From walking small strip malls and high streets this month, it was easy to see the impact of sluggish retail sales on small, independently owned retailers in far North Queensland, the Gold Coast, Sydney, Melbourne and Auckland.
The number of small retailers in Australia whose stores are now for lease or having closing down sales is an indication of just how tough they are doing it. There is little profit left over and it’s about to get worse. In addition to the lack of sales, small retailers’ cost base wasn’t helped with Fair Work Australia’s (FWA) announcement of the 2.9% hourly rate increase to come into effect as of July 1, 2012.
A retailer’s key costs, besides the things they make money on (their inventory), are staff and rent. It’s been tough to make any money in 2012 with shelf prices in decline and rental terms that may be three years old. So when one of your biggest costs has to go up you have no choice but to raise your prices to shoppers, or earn less money from your business. And, under Australian law, the employee costs for part-time staff have to go up when the FWA says so.
Whilst a retailer can choose to move to premises when the lease is up, or buy products from different suppliers or source new products, they have no choice but to raise hourly rates under the law.
The emotional and rational issue that most small retailers are struggling with is this.
The cost of products on the shelf has dropped across Australia. We have negative food, clothes, electronics and car prices. Suppliers are lowering their cost base by restructuring their businesses, reducing the number of employees and shutting down factories. Interest rates have been in decline for two years. And despite all of these things, the FWA believes that it is necessary to raise the salaries of hourly paid staff.
Don’t get me wrong, I am very happy when anybody receives a pay increase – when a company or government can afford it. I will never forget the first time it was explained to me that the last person in any business to get paid is the shareholder. When running a business, before the shareholders or owners receive anything, the company’s employees, the suppliers, the bank and the tax office get their share of the gross profits. Whatever is left over goes to the owners, assuming there is something left over. In government, the last person to benefit from a well run country is the tax payer. After all the government’s employees, suppliers and banks have been paid, the remaining surplus can be given back to tax payers as tax cuts, again assuming there is any left over.
It’s little wonder that many shop owners are getting out of business: Including the nice lady who recently arrived from Liverpool in the UK and is now shutting her gift shop to look for an hourly paid role. In the three years that she ran the business, she worked more than 60 hours a week (3,000 hours a year), yet she never earned the equivalent to an adult state award rate including super contributions of around $21 an hour. Sadly, the two staff who worked in her store, in two new jobs she created, will now compete with her for that one hourly paid role.
I am not sure how we overcome this issue, but our very highly paid FWA government employees may wish to don an apron, get behind a counter and better understand the realities of running small business and creating jobs. They may then be better able to balance all stakeholders’ needs.
As CROSSMARK CEO, 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.