It’s been another busy week here at SmartCompany headquarters, but one story has been turning around in my mind all week – Cara Waters' report on new research from broking house Morgan Stanley, which showed that since the start of the GFC, small retailers had lost 300 basis points of market share to big retailers.
The top 500 retailers now control 39.5 per cent of the $252 billion, compared with 36.5 per cent at the start of the GFC four years ago. The report only looked at a few sectors, but the figures are stark.
Small retailers have just 20 per cent of the food market. In the clothing sector, small retailers’ share of the market has fallen a staggering 9 per cent to around 34 per cent. In homewares, small retailers’ share has fallen from around 42 per cent to around 36 per cent, although the pace of decline has eased in the last two years.
The Morgan Stanley report cites a number of good reasons for this decline. Large companies are much better placed to handle the pressure of price deflation and margin compression – caused partly by Australian retailers dropping their prices to compete with overseas retailers – put through strategies such as direct sourcing from offshore manufacturers, private label brands, supply chain improvements and national marketing campaigns.
To this, I would add the fact that – in some sectors at least, food in particular – retailers have been able to use their market power to force suppliers to lower prices. This is obviously something a smaller retailer working through a wholesaler cannot do.
Now, the fact small retailers lose market share to the big end of town in a downturn is probably not a surprise – looking back over the last two decades, there does seem to be a dip in the share of small retailers around the 2000 downturn too.
But what’s turning over in my head is whether the shift from small to big players might be happening in a number of sectors.
I’m starting to get the feeling that the economy is turning – it might not turn quickly, but the recent data on retail sales, lending, house prices and unemployment is certainly encouraging.
But if things start to pick up – and let’s hope they are – will we find that SMEs share of the various markets has fallen across the economy?
Certainly it’s happening in retail.
I don’t have the research to back this up, but you would assume that since the start of the GFC, smaller players in the financial services sector have lost ground.
Similarly, the crisis in the construction sector seems to have impacted smaller players, who are going under at a terrible rate in NSW particularly. Property, manufacturing, agribusiness and the food sector may be in similar situations.
As I said, the shift from small to big is probably cyclical. But we do want to ensure that small businesses are given every opportunity to bounce back.
I agree with Australian Retailers Association chief Russell Zimmerman, who said earlier this week that access to funding was a key driver of SME expansion, and as credit becomes more readily available we will see SMEs bounce back.
Again, that access to credit is partly cyclical. But if governments want the SME sector to do the heavy work of recovery, particularly as the mining boom cools, they should work to ensure access to credit is improved.