By Kate Hill
Partner Deloitte Private
ANYONE who braved the packed Westfield at Parramatta the week before or the week immediately after Christmas won’t be surprised to know that Australia is one of the most attractive new markets for overseas retailers, looking for growth.
Whilst forecast retail growth rates in Australia of 2.9% for 2012-13 are relatively modest, they are still higher than many growth rates in North America and Europe.
With the strengthening Australian dollar and the increasing use of online as a medium for shopping, many Australians have taken to purchasing products from overseas. This has awakened global retailers to demand for their products from Australian consumers.
It has also given them vital information on what Australian consumers want which is a significant benefit when setting up business in Australia. According to a recent global retail study*, the largest players who are already here in Australia such as Costco, IKEA and Zara are looking to expand their local footprint by opening new stores in 2013.
Combine this with the new entrants expected to arrive shortly, such as Pottery Barn, Uniqlo, Hennes & Mauritz (H&M) and Abercrombie & Fitch and our shopping centres and high streets are becoming an even more competitive retail battleground.
In terms of Western Sydney this may see a number of new entrants to the local market. Even if they don’t locate a store in Western Sydney you can be assured that there will be increased demand for our local logistics and transport operators who are critical to moving products between distribution warehouses and stores.
Retailers live and die by the effectiveness of their supply chain, whether it’s getting fresh produce to the shelves or ensuring new fashion lines are in the store quicker than the competition.
In terms of new opportunities for local entrepreneurs and investors, there may also be franchising and joint venture opportunities with those overseas companies looking to enter or expand into the retail market.
Increased competition will undoubtedly boost consumer choice. I for one can’t wait to check out some of the big fashion and homeware brands that will soon be available locally.
Meanwhile many local retailers may fear for their market share as they face a challenge from slick international operators. However, don’t forget that Western Sydney retailers still have a number of advantages including a greater knowledge of the local market, customers and seasons; an established customer base; and prime store locations.
Being price competitive will always be an important part of a retailer’s strategy, but it can only have limited success against a retailer with a global presence and potential greater economies of scale.
Therefore it will be vital to differentiate and adapt, be it through product or customer innovation, branding, sales channels, speed to market or customer experience.
From my perspective the top issues for Western Sydney retailers to consider in 2013 include:
1. Strong Australian dollar - Effective management of the sustained A$ means lower product costs for some but increased overseas competition (from both online and multinationals) driving down sales and margin for others.
2. Create an experience - in-store consumer experiences requires good products and good people.
3. Value focused consumers – means pressure on margins, focus on cost structures and online strategy.
4. Digital strategies – are required to engage with consumers and respond to a changing business environment.
5. Cash is king - financial, cash flow and working capital management remain critical to making timely and informed decisions – i.e. on supply chain, inventory investment, landlord negotiations, logistics and warehousing decisions; as well as how best to respond to new entrants.
Those who get the above right are likely to prosper in the retail market over the next 12 months. However, those who don’t may not be around next Christmas to enjoy another busy festive season, only time will tell!
Kate Hill is a partner at Deloitte Private, Western Sydney. Contact her at 02 9840 7049 or email khill@deloitte.com.au
