I have just returned from visiting our clients in Australia and New Zealand. The New Zealanders were still reeling from their loss against England in the Rugby semi-finals – so it was very easy to move the conversation swiftly on to retail, brands and market trends. Back now for a week, I am getting used to again the dark, wet and cold of the UK – and have had a chance to reflect on the state of consumer markets in ANZ. On this visit, I was particularly impressed by how buoyant, robust and dynamic Australian retail has become – particularly compared with other countries I have visited recently.
Of course, retail in Australia is not without its challenges – for one, retail rent prices are soaring. Sydney’s Pitt Street Mall is now the seventh most expensive retail precinct in the world at AUD$14,000 per square meter. Combined with minimum wages for retail now being close to AUD$20 per hour, the vast geographic distances, and the rising cost of living putting pressure on consumer spending, life for Australian retailers certainly isn’t easy. Indeed, in the last calendar year alone, 22 retailers either exited the market or entered voluntary administration, up 38% from 2017.
Despite these challenges, however, Australian retail is performing well overall. The sector has become hugely customer centric and forward looking – and is now, in many ways, best in class globally. Indeed, retail sales in Australia increased 2.4% in the last 12 months, and over the last 25 years growth has averaged 5.71% per year. So, what can we learn from Australian retail?
Firstly, the power of local brands, catering specifically to their population. Australia has created some truly exceptional local brands, which speak specifically to the aesthetic, style and needs of the Australian consumer. This is most obvious in apparel where brands like Cotton On (now with over 700 stores in Australia alone), Country Road, Peter Alexander, Kathmandu, Bonds, Sportscraft and Saba dominate the high streets and shopping malls. Indeed, the global apparel brands are conspicuous by their absence in Australia – giants like Zara and H&M have barely 30 stores between them, with their performance remaining mixed, and Gap exited the market altogether in 2018.
Historically, Australian apparel brands have of course been aided by a favourable local tariff regime – however, in recent years, it is the strength of the Australian apparel supply chains (helped by their geographic proximity to Asia), product design and in-store execution that has enabled brands to retain an edge over international competitors.
This excellent customer centricity and Australian product heritage also extends to grocery. Wandering around some of the new Coles and Woolworths stores, it’s clear that the grocers are capitalising on the Australian provenance of their fresh produce – with nearly all meat, poultry and dairy, together with fresh fruit and vegetables, coming from Australian suppliers. I was also struck by the grocers’ very bold product and format innovation. Incredible visual displays of fresh vegetables, freshly-ground nut butter made in store, wine tasting bars in liquor stores, and even entire sections of the fresh aisle dedicated to fresh ingredients for pizza, set Australian grocers apart. Historically, Australian grocery was definitely a ‘follower’ in food innovation – now, they are most certainly a leader.
Additionally, specialty retail in Australia continues to thrive – creating destination stores for specific demographics and purchase journeys. For example, in beauty, Mecca has become arguably one of the world’s best beauty retailers. With over 100 stores, Mecca curates some of the most exciting brands in global beauty (most of them exclusive to Mecca in Australia) in a dynamic retail environment. Created by Jo Horgan over 20 years ago, the brand excels in attracting, training and retaining the very best beauty consultants – and creating a shopping environment that draws in loyal customers time and time again.
Likewise, in electronics, JB Hi-Fi is an example of a distinctly Australian specialty retailer trading profitably. As the company’s largest home entertainment and electronics retailer, JB Hi-Fi operates over 300 stores across Australia and New Zealand, providing everything from 100” televisions to bike lights. With best-in-market buying terms, a low cost-operating model and great supplier relationships, the company is outperforming its peer group globally. Indeed, the JB in-store sales experience is second to none – with salespeople who are provided with a phenomenal amount of data to enable them to negotiate and close any sale. It is no wonder that they trade on an operating margin of 5.06% (higher that Dixons Carphone in the UK and Best Buy in the US).
“Additionally, specialty retail in Australia continues to thrive – creating destination stores for specific demographics and purchase journeys.”
The list of specialty retail success stories is long: Juvenile (Baby Bunting), Pets (Greencross / Pet Barn), Jewellery (Michael Hill and Pascoes), Furniture (Nick Scali), DIY (Bunnings – still probably the world’s best DIY chain, despite their failure in the UK) and Rebel (outdoor wear) to name but a few. It seems that, rightly, the Australian consumer remains keen to support and shop in stores with real domain and product expertise.
Traditional retail stores in the country also benefit from a relatively immature digital sector. Whilst online sales are growing in retail (in the case of some retailers, now over 20% of sales), as a channel overall, digital remains relatively small in Australia. There are definitely some interesting emerging pureplay digital businesses in Australia – The Iconic in apparel, and Catch.com (recently acquired by Wesfarmers) and Kogan.com in general merchandise – however, to date, cannibalisation of the retail store estate remains relatively low.
In the last few years, there has been some interesting international entrants into the Australian online market – notably Ocado’s joint venture with Coles and Amazon. However, their impact remains to be seen. Whilst Amazon may be projecting sales of $23bn in Australia within ten years, last year sales were under $300m – so there’s clearly a long way to go. As Australia’s tech sector continues to grow and become more sophisticated – and investing in the tech sector becomes a clear priority for the Australian government – we are sure digital innovation in the country will continue to increase.
“In a country with breath-taking national beauty, a myriad of outdoor activities and hundreds of city beaches, it’s impressive that companies like Scentre have become attractive destinations.”
Lastly, Australia is very good at making retail in general a ‘destination’. Take Scentre Group for example – the owner of the country’s 41 Westfield Shopping Centres. Their business is evolving beyond its initial offering of retail space to provide consumers with a variety of services and leisure facilities – in fact, 42% of Scentre’s business today is made up of services, and it is diversifying its portfolio beyond a shopping centre’s traditional offering of cafes and restaurants by opening ice rinks, cinemas, salons and spas within its sites. Across the country, non-retail spaces such as parks and playgrounds are also popping up within shopping centres. In a country with breath-taking national beauty, a myriad of outdoor activities and hundreds of city beaches, it’s impressive that companies like Scentre have become attractive destinations. In fact, Scentre Group even refers to its Westfield malls as ‘living centres’ not ‘shopping centres’. Scentre’s broad offering secures its place in the market by providing customers with a unique experience that can’t be emulated elsewhere, or online.
Australian retail isn’t perfect – but it certainly is impressive. Perhaps it is worth going to see and experience – although it is a very, very long way to go for some store visits!