Impact of the Retail Slump

· Retail

It is probably wrong to call it a slump.  It is really a long term decline.  As pointed out in the previous post it is a downturn that is likely to continue.  In this post we look at the implications of a shrinking retail segment.

Consolidation.  Circle the wagons.  As retail businesses come under more pressure some will amalgamate or be taken over.  We have a too high concentration already in Australia and it is likely to continue.  That is not to say amalgamation is going to save retail.  Efficiency is subject to the law of diminishing returns.  There is only so much efficiency that can be obtained by merged corporations before they become unwieldy.

Staff Reductions.  Obviously less retail means less jobs.  Retail is one of the main employment options for young people so they are probably going to be hurt more than older workers.  On the other hand some retailers will try and go the other way and reduce older workers.  They will believe that lots of young workers who work for less, and are basically ‘cannon fodder’ will reduce their costs.  This is likely to be a short term experiment as unless properly guided, the younger workers cannot properly service customers.

Commercial Property Prices.  Westfield and it’s like work on a supply and demand model.  If demand is high for retail, rental prices can be pushed up.  If demand drops for retail space, it is going to have an impact on the bottom line of the major shopping centre owners.  If you look at the office market, many CBD office blocks are being converted to residential because they cannot be filled.  Maybe we might see the same in shopping centres.

Different Retail Models.  There are bound to be retail models spring up that have not been seen yet.  For example, some retailers may not carry sale stock.  You go in, look at samples, then the order is placed online.  Imagine you want to buy a lawn mower.  You go to the lawn mower display shop, pick the model, and it is delivered to your door from a warehouse next day.

Limited Hours for Specialty Shops.  There are some retailers that will be so specialised, they only open for a certain period of the week.  It might only be on the weekend for example.  In our local area is a shop that sells all things Scottish.  It is conceivable that in the future, that sort of shop will only open one or two days a week.  If you want something outside their business hours, you order online.  In this way, a person could have two or three specialist retail shops and rotate between them.

A Factory out the Back.  Take Dell computers.  You go online and build your computer.  Take a base model and add or subtract components.  It arrives in about a week.  There are probably some areas of retail where you will be able to create a custom order and pick it up half an hour later.  Printing is one obvious area.  You could create a design for a wedding invite or letterhead and have it printed immediately.  We already have it to a certain extent with birthday cakes.  Go to your local bakery, tell them you want “Happy 21st Patrick” on the cake and they do it for you on the spot.

These are just a few of the likely impacts.  Retail will need to adapt and compete with online.  They cannot ignore the Internet.  It offers convenience, price advantage and an infinite range of goods.  Some creative thinking is needed to limit the downturn.