Assesses the cost structures of businesses operating in the Australian retail trade industry, including costs relative to international competitors.
- The Australian retail sector comprises more than 133 000 businesses contributing around 5 per cent of GDP and 9 per cent of total hours worked.
- The industry is diverse in terms of firm size, product range, business models and formats, and cost structures. Around 95 per cent of all retail businesses are small businesses. The retail sector is operating in an increasingly dynamic and globalised environment, competing on different platforms and across borders. This has delivered better outcomes for consumers and, combined with shifts in consumer spending, has created a challenging trading environment for many retailers.
- The cost of doing retail business is largely driven by geography, markets and commercial decisions. As such, many of the cost pressures facing retailers are market driven and require commercial responses.
- That said, there are some costs that are heavily influenced by government regulations such as those affecting trading hours, the supply of retail space, workplace relations, transportation and delivery of goods, utility charges and liquor licensing. These cost pressures are accentuated in an environment where retailing is more competitive.
- As was the case in 2011 when the Commission undertook an extensive inquiry into the economic structure and performance of the Australian retail industry, retailers continue to operate under several regulatory regimes that unnecessarily inflate their costs and restrict their ability to innovate. With the exception of Victoria, reforms since then have been piecemeal, and incomplete across most jurisdictions. Major restrictions that still need to be addressed are:
- trading hours regulations that restrict the industry’s ability to adapt and compete with online competitors, and provide the convenience that consumers expect
- planning and zoning regulations that are complex, excessively prescriptive, and often anticompetitive.
- Several input prices have increased to add further cost pressures, with prices for major inputs such as labour and occupancy rising faster than final retail prices.
- Notwithstanding the increase in these input costs, cost structures and retail profits have remained relatively stable at a broad industry level. To some extent, overall profitability has been protected by the lower cost of some goods, reflecting both sourcing strategies by retailers and the appreciation of the Australian dollar. The rise in input costs has also been partly offset by productivity gains in the retail sector.
- While some of the larger retailers monitor costs domestically and compare those to their competitors here and overseas, this information is very tightly held given its commercial sensitivity. There are limited publicly available data to support an international comparison of costs across the wide spectrum of businesses operating in what is a very diverse sector.
- At an industry level, labour costs and rent as a share of revenue appear higher in Australia relative to the United Kingdom and the United States. For some retail categories, such as supermarkets, there are no discernible differences in cost structures between Australian retailers and those operating in broadly comparable markets overseas. For other retail categories, such as clothing and footwear, differences are more apparent.
While Australian consumers are enthusiastic online shoppers, Australian retailers do not appear to be using online retailing to its full potential.