Can the big retailers change in time? Bartholomeusz

It may have taken awhile for Australian retailers to realise that the steep downturn in retail spending might have cyclical elements, but this overlays deep structural changes in the sector.

In much the same fashion that the advertising recession, triggered by the global financial crisis, has accelerated the structural shifts occurring within the media industry, retailers are being battered by the conservatism of consumers and the rapid growth in online retailing.

As discussed previously, that has real implications for shopping centre landlords long accustomed to imposing ever-increasing rents within ever-expanding retail space in the knowledge that there would also be a queue of aspiring retailers waiting to get into their centres.

Myer, David Jones, Just Group and other big retail chains used to have a simple growth strategy – just adding more stores. Belatedly, having recognised the irrationality of continually expanding an increasingly uncompetitive business model, they are now remaking those models and their strategies, cutting back on planned store openings, closing less profitable sites and trying to dictate terms to their landlords.

Equally, all the bigger retailers are rushing to develop online channels to create “bricks and clicks” offerings to customers.

Now, according to the Australian Financial Review last Friday, Myer and David Jones are taking the next obvious step and trying to get their suppliers to share some of the pain involved in their becoming more competitive with online retailers – and the suppliers themselves, given that global brands are now usually available online.

The big department store operators want major price reductions from their key international suppliers in order to narrow the price premia they sell products at relative to online retailers. They are also scouring the world for more competitive sources of supply.

The bricks and mortar retailers don’t necessarily have to match their online counterparts on price – consumers will pay a premium for the physical shopping experience and there is a social element to visiting the major retail centres and the department stores that online retailers can’t offer – but they have to be within range of their online competitors on price.

That means every significant input into their stores offerings will have to be reviewed – rent, space, product and labour – while the retailers beef up their own online presence.

There are plenty of examples of US and UK retailers that have built major online businesses alongside their traditional physical store networks, with some of them now becoming global brands.

That kind of ambition might be beyond a Myer or a David Jones, but their own brands are powerful in this market, which confers, for the moment, an advantage over the raft of fast-emerging e-tailers. Increasingly, they also have their own proprietary brands, which gives them the potential to compete on terms other than price.

It may have taken awhile for the big retailers to appreciate the online threat and to recognise that beneath the severe cyclical downturn in spending, fundamental changes to consumer behaviour were developing, but there is at least now a sense of urgency to their response.

Whether it is possible for them to change their psychology and business models significantly enough, or quickly enough, won’t become clear for some time.

The recognition that they do have a problem and that the changes occurring within the retail landscape aren’t temporary, however, had to occur before they could start developing responses to them.

This article first appeared on Business Spectator.