Assistant Treasurer, Minister Assisting for Financial Services & Superannuation and Minister for Competition Policy & Consumer Affairs
5 March 2012 - 18 September 2013
The Big Shift
Keynote Speech to CEDA Breakfast Event
Shangri-La Hotel, Sydney
29 March 2012
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Thank you for that kind welcome Nigel and thank you for the invitation to speak at today's CEDA breakfast event.
As you look at the findings of the latest annual eBay Online Business Index today, it is appropriate that the topic for discussion is "The Big Shift".
It is indeed a big shift that we are currently experiencing.
It is a shift in consumer tastes and consumer behaviour.
It is a shift in the capacity of retailers to respond to those changing preferences.
And it is not only a big shift, but a rapid one.
Think back to this time just five years ago before the first iPhone had made its way into the Australian market. Only three years before that Facebook was invented and six years before that search-engine giant Google was born.
So in the space of just over a decade we have seen innovation building upon innovation and all the time, driving new economic opportunities.
There are those early-adopter consumers who have been quick to use new technology to engage in online retail. There are those who are still sceptical but are dabbling in the world of e-commerce. And there are those consumers for whom the e-commerce revolution has left them scratching their heads.
Similarly there are those businesses that have been quick to dive into the online retailing world, those that are considering the transition and those that think it is all just a passing fad.
In recognition of the challenges facing the retail industry, the Government called for an extensive inquiry by the Productivity Commission.
Publicly released in December 2011, the Commission's final report highlighted the changing nature of retail in Australia as part of a global structural shift driven by increased competition from online shopping.
But innovation will not stop, and the pace will not slow. The key conversation that is currently underway across the retail sector in our nation is focussed on how to navigate this big shift and tap into the opportunities that it creates.
Growth of Retail Spending and Credit Preceding the GFC
The current state of the retail sector cannot be viewed in isolation.
In the years leading up to the global financial crisis, retail trade continued to grow strongly year after year, corresponding with a period of growth in household wealth and incomes, and a growth in credit.
The onset of the GFC threatened to send Australia into recession. The Government acted quickly and decisively to stimulate the economy, making cash payments to households to help boost the retail sector.
The clear consensus of global policy makers is that the Australian stimulus package worked, and worked effectively.
By March 2009 Australia's retail trade was around 6 per cent higher than its pre-crisis level while advanced countries' retail trade was about 3.7 per cent lower than pre-crisis levels.
By June 2009, the Australian retail sector saw an additional 15,250 jobs created compared to the start of the GFC in November 2008, compared to 308,000 retail jobs lost in the US.
Post-GFC, however, the retail sector is now confronting a number of new challenges: a patchwork economy; global uncertainty; and a much more cautious and frugal post-crisis consumer.
However, some things will always stay the same. In a market economy, the production and sale of goods and services is a means to an end – not an end in itself. Producers and retailers make, grow, and sell goods or perform services to meet the demands of consumers.
Amidst all of the rigour of the current debate around the challenges facing the retail sector, this unassailable fact must be at the forefront of the thinking of all policy makers and market participants.
A retail sector that is not focussed on meeting the demands of the consumer would be like the famous hospital with no patients from that memorable scene in the British political satire "Yes Minister". You may recall that the Minister is advised of a new, state-of-the-art, fully-staffed hospital that is a model of efficiency but has no patients and delivers no medical services.
But Australian businesses are natural innovators in the face of adversity.
Historically, it has been at times of great economic dislocation that innovative enterprises have flourished. It is the most entrepreneurial, the most creative, the most industrious that survive the harshest of conditions and go on to grow.
And so, emerging from the GFC and faced with the new challenges of a cautious, saving consumer, global economic uncertainty and a patchwork Australian economy, retailers are now in the position where they must respond to these challenges.
Too often, the debate around the future of retail is couched in adversarial terms. Much of the discussion is around how traditional ‘bricks and mortar' retailers are being pitted against the emerging cohort of online retailers.
The reality is that there is much more convergence between the two than is being portrayed in the public discourse.
In Australia, there has been a great deal of focus on the increased exposure to competition from overseas retailers who are setting up shop here simply by extending their distribution networks to cover Australian customers. No longer do you have to travel to London to shop at Harrods – or many of the other major overseas retailers – you can simply visit their websites. This shift has been accompanied by consternation from traditional retailers who have, in many cases, been caught flat-footed by the online revolution.
The Productivity Commission, however, estimated that online retailing still represents only 6 per cent of total Australian retail sales. Significantly, despite the excited public commentary, $8.4 billion of that online trade comes from domestic retailers, twice as much as the trade generated by overseas retailers.
While the public attention has been captured by the vocal campaigners expressing their concerns about online retailing, less focus has been given to those Australian companies who are making inroads into foreign markets or using their online presence to consolidate their domestic customer base.
E-commerce and m-commerce represent a lowering of barriers of entry. The online world means that a small regional operation can move beyond its limited immediate market and appeal to customers around the world.
Australian company aussieBum started out online promoting its men's swimwear and underwear lines to the domestic market. It now has more than 200,000 global customers ordering directly through its e-commerce site and supplies many of the world's leading department stores.
I note that one of today's presenters is Catherine Taouk from retailer Supre, which has developed a successful multi-channel strategy where it has grown its customer base by becoming a ‘bricks and clicks' operation and expanding into overseas markets online without having to go to the expense of establishing a physical presence.
Similarly, David Jones, whose profitability has come under recent scrutiny, has recognised that it, too, must adopt what it terms an ‘omni-channel' approach that will give its customers the chance to shop in-store, online and from overseas. It has done so recognising that without making this move it will continue to face pressure from its competitors who have already taken a foothold in this space.
The boom in m-commerce, driven by the millions of smartphones now in people's pockets, means that retailers can use their online presence to enhance the in-store experience for their customers.
Consumers are using their smartphones to compare prices, often while they are in store. Many retailers are using the ‘check-in' functions on various social media apps to extend special offers and discounts, while others are using mobile devices to transmit customer data so that sales assistants can see when the customer last visited the store and what they bought to provide a more personalised experience for the consumer.
There are also the supermarkets who are literally placing images of a supermarket aisle on the walls of train stations so that consumers can buy the products by scanning the special QR code with their smartphones and having the goods delivered to their homes.
With the rollout of the National Broadband Network and continued technological development, who knows what innovation we will be discussing in five years' time.
Consumers do not remain static in an interconnected world. Consumers are savvy; they value convenience and they are far better equipped and much more motivated to find the goods and services they want. Where once consumers were forced to settle for whatever the local offering served up, modern, technologically-mobile consumers will find what they want elsewhere – whether it is located in a neighbouring suburb, a different State or a far-flung corner of the globe.
As we move forward, the question being asked is what does the future hold for retail?
Given the range of factors affecting the industry, the Government has established the Retail Council of Australia, which I will be chairing, to provide an opportunity for industry to collectively raise their concerns with the Government.
The former Assistant Treasurer, Minister Bill Shorten, announced the foundation members of the Council: Margy Osmond of the Australian National Retail Association; Russell Zimmerman of the Australian Retailers Association; Peter Strong from the Council of Small Business Australia, and Christopher Zinn from the Australian Consumers Association (CHOICE). I will be announcing further members shortly and convene the Council's inaugural meeting.
The low value threshold – the exemption from GST and duty on imported goods under $1,000 – was also the subject of public debate and an examination by the Productivity Commission. The Commission found that the exemption is not the main factor affecting the international competitiveness of Australian retailers and estimated that removing the threshold completely would increase tax revenue by $600 million but it would cost over $2 billion to collect – costs borne by consumers, businesses and government.
In response to a recommendation by the Commission, the Government has established a Low Value Parcel Processing Taskforce to look at whether more cost effective and efficient systems could be put in place.
The taskforce, chaired by Dr Bruce Cohen, will release an interim progress update very shortly and will provide a final report to the Government by July this year and I look forward to hearing feedback from industry on those findings.
There is no doubt that the Australian retail industry is undergoing significant structural change.
While change is hard, I encourage industry to respond enthusiastically to the new opportunities for innovation and growth that will continue to arise from e-commerce.
Thank you again and I look forward to working closely with you and with the industry representatives on the Retail Council.