I didn’t spend my week in stores, but on the phone to retailers, distributors, sales agents and brand owners taking the temperature of business in and around retail.
It was a mixed bag of results across the canvas of Australian businesses that feed our shopping needs and wants, which is too long to share in one 500-word blog. So this is part one.
At a retailer dinner that I recently spoke at with my MD Australia, Polly Yule, I used the phrase “systemic change” to describe what is happening across Australian retail and wholesale trade.
Peter Senge defines systemic change in his education sector book, The Fifth Discipline, as “change that occurs in all aspects and levels of the educational process and that affects all of the people included in this process – students, teachers, parents, administrators, and community members.”
“It is a dynamic process that requires constant communication and evaluation and impacts curricula, instruction, assessment, and professional development.”
In the shopping world, systemic change is fundamental change that affects all stakeholders in the sector: from factories and brand owners offshore; through sales, marketing and distribution in country; to buying offices, transferring goods onto the shop floor and into the baskets and hands of shoppers.
It is a dynamic process that is fed by omni-channel communication, fast-paced structural change and transparent pricing. In Australia, we are going through systemic change in retailing and wholesaling that has been two decades in the making.
Regardless of where we work, we are all shoppers and the price of virtually everything we buy in Australia has been in decline for almost three years. Our cost of living has been falling. It needed to because the global slowdown, problems in Europe, and global transparency in brand pricing has delivered very few, if any, salary increases in the business sector.
This has led to a lower tax take by government and reduced salary increases in our public and government sectors too. The not-for-profit sector, referred to by Geoff Morgan as “the third sector”, is sandwiched between business and public service, so it has felt the same pressures.
This has made us all more frugal and retailers have reacted by not accepting price increases, by growing retail-own brands, and directly importing products where better prices can be secured. In fact, price decreases are the order of the day. And when prices stall or decrease, manufacturers and retailers alike are left with only two options, which are usually in tandem: true volume growth through innovation or productivity through focusing on the core of the business.
Whilst this is going on in retail, all major international manufacturers are quietly bringing their cost base in line with the new reality of lower global pricing and sourcing.
To be clear, the number of middle and senior staff being employed by the largest consumer packaged goods brands is in decline as Australia comes into line with the wholesale structures evident in the rest of the OECD. That is, a higher proportion of distributors, direct import, and a lower proportion of directly owned and operated subsidiaries.
In New Zealand, 80% of items purchased in a store are imported and sold by a distributor, not by a trading subsidiary. In the UK and most of the EU it’s around 50%, though up to 80% on the Iberian Peninsula. In the US, it’s about 50%, however, 80% of the retail environment is managed and serviced by distributors and brokers. In Australia, we have been unique as almost 70% of items bought at retail prices are sold via the trading subsidiary of a brand owner. This has been changing for the past 18 months.
This is not a bad thing, as many of those jobs are naturally being absorbed by employees beginning a second career in the distribution trade as opposed to the brand owners’ subsidiaries. Knowledge, ability, and experience are needed to grow brands, irrespective of where in the supply chain we work.
It’s just one of the systemic changes we are managing as our economy begins to look more like the rest of the world.
As CEO of CROSSMARK, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia and across the world. His international career in sales and marketing has seen him responsible for businesses in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands.
CROSSMARK Asia Pacific is Australasia’s largest provider of retail marketing services, consulting to and servicing some of Australasia’s biggest retailers and manufacturers.