lower-dollar-blog

When a currency experiences a major fluctuation there’s usually a ‘silent period’ before the economic consequences filter through. Recently published statistics by Citi Research indicate that the Australian dollar’s recent decline in value, which started in September 2014, is now becoming visible in the retail market.


Generally, price levels are yet to increase due to the higher cost of imports, but Citi Research already reports nine per cent growth in hotel, café and restaurant turnover for the December 2014 quarter. This indicates that Australia has become a more affordable, and therefore attractive, destination – for both international and local holidaymakers.

Unfortunately, the lower dollar partially offsets the benefit at the bowser due to the global decline in the price of oil. But, we’re still left with more money in our pocket to spend.

Five per cent growth in the hardware and furnishing areas is another interesting indicator, reflecting the strong housing market.

Necessities (groceries) is one area that stayed flat, while there was a slight decline in apparel. Interestingly, levels of savings have dropped on average a telling sign that people are more willing to splash their cash.

In the supermarket vertical, Costco and Aldi are unsurprisingly starting to acquire a material share – consistent with their results in any market they enter. While the incumbents, Coles and Woolworths, are feeling the pinch, the independents are getting hit the hardest. In earlier musings, I predicted that the independent segment will be practically wiped out by 2020, and, unfortunately, I think that I might be proven right.

The hardware market appears to be heading in the same direction: gradual extinction of the independents. Bunnings and Masters continue to expand relentlessly to the detriment of their independent competitors, and this trend will continue.

It’s a hard slog for electronics retailers, which is reflected in structural problems in their product range. In spite of higher import prices, the unit cost of gadgets is coming down. Unless sales volumes increase through the introduction of new types of consumer electronics (possibly Ultra HD TVs?), their net takings will remain tight.

It’s likely that the dollar will remain at this new level for the time being, but there are never any guarantees when it comes to foreign exchange. So, if I were a retailer I would avoid speculating on currencies. I would instead take a hedged position to give certainty to the business in terms of input costs, remaining indifferent to any theoretical loss or gains that could have been made if the hedge was not it place.

The above indicators point to a relatively stable 2015 and retailers should use this period to improve their structural strength i.e. work on better processes, more effective team, and more coherent systems.

The moment the economy comes under renewed pressure (and it will), those who don’t use the next nine months to fortify their businesses will most likely suffer, and some may perish.

What about the independents? If you operate an independent supermarket or hardware store, you probably already feel the pressure and to survive the onslaught you must advocate change within your group.

New structures, business models and processes must be implemented to enable independents to compete with the likes of Bunnings, Masters, Coles, Woolworths etc.

The adoption of proven management methods developed by Deming (Total Quality Management) and Jacques (Requisite Organisation) would also make a massive difference. However, having worked with the industry for 30 years, I can’t see this advice sinking in.

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ABOUT THE AUTHOR
Andrew Gorecki, MD of Retail Directions, has worked with the retail industry since 1985. Industry insiders appreciate his strategic advice and insights, as he lives and breathes for the industry. Andrew received a nomination for the Australian Entrepreneur of the Year Award in 2010.
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