Standing up to a retail rip-off

Retail operators have been taken advantage of for too long, and it's time they learned to negotiate better rents, supply chains and labour management. But some may not have the skills to do this.

Peter Birtles, chief executive of Super Retail, is one of our best conventional retailers and he ticks all the right profit and turnover boxes in a tough period. And he is also honest, and that honesty has me worried about whether enough of Australia’s retail executives have the ability to handle the changes that are ahead. Retail was until recently a closed, highly-insulated industry. Now, suddenly, large segments are being exposed to the world.

Birtles chose to specialise in leisure goods retailing and his Super Retail group knows how to apply a series of well thought-out techniques to the carefully selected leisure businesses that they buy.

But in his KGB interview, Birtles reveals that overseas suppliers have been selling to Australia at higher prices than they sold to retailers in other countries; that Super Retail needs to makes its entire supply chain more efficient and, of course, review its rental arrangements.

We know from other major retail groups that a large number of retailers have to make the same changes from a far worse position than Birtles.

So let’s step back and look at our non-food retail practices over the last decade. Our retail executives were ripped off by overseas suppliers often because they could not be bothered dealing direct; they allowed the owners of stores to charge exorbitant rents escalating the value of these retail properties; and they used supply chains that were well under world’s best practice. When our retail executives went overseas and saw what overseas rivals were doing, what on earth were they thinking?

So these same retail executives must now go to suppliers and ask not to be ripped off; they have to learn how to negotiate rents and have to work out better supply chains.

And we have not mentioned the management of labour, which also needs to be improved – a task that the new industrial relations legislation makes more difficult.

The boards of some retail companies face the high likelihood that they do not have a team with the skills to do these things.

But there is more. Birtles believes that he can develop his Super Cheap auto components business, Ray’s, Rebel Sport and his other activities to a seamless combination of physical store and online retailing. He believes that in his industries he may have five years to do this.

Every major retailer faces the same task and they don’t have anything like five years to do it. They would be very lucky to have one year – two at the most. I would be surprised if online retailers will give Birtles the option of taking five years but Birtles knows his business much better than me.

Now let me finish with some good news. My daughter and her friends do most of their shopping online. They simply have not got the time to go to shopping centres and fear they will be ripped off, given the lower prices and wider choices online.

This week I saw she had purchased children’s clothing from Target online. To my untrained eye the prices looked low. Wesfarmers reported lower sales from Target but my message to Wesfarmers chief executive Richard Goyder is "don’t despair” – your Target people look like they have worked out how to sell online. Now they have to slash their rents and other costs, plus make other moves to make physical shopping more competitive and enticing. Long leases make this difficult.