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Published 01 July 2013 08:16, Updated 02 July 2013 08:59
High street shopping has been hit hard by the internet, but shopping centres should fare better.
Retailing has undergone several revolutions in its history of more than two centuries, and is experiencing its most dramatic one right now with the online revolution.
The emergence of specialists came in the 1820s. The move to chain stores emerged in the 1880s; and the move to self-service, mega-chains and franchising in the 1960s. The usurping of the corner grocer by supermarkets took less than a decade, aided by a 10-15 per cent price cut, as did the giant hardware outlets transition in the 1990s. A tornado effect.
For most of its history, the retail industry has fluctuated between 5 to 10 per cent of the nation’s economy (GDP). It is now 4.4 per cent and unlikely to ever go above 5 per cent this century. The reasons are threefold: cheaper goods (aided by imports); near-saturation of consumption (on a per capita basis); and productivity and efficiency in the industry itself. The chart shows how the industry’s growth has been unable to match GDP growth through virtually all of this fourth cycle that emerged with the ’60s revolution.
In what appears to be a new fifth cycle, the industry is again experiencing dramatic system changes as it did in the fourth. This time it is the online revolution, where prices are falling by huge margins – up to 50 per cent or more in some cases – by obviating the costs associated with retail stores (land, buildings, utilities and labour). Source product prices are falling with even-cheaper imports from Asia. The industry may well recede to 3 per cent or less of GDP by 2050.
Indeed, some of the 38 classes of retail stores that make up the industry’s revenue of more than $400 billion in 2013 are likely to disappear in their physical form. They include music and video game outlets, department stores, and newsagents and booksellers.
High-street shopping is already resembling a blitzkrieg aftermath in many suburbs. They are affected by many challenges: critical mass (most being sub-optimal in size); parking difficulties for customers; and the electronic online change. Shopping centres could be expected to fare better, given their modern role as a “village centre” and their ability to switch their space to other non-retail use (entertainment, professional services, health services and so on). But even then, they may well struggle to maintain the rental prices they have commanded for so long, to the chagrin of the stand-alone tenants.
So what are we buying? Automotive products including cars and petrol account for 30.1 per cent of consumer retail goods, while food accounts for 35.1 per cent. Personal and household services make up the rest (32.7 per cent) but this is very fragmented: some 26 of the 38 different sub sectors of retail fall into the categories of “other personal and household goods” and “other automotive products” – and they still account for less than 1 per cent of revenue. The rationalisation of the smaller classes will be fierce in the decade ahead.
Already online/direct shopping has captured 7 per cent of the sales in 2013, and 10 per cent of retailing excluding motor vehicle-related activities. Other nations, such as Britain and Germany, are ahead of us in this revolution; but given Australia’s appetite for technology in other areas (smart mobiles, smart TVs, motor vehicle electronics/accessories and so on), we will remain among the front-runners of this revolution. It is interesting to realise that the competition for our traditional department stores has already emerged via eBay and Amazon with their multi-departmental offerings.
It’s the quick and the dead, so to speak, in the years and decades ahead.