19/09/2012 - 10:56

Myer’s Freo retreat reflects bigger changes

19/09/2012 - 10:56

Bookmark

Save articles for future reference.

The listed retailer’s departure from an iconic location seems to be a wise one.

The listed retailer’s departure from an iconic location seems to be a wise one.

THE retreat of department store stalwart Myer from Fremantle may not be a seismic shift in the retail landscape but it is a trend worth noting – the closure of a major outlet in a growth region, something which I think has implications for many of us.

Myer’s move out of a long-held lease was not exactly a shock. The prospect had been mooted last year and, when you look at Perth, the listed retailer has ended up with too many stores along the east-west axis represented by the Swan River, which defines the old metropolitan growth pattern, before the city started to really stretch itself north and south.

In that regard, it makes some sense for Myer to close Fremantle and propose a new store at Joondalup.

Furthermore, Fremantle has changed substantially in the past two to three decades. It was once an important retail hub. Special rules giving it status as a tourism precinct allowed it to coax shoppers there on a Sunday when other centres were not allowed to operate, so that may have prolonged Myer’s presence in the port city. 

But with deregulation, a traditional retailer like Myer has realised Fremantle’s retail scene does not suit it. 

The port city has evolved to offer a different retail mix, offering boutique stores living in an  ‘ecosystem’ dominated by hospitality.  

Arguably, the catchment – hemmed in by river and sea – has also changed to be more bohemian and with people less likely to shop at a traditional department store like Myer. It could also be argued that the premises Myer leased were old and tired.

When you put all those cards on the table and then throw on top of them the challenging retail environment, online shopping competition, industrial relations regulations that discourage employment, difficult capital and debt markets and high rental costs due to inflated property prices, you cannot help but think Myer’s decision was wise.

However, despite all those factors, Myer’s decision is quite revealing because it represents a major retreat by a large, traditional and very successful retail format.

Department stores have been under pressure for decades from bulky goods outlets like Harvey Norman and smaller specialist stores that litter the high streets and shopping centres.

But the Fremantle location was iconic. It would take a big decision to cut and run from a place that still attracts a lot of people outside of office hours.

In addition, it is not as if all these rival formats are thriving. Take a good look at how many retailers are closing outlets, reducing their floor space or getting out of certain businesses. 

This is a landlord’s nightmare. 

At the peaks of the booming retail conditions before the global financial crisis, retailers were scrambling to get premium space as consumers shopped until they dropped, fuelled by rapidly rising wages and extremely cheap credit.

But the music has stopped.

Shoppers, spooked by the GFC, have moved into savings mode, paying off debt and being more frugal. 

That means less spending on discretionary items and bargain hunting when they do, which brings in the internet.  

Online shopping, once fraught with risk, is now used widely. Those attracted to it on price have discovered it also has benefits of convenience.

The really interesting part about the internet is that, even though it is still a relatively small part of the market, commercial property owners get a very little slice of the market. The winners are Australia Post and courier groups like DHL.

So, you have a new entrant in the retail game which is not saddled with the biggest costs for any retailer: wages under the Fair Work regime and rents set at boom-time levels.

Major retailers, like Myer, are seeking to rationalise those costs, withdrawing to the sanctuary of fewer stores from which they can project their own internet strategies.

Intriguingly, the federal Labor Party dismissed this issue last year when retailers like Gerry Harvey started to complain about it, especially the issue of GST being absent on goods bought overseas for less than $1,000. 

Last year, Mr Swan defended the GST threshold on goods bought offshore, saying a Productivity Commission report into the issue found it was not the cause of retailers’ woes. “I can’t remember a Christmas where Gerry Harvey wasn’t whingeing,” he told ABC radio.

Mr Swan said the government was working its way through the Productivity Commission’s recommendations but it had found the cost of actually applying the GST to sales below $1,000 was prohibitive.

“It’s not a panacea for some of the challenges retailers face at the moment,” he said.

Mr Swan pointed out that not all online shopping was done on overseas websites, saying many of the parcels arriving at post offices came from Australian stores.

But after bagging Mr Harvey, with the usual shoot-the-messenger approach of this government, it seems Mr Swan is now reconsidering the nature of internet sales. 

A government group – the Low Value Parcel Processing Taskforce – has recommended tax changes that would slug shoppers an average of $60 a parcel for items sent from overseas.

Reports I have read suggested a government study of the $1,000 tax-free threshold on internet purchases found the incremental revenue generated by scrapping the tax break would more than cover the cost of collecting it – undermining a long-standing government objection to imposing tax on internet shopping.

The taskforce found that Australia Post, Customs and private shipping companies would need to spend a combined $145 million system upgrades to enable efficient collection of the tax but this could be paid by the $43 million additional tax revenue the government would receive each year.

Personally, I am all for a GST on all internet sales. Why should certain parts of our economy as well as other economies benefit when traditional retail customers pay?

However, I reject the notion that a $60 flat fee be imposed. That means only someone buying $600 worth of goods is paying the same GST compared to people goods in Australia. 

Why can’t the GST be 10 per cent. Australia Post deals with all sorts of small amounts and has the capacity to charge people when they pick up from the post office and show the receipt for the goods.

A $60 fee is clearly designed to whack offshore internet goods providers, something the government less than a year ago said was not a problem.

If we want Australia to be productive, then being able to buy off the internet at the cheapest possible price will be part of that. If the playing field is as fair as possible, Australian retailers will just have to adjust.

Bricks and mortar shops along with qualified staff are not all bad. The Apple shop is an example of where a retail brand is using physical outlets to show off the potential of its products. Other retailers do the same. Many people want to touch and feel the goods before they buy.

Wholesalers are also coming to the party. I hear many are now refusing to sell to purely online providers, opting to sell only to retailers who have a physical presence and do all the work in exposing and promoting their brands.

This is the new world and we all have to get used to it but there is no doubt a shake-out is taking place.

•mark.pownall@wabn.com.au

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options