Debt is good for Australian retailers

As we run into the election, there’s a huge amount of economic data being analysed and shared with the voting public.

We’ve got too much debt but we have no productivity growth, so our borrowing must be in the wrong places. We have very low interest rates, so have correspondingly very high asset prices – especially residential property. That’s where our borrowing is going. But it needs to be going into retail.

The two key metrics that are of interest to retailers are how low our rate of wage increases are and how low inflation is. So our incomes aren’t rising, but nor are prices for the things we consume: food, clothes, cars and motorbikes, boats and jet skis. In fact, prices are falling. A good place to be, I would humbly suggest.

I wrote several years ago that one of the key things that would drive productivity in our economy was our shelf prices at retail coming in to line with the US and Europe. This would take pressure off wages.

Every time I travelled through the US, Asia and Europe I was amazed at how cheap everything is. Hotel rooms, grog, meals, clothes, cars and motorbikes. And over the past three years, whilst our currency has been tanking against the US dollar, the two things that point to us aligning with the world have become very obvious. Our prices have fallen and a large number of US and European retailers have entered our market with prices lower than our traditional Australian retailers.

And they haven’t come to our market for the colour of our eyes. They’ve come because they believe they can make money here. And it would appear they are, as they keep opening new stores and hiring staff. And when they hire staff they, like Aldi, pay award rates or more and provide full time or permanent part time roles. In retail, the permanent part time role is gold. You have hours that suit you that don’t shift around too much. So you have loyal team members, with constant income who are knowledgeable of your systems and the things you sell. So they give good service to shoppers. Shopping guru Paco Underhill refers to this as “giving good aisle”.

Now, as an aside, I have to say I am still saddened by the stories of retail store staff being underpaid by well-known Australian retailers. Whether in store, collecting trolleys outside or in the warehouse. I truly do not understand the value set of a retailer, from boardroom to management team that says: “We have a cost problem so we’ll under pay our staff.” Especially whilst new competitors are saying: “We want staff to create the best shopper experience they can, so we’ll pay our staff well and invest in technology to create a lower cost base.”

So back to our election and the economic data. Retail was the biggest employer of people in Australia during the mining boom, and remains the biggest employer of people in our construction boom. It never leaves the top of the employment list in the OECD.

But it’s the best of times and the worst of times in retail in Australasia. International retailers are using low interest rates to invest in capital and software to build brand new, more productive and shopper friendly retail models in Australia. And most Australian retailers aren’t.

After the election, we’ll still visit stores and work in stores. But if we don’t change our own mindset we’ll be shopping in and working for international retailers more and more.

Kevin Moore is a retail expert and the chairman of Crossmark Asia Pacific Holdings and Mirador Retail Technology. He is also the founder of TheRoadToRetail.

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