reached and things were stabilising. This could be an early indication of “survivor bias” – anyone left standing after what small retailers have been through in recent years is a hardy operator indeed.
Here's a snapshot of what else to expect in 2013.
1. The arm wrestle between landlords and tenants over rental concessions will continue, with the former becoming more accommodating as the retail downturn enters its sixth year. More sophisticated landlords are now accepting that the retail industry's transformation is permanent. Downward rent resets at non-dominant shopping centres and retail strips are now increasingly common at lease expiration. Resets will not be large enough in many cases to meet retailers' wildest dreams but they might be enough to avert the need to move locations.
2. Sales growth at medium-sized and large shopping centres, which had previously been outpacing the industry, stalled in 2012. At the same time many specialty retail chains accepted that they have too many stores in marginal locations. They are not yet going all out to reduce their fleets but the pressure on them will grow in 2013. Couple that with marginal retailers going out of business and it adds up to an expansion of real estate opportunities in second-tier shopping centres and strips next year.
3. More international fashion chains will enter the Australian market and existing ones will expand at a measured pace, limited by suitable real estate. They will mainly take space in the dominant shopping centres and CBDs in each capital city, putting department stores and domestic fashion specialty chains at greatest risk for market share attrition. The sales numbers for international retailers are already getting big enough to have an impact, as recent data has revealed.
4. The pressure will mount on both department store chains to reduce their store counts materially, although concrete action on this is likely to be postponed beyond next year. Meanwhile, tighter embrace by consumers of e- and m-commerce is ready to start challenging the discount department store model as well, as it has overseas. The highly commoditised merchandise mix and lack of any wiggle room to add key categories make the discount department store a vulnerable format. This is not yet on the radar of many industry professionals who only want to be dealing with one ailing anchor format at once – but 2013 might be the year.
5. And speaking of e-commerce, it will continue to outpace the growth of store-based retail in 2013. However, the physical store is mounting a highly effective comeback and by the end of the year stale debates over the value of physical real estate should finally be put to rest. There will be three drivers for this: (1) use of the store as both a pick-up point and fulfilment centre for e-commerce orders; (2) the technology-led jazzing up of the in-store shopping experience; (3) the increasing acceptance and sophistication of “geofencing” technologies that reward shoppers for going to stores and that personalise shopping.
In sum, 2013 will be a year for stabilisation and should even give back a bit to long-suffering small retailers.
Michael Baker is principal of Baker Consulting and can be reached at email@example.com and www.mbaker-retail.com.