Private Business Barometer 9Listening to Australia’s private businessesMay 2011Now featuring the Private Business Barometer Pulse
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State and Sector Focus

Retail

The past 12 months, and in particular the 2010 Christmas period, were not kind to the nation’s retailers.

Sales growth was mostly flat or negative. Heavy discounting may have helped bring customers through the door, but this kept profits at a standstill.

Retailers must consider how they will be affected by changes in the market – such as the entry of large overseas competitors and increasing wage and rent costs. They must also think about whether recent shifts in consumer spending behaviour are a temporary phenomenon, or the ‘new normal’. PwC strongly encourages retailers to move quickly into selling online, to supplement their bricks-and-mortar income.

Of the 851 private businesses we surveyed for the PwC Private Business Barometer, 122 (14 per cent) were from the retail trade sector.

Business growth

Sales were flat and profits plateaued


Private businesses in the retail sector reported a very flat year with only one per cent sales growth. This is well below the national average and also less than the five per cent growth reported in the last PwC Private Business Barometer. While 40 per cent of retail respondents experienced increased profits, 35 per cent saw their profits decline, which averaged out to unchanged profits across the sector. Heavy discounting has eaten away retailers’ profit margins.

Growth targets too optimistic?


Considering the difficulties they encountered in the past year, most retailers set themselves optimistic growth targets for the coming one and three-year periods. However, these targets were relatively modest compared the all-industries average. In addition, 10 per cent of retail business owners and managers do not anticipate any real growth over the next three years.



Western Australian retailers looking to expand


Retailers across the country told us organic growth and new product development were their favoured strategies for getting out of the current quagmire. Expanding either domestically or overseas was not high on the list of strategic priorities in most states, although Western Australian retailers appear to be eyeing markets in other states with relish – 63 per cent of retailers in that state said they planned to expand geographically within Australia in the next three years.

Victorian retailers are the most acquisitive; 28 per cent of respondents in that state said they planned to grow by acquisition in the medium term.



An unhappy Christmas


The retail trade sector reported weaker than expected sales performance over the 2010 Christmas period. Fifty per cent reported they did not meet sales expectations while only 34 per cent said they did so. This was most likely due to a decline in consumer confidence leading up to Christmas, with consumers focused more on reducing debt than making extravagant purchases.



Start making online plans


Surprisingly, even though consumers are buying ever more goods and services online, 40 per cent of businesses told us they had no plans to increase their e-retailing efforts. Only six per cent of retailers surveyed said they already had an established e-retailing strategy.



People

Half of retailers expect to hire


More than half (53 per cent) of retail businesses said they were planning to hire more workers in the coming six months. Retailers in Western Australia (63 per cent) were most likely to hire, followed by Victoria (58 per cent) and New South Wales (56 per cent).



Training the key to retaining staff


Like most other industries, retailers told us the lack of qualified candidates was the major factor holding them back from hiring. Retailers across the country were also highly concerned with the uncertain state of the economy. Compared to other industries, retail businesses had a strong focus on work-related skills training as a way of retaining valuable staff. This may be explained by the sector’s propensity to hire young staff.



Funding

Investments are not a very high priority


Just over one-third (35 per cent) of retailers said they planned to make a major investment in the next year. This figure was slightly higher in New South Wales, at 38 per cent. PwC believes retailers will need to make capital investments in their stores and supply chains to remain competitive in coming years. Of those looking to invest, the highest proportion said they would seek bank funding (17 per cent of all retailers), followed by those looking to self-fund their expansion (11 per cent).



Business operations

Prices and margins a growing concern


Like businesses in other industries, retailers said they struggled primarily with funding issues and then with staffing. Overall, 72 per cent of businesses reported funding issues as their biggest challenge.

Finding competent staff was the greatest individual challenge facing retailers, reported as an issue by 51 per cent of business owners and managers in this sector. Not surprisingly, given the current retail climate, low margins and competitive pricing were close behind, nominated as a problem by 48 per cent of retailers.

Three-quarters (75 per cent) of New South Wales retailers reported being challenged by business operations issues, which were a lesser concern for businesses in other states.