SISTER CITY PARTNERS
Regional retailing is facing renewed forces of change, and fresh challenges. These are being driven by the contraction in local household expenditure capacity and the progressive – and growing – impact of technology. It’s a case of adapt or face the risk of extinction. The tsunami is coming.
Challenge #1 – contracting household budgets
Household spending capacity is impacted
by a changing labour force, declining full-time employment, rising unemployment and debt. On all these fronts, there’s no denying that a shrinking labour force over the past six years has reduced effective demand in the local economy.
The Townsville labour force peaked in July 2011, well before mining employment’s peak in mid-2013. Since then, it has shed 29,100 persons to 111,600 persons. Total employed persons has declined 22,400 to 99,600. This is tantamount to winding the clocks back to the early-mid 2000s. These employment losses have taken place mainly in the private economy, with some offsetting gains in government-heavy sectors.
Not all jobs are equal when it comes to salaries and wages. The impact on overall household incomes has been significant. On a year-on-year basis, total household incomes in February 2017 is some $1.24 billion less than was the case in February 2012. That’s about 11% down.
Work is being progressively gig-afied. Hours worked by full-time workers has also declined in absolute terms since peaking in May 2013, which explains the decline in total hours worked by all workers in the Townsville city-region economy. Total full-time hours worked is back to levels last seen in 2005. The number of hours worked by part-time workers has increased steadily over the last 20 years, which goes to a modest offsetting of the drop off in full time hours worked. The most telling feature of the changing mix of full-time to part-time hours is the noticeable up-tick on the ratio of part-time to full-time hours since 2012.
Unemployed persons has climbed, the participation rate is at historic lows and the ratio of employed persons to those not working has dropped to almost 50 : 50. In other words, the economically active number about the same as the inactive. Nationally, the picture is around 60 : 40 (working / non-working).
All of these dynamics are putting a serious squeeze on household budgets. This naturally flows through to local retailing, which is most evident when we consider evidence on retail employment.
Challenge #2 – online shopping
Between February 2012 and February 2017, the city-region economy has shed 4,500 jobs in retailing. At the same time, it experienced a modest net gain of 300 jobs in wholesale trade and 1,200 in transport, postal and warehousing.
These employment dynamics strongly point to a contraction in local retailing and a rise in online retailing, as households buy in goods from elsewhere, delivered to the door. Current data on local retail expenditure isn’t readily available but a combination of household income estimates, employment by industry changes and evidence on retail vacancy rates all point to one conclusion. Local retailing is under immense pressure.
These pressures are likely to strengthen over the next few years, as global online retailers begin to make a bee-line for Australians’ hip pockets. The impending arrival of global online behemoth Amazon has sent shudders down the spines of Australia’s retailing majors. And they aren’t the only ones ratcheting up the pressure on traditional bricks-and-mortar retailing models via intensified online commerce and delivery.
Townsville’s retail scene is not immune from these dynamics. This year, for example, we’ve already seen IKEA kick off their local delivery capability. In what is likely to be a portend of things to come, this move to local wholesale and delivery fulfilment by the Swedish giant, would – I expect – presage a deepening of online retailing’s presence on the local scene.
All of this points to challenging times for bricks-and-mortar retailing in regional centres like Townsville. The national pattern has seen a decline in the ratio of retail centre floorspace to population over the past 10 years, according to research by global property advisory firm Jones Lang Lasalle. It peaked in 1998 at 3m2 per person, and is already well below the long run historical average of 1.8m2 / person. It’s forecast to continue shrinking.
On a year-on-year basis, total household incomes in February 2017 is some $1.24 billion less than was the case in February 2012. That’s about 11% down.
Under these circumstances, its highly debatable whether the fundamental economic conditions exist to support the development of any more retailing bricks-and-mortar in Townsville. New capacity would, in these circumstances, cannibalise existing space and we will be witness to a process of tenancy musical chairs. Abandoned or under-utilised space will need to re-invent itself.
Response #1 – tighter local chains
If total household expenditure capacity is shrinking, the challenge of leakages must surely be the most pressing issue. Retained expenditure within local circuits of expenditure and income seems critical to minimising the consequences of what is otherwise a pretty serious case of retail haemorrhaging. The employment numbers tell us everything.
In these circumstances, tighter supply chains are critical to generate a circular economy effect that sees local incomes and expenditures circulate frequently through local cash registers and household budgets. A supply chain mapping exercise lies at the heart of reconfiguring our understanding of the dynamics of the local economy.
There’s little doubt that big box retailing was well-suited to its times. As suburban living exploded, so too dig air-conditioned ‘under one roof’ convenience, with free car parking thrown in to boot. Yet, as groceries retailing concentrated, with the two majors now claiming over 80% of market share, the adverse implications for local supply chains have begun to become clearer. Malcolm Knox’s Supermarket Monsters documents just how local supply chains have progressively been cast by the wayside, as the corporate grocery giants claimed greater share of the household wallet.
Food waste is a symptom of dysfunctional local supply chains, with local examples such as tonnes of pineapples and tomatoes going to rot because they didn’t fit the specifications of the majors.
Rebuilding tight local supply chains won’t be easy. It will take time, patience and a willingness on the part of local retailers, processors and consumers to collaborate with the ‘bigger picture’ in mind. A ‘buy local’ ethos will only be meaningful if local producers and retailers step up and reward this sentiment. A cultural paradigm shift is needed, which delivers exceptional value in ways that local households will appreciate and embrace.
While this takes place (something I touch on a bit more below), public authorities have a responsibility to undertake a root-and-branch overhaul of how they procure goods and services. While there’s much talk of local supplies, there’s scant accountability when it comes to actual performance.
Civil construction projects, a favourite category amongst the political cognoscenti, are a classic case in point. When over 80% of the local construction and building industry is made up of businesses employing less than 5 people, there’s a crying need for projects that are designed and delivered in ways that are more meaningful to this cohort of local skill and capacity. On top of that, modern digital technology can be mobilised to deliver accountability and transparency on claims about local employment impacts.
Response #2 – digital empowerment
Speaking of digital technology, local retailers must embrace digital platforms to engage meaningfully with their community of customers, and provide this community with the ‘easy to use’ tools to monetise trust. I mean by this empowering consumers with the tools to easily refer friends, family and associates to local supply networks. In doing so, we actively enlist local citizens in the overall task of rebuilding the regional economy from ground up.
We’re going to need more than Facebook if we are to effectively cope with the likes of Amazon whose transactional experience is all about customer ease via a simple to use digital interface, backed by robust integrated consumer analytics and financial settlement capabilities.
The beauty of today’s digital platforms is their low barriers to entry, and their convenience. Located in the palm of our hands, we can drive where our wallet goes – and, with the right tools, see how individual procurement decisions by people and businesses are impacting the local economy. Digital platforms anchored into a trustworthy distributed ledger (like the blockchain) can streamline how a community as a whole can monetise data, in the interests of the community and its constituent members.
The adaptive response is a clever mix of people-centric technology-enabled strategies. It involves building stronger binds of trust between local businesses and their community of customers. In other words, we can and must use the kinds of tools that have rocked the global retail world to enhance local customer and community value.
Response #3 – enhanced experiences
Whereas the responses so far are systemic in nature, and focus on the role of digital technologies, the last bracket of responses goes to the actual interface between a person and a local retailer. Here, we need to recalibrate our focus towards the holistic experiential nature of human-to-human interaction and the depth of bond that can actually be expressed through a retail transaction.
Spaces can and must be re-designed, to enable a richer, deeper and more engaged relationship between buyer and seller. It can no longer be ‘wham-bam, thank you ma’am’. Rather, I speak of a conscious effort to re-design the entire retailing experience to one that is rich in quality, evoking a high-value, high-touch connection between the buyer, the seller and the maker. Experiential and immersive retailing is the go.
We can buy run-of-the-mill, high volume desiderata via the Internet. It is a well established practice and will only continue to grow. In the face of this, the power of the local lies not in its attempt to emulate or compete on that turf, but rather to grab the tools of e-commerce and articulate them with a place-based value proposition that embeds the purchase experience with a whole-of-supply chain sensibility.
Generic globalised supply chains are here to stay. Local ingenuity and social collaboration is needed to create a new terrain of engagement, between our households whose budgets are under increasing strain, with those in our community who make things, fix things and serve things.