Australia faces a humiliating retail calamity

I have just had the benefit of some detailed discussions with one or two top Australian retailers and I have concluded that the Australian community is ill prepared for what is going to happen to large chunks of the non-food retail sector in the next two years.

Not only will the value of investments in strip and many shopping centres fall – affecting the fortunes of many retirees – but also employment will be significantly reduced.

Both these changes will take place irrespective of what happens in the economy. Retailing is our second largest employer taking almost 11 per cent of the work force.

In simple terms the looming fall of bricks and mortar non-food retailing can be blamed on the internet, but what is about to happen in Australia is unique in the world. We have shot ourselves in the foot.

Some five year ago during the Rudd-Gillard government, it was decided to introduce national awards replacing a myriad of state awards. Unfortunately in food and non-food retailing WA and South Australia had penalty rates that were much higher than the rest of the country. These higher rates were adopted in the national scheme but their introduction would be phased in over the four years to June 30 2014 (the hospitality shift premiums did not rise to the same extent).

Many retailers have been a little slow in the phasing in. Groups like Woolworths, Coles, David Jones and Kmart currently pay a casual loading of around 20 per cent. Myer looks to be around 23 per cent. All retailers must lift their casual rate to 25 per cent on July 1 – just over seven months away. In a super market that means that the casual hourly rate rises from about $24 to $25 an hour and a little less in department stores.

The Sunday penalty rate becomes 200 per cent on July 1 2014. Woolworths, Coles, David Jones and Kmart currently pay around 150 per cent so Sunday trading shift allowances are set to rise by one third in many stores. Myer looks to be around 180 per cent so their increase will be less.

Saturday and Sunday are the two biggest trading days for most stores.

When these higher wage rates were decided Julia Gillard and Kevin Rudd assumed that the retailers would simply pass them in higher prices – as they had done for generations past.

What Gillard and Rudd did not understand was that by July 2014 conventional shops would have a new competitor – the internet.

Internet shopping in all sectors is rising at rapid rate albeit from small beginnings. The extra wages in conventional shops will give internet retailing an extra cost advantage. Australian retailers were slow to grasp the internet but are now deep into it. Westfield has set up internet malls for its small retailers.

Conventional retailers will have to pass on the higher wage costs or lower staff levels, which affects service levels unless better productivity methods are embraced. Competition will prevent them adjusting the internet pricing. And as internet retailing gains scale it will be possible to vastly improve delivery times until the overseas benchmark of same day delivery is reached.

Most retailers currently sell less than 5 per cent of their goods on the internet. The wage hikes mean it is going to rise to between 10 and 20 per cent much faster than anyone thought possible even a year ago.

That means that less space will be required in bricks and mortar stores. The very top centres like Chadstone and Bondi will, at least initially, be immune and may even benefit.

But other locations will begin to compete on rent levels and many will have empty stores, which will accelerate the decline of the centre.

A 5 per cent fall in retail employment brings it on par with the declines in direct employment that the government is looking at in mining investment and motor with the public service not far behind.

Accordingly my 300,000 job losses by the next election understates the position – we are conservatively looking at over 400,000 assuming the ‘chardonnay rationalists’ get their way and shut down the motor industry by 2016 at the same time as the mining investment and retail declines. (Tony Abbott's 300,000 new enemies, November 11). 

Tony Abbott and his people came to power with the best of intentions and have some first class policies. But I don’t think they fully understand what is ahead of them. Nor do those who have invested heavily in small shopping facilities.

Notice a decline in service in your suburban café? The best workers are leaving hospitality for retail because the pay is better.