Why Australia’s retail industry is drowning

The Australian retail industry has taken a hit over the last few years, with big names like Jeanswest, Colette by Colette Hayman, Harris Scarfe and EB Games entering voluntary administration in the the last 12 months alone.

Jeanswest cited “tough market conditions” for its poor performance, and Colette by Colette Hayman cited a “weak retail environment”.

And according to Ibis World’s senior industry analyst, Tom Youl, the stores aren’t just playing the blame game; it really is hard out there.

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“Weakness in the Australian economy, in particular, deteriorating conditions for households, has been placing pressure on the retail sector,” Youl told Yahoo Finance.

“Several years of declining discretionary incomes have placed significant strain on the budgets of many Australians.

“Weak wage growth has been a contributing factor to decreasing discretionary incomes, but rising household costs have also played a part.”

And the rise of online shopping is also a huge factor.

“The bad news for store-based retailers is online players are going to continue to grab a larger share of the pie,” Youl added.

Is that really the end of the story?

While some are dubbing this the ‘retail apocalypse’, Monash University experts believe it’s another phenomenon entirely.

“Customers are seizing control of the retail landscape and those retailers not up to the changes proposed by their loyal shoppers will be left behind,” Eloise Zoppos, Monash Business School’s consumer expert said.

According to Zoppos, there are still a number of Aussie retailers thriving in the current market: Super Retail Group, which owns Rebel Sport and Hype Dc, and Cotton On, to name a few.

“Friendly and knowledgeable staff, and eye-catching and easy-to-navigate store designs, can help create memorable experiences that customers can share with their friends and family after their purchase,” Zoppos said.

And while online shopping is on the rise, recent figures show Aussies actually buck that trend, with more than 70 per cent of respondents to Monash’s 2019 consumer survey revealing they prefer to shop in bricks-and-mortar.

“The power is back in the hands of consumers,” Zoppos said.

“The evidence shows Australians prefer to shop in physical stores and want to support businesses of all shapes and sizes.

“Retailers can’t afford to take this support for granted and must continue to provide a great in-store experience for consumers.”

JB HI-FI a clear winner

While many retailers are struggling, JB HI-FI recorded its strongest half-year profit to date, with revenues up 3.9 per cent on 2019 to $4 billion.

Retail expert Amanda Stevens told Yahoo Finance that the electronics store’s surprising results aren’t that surprising at all given their customer service model.

“If you've been into JB Hi-Fi lately, it's a fast-moving big box retailer, but they really have knowledgeable staff, which is always a sigh of relief for consumers versus other retailers you go into, and you could spend up to 15 minutes finding someone to give your money to,” she said.

And it’s something JB HI-FI’s group chief executive officer Richard Murray agrees with.

“I would like to thank over 12,000 team members across Australia and New Zealand whose hard work and continued focus on our customers delivered this result,” Murray said.

What’s in store for 2020?

Youl said more brands were likely to shut down over 2020.

“Although it’s hard to say which companies exactly, mid-market brands have represented the majority of recent market exits, and this trend is expected to continue,” he said.

One such retailer could be David Jones, with the department store flagging floor space reductions over the coming years.

"We've got to get less stores and less space in the lower demographic areas, we've got to exit any marginal or undesirable leases," said Woolworths chief executive Ian Moir in 2019.

A 20 per cent reduction in floor space by 2026, according to Moir, was the immediate aim for David Jones.

While the picture is bleak, retailers could take a leaf out of JB HI-FI’s book, Youl said.

“Many retailers have been thriving in recent years. A sound brand strategy and market position are always vital to success, but these factors become of paramount importance over periods of weak growth, as we have been experiencing.”

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