I am quick to tell people that I have never made a dollar from being the first into anything. I have, however, made a comfortable living from picking trends and seeing their value and impact on the future in the early days of their cycle.
The Economist, possibly one of the greatest trend spotting publications in the world, ran a very long and beautifully researched article this month called “Sorry we’re closed”. It makes for very sobering reading around the future of physical retailing in the world’s wealthiest economy and the one in which all modern significant retailing models have been created — the supermarket, the department store, the shopping mall and most recently, online retailing. The last one is now killing the previous three.
Two key paragraphs in the article highlight the significant shift now taking place in this huge retail dependant market. It states:
“Last year about 4,000 shops (in the USA) closed their doors for good. In 2017 more than twice that number may shut, says Credit Suisse, a bank. Consumer confidence is strong and unemployment is at its lowest level in a decade, yet S&P Global Ratings expects retailing defaults this year to surpass those in 2009 when the economy was in the depths of a recession.
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The US retailing industry employs 15.9m people, accounting for 11 per cent, or 1 in 9 American jobs. The workforce has expanded by about 1 million since 2012, yet a reversal looks inevitable. In the four months since January the industry has shed 50,000 jobs, with more lay-offs sure to come. For shopping centres to match demand, 30 per cent of space should close permanently. In one particularly gloomy scenario, all retail property would shrink by as much. If staff dropped by the same proportion, 4.8 million Americans would be at risk of the sack — around half the number of American jobs lost during the financial crisis. Eventually, even more may be laid off, as remaining stores cut costs through automation.”
That’s pretty gloomy reading. The bright and growing side of retail remains online shopping and hospitality, just not the traditional buying of shoes, clothes, and home durables — the staples of non-grocery retailing.
So, what does this mean for Australia? Well the Australian Government Department of Employment website says:
“More than 1.1 million Australians are employed as sales workers, or around 10 per cent, or 1 in 10 of the workforce. 31 per cent of regional employment growth over the five years to November 2015 was below average (3.2 per cent compared with the all occupations growth of 6.4 per cent) but 34,700 new sales jobs were created. Strong employment growth is projected, though, over the five years to November 2020 (up by 9.3 percent or 104,900), with almost 90,000 new jobs expected for the subgroup sales assistants and salespersons.”
The phrase “projected to increase by 9.3 per cent over the next 5 years” is written in large text on the site. Based on what is happening in the US, that appears very unlikely. If our change in retail buying habits are just in line with the US and our immigration slows, we may well be in for a more dramatic shedding of retail industry jobs. If, as is more likely, we throw our arms around Amazon’s online retailing model, that drop in retail jobs will be even more marked.
So what? Well it’s probably best not to own retail property and best to invest in commercial warehousing and logistics real estate. Same with ownership of department store retail shares. The US stock market is awash with the woes of Sears, Macy’s and now retailing legend Nordstrom. In the grocery sector the jury is still firmly out. Walmart is growing its volumes of online at a fast pace, albeit off a very low base compared to Amazon. Convenience with less choice but better price and service still appears strong; think Aldi, Lidl and Trader Joes.
As we pick our way through these leading indicators over the coming three years, we would be unwise to ignore the learning from our cousin over the Pacific.