Introduction
Thank you for inviting me to speak today. It's a great pleasure to be here at the Bulky Goods Retailers Association Forum.
The retail sector, like much of the Australian economy, is going through a process of transition. A number of factors – both structural and cyclical – are driving a process of change in the sector.
Australia's retail sector is a strong and dynamic one. Retail makes a significant contribution to the national economy, employing around 1.2 million people, and, according to 2010 figures, it accounts for around four per cent of Australia's GDP.
Bulky goods represent over 20 per cent of all retail sales, translating to around $58.1 billion annually.[1] The BGRA has also reported that bulky goods and homemaker retail has been the fastest growing segment of the retail market in recent years.
I have great confidence that the retail sector has the energy and capacity to respond and adapt to the cyclical and structural changes underway, and, let me make this point very clearly, the Australian Government is committed to working with you and other sections of this very important sector to help take advantage of new opportunities and build a strong future for the retail sector.
The arrival of the 'cautious consumer'
At the same time as online retailing has begun to take a foothold in the retail sector , we have also seen the emergence of the more cautious consumer.
Particularly since the onset of the global financial crisis, consumers are increasingly concerned about global economic uncertainty. Consumers caution has no doubt also been driven by concern about house prices and the fall in the value of the ASX, which for many has resulted in lower superannuation balances as they near retirement.
Against this backdrop, consumers have been saving more and are more aggressively seeking out value for money. Consumers are also favouring spending on services, such as travel and holidays, rather than goods.
While generally Australia's economic story is a positive one compared to our peers, retail has been one of the sectors hardest hit by the economic conditions of recent years.
During the GFC, the Australian Labor Government took decisive action through its fiscal stimulus package which provided much-needed support to sales, profitability and employment in the sector during late 2008 and 2009.
Australia withstood the full force of the GFC, with the Australian Government's stimulus package playing a key role in reinforcing our economy, shielding it from the full force of the most significant economic downturn since the Great Depression.
Combined with effective Government action and the strength of Australia's businesses and Australia's workers, the resilience of our economy has played out in the statistics.
Our economy has grown by nearly 10 per cent on pre-GFC levels, growth that no other major advanced economy has been able to achieve over that time. Over 800,000 jobs have been created since Labor came to office, while 25 million jobs have been lost worldwide. Although there is continued global economic uncertainty, our economy continues to grow strongly compared to most other advanced economies.
However, since the GFC we have seen a distinct shift in consumer behaviour. While sales weakness re-emerged in 2010, we've seen an encouraging improvement in sales growth in the first half of this year.
It is clear that households are saving more and spending less. The household saving ratio has remained elevated since the GFC, averaging around nine per cent over the past four years.
On its face, this should be seen as a good thing. The fact that our households are spending less and saving more reflects a desire of our household sector to return spending and saving patterns to a more sustainable footing. But this increased consumer caution presents its own challenges to the retail sector. .
Technological change and the retail sector
Either way, consumers are changing. They are becoming more value-conscious and more willing than ever before to reach for their smartphones and mobile devices before they even set foot in a store. They are demanding greater convenience, flexibility and a more interactive shopping experience.
In recent years technological change has also been accelerating, reshaping the way we live our lives – and the way we shop.
In two short decades we've seen an explosion of technological innovation – in the development of the internet and social media, and the kinds of IT equipment used by consumers.
A quick timeline shows just how rapidly this technology has emerged: Google was launched in 1998; Facebook in 2004; Twitter in 2006; the iPhone in 2007; the iPad in 2010.
Given that my iPad is such an indispensable device, and I'm sure it's the case for many of you in the audience – it's quite remarkable to think that the first iPad was only made available on the market just over 2 years ago!
Today about 12 million Australians have a smart phone – more than half the population.
And more than half of Australians over the age of 15 shop online, according to statistics from a recent PwC/Frost and Sullivan report.[2]
That report predicts that online shopping expenditure will reach $26.9 billion by 2016.
This will have huge implications for retailers and the way they do business, and these effects are already being felt.
There are a number of reasons more and more Australians are shopping online.
Thanks to smart phones and the growing reach of broadband internet, something which the National Broadband Network will accelerate, many consumers are now constantly connected to the internet.
The revolution in online shopping might be seen by some to affect only those retailers of smaller goods, like fashion, books and cosmetics. But consumers are using online shopping sites to compare prices and products and secure the best deal, even in a sector like your own. Consumers are walking into stores better informed about the products they want to buy and they are driving a hard bargain.
Online retail goes far beyond just purchasing products – consumers are using the internet to compare brands and prices and access user reviews; they are using their smart phones to locate the closest store and stock listings.
The internet is offering consumers greater product choice, more price transparency and competition, combined with the convenience of shopping any time of the day or night, seven days a week.
This is not a bad thing. It's an opportunity for retailers to adapt and innovate, and deliver more of what their customers want.
It's an opportunity for them to embrace the inevitable changes brought by the digital age.
In fact we are starting to see many local retailers adopting multi‑channel retailing with enthusiasm. Savvy retailers are starting to make use of smart phone applications, interactive 'pop-up' stores, QR codes and virtual shop windows.
They're also starting to tap the vast potential of international markets, particularly the growing middle classes of China and India and other emerging Asian economies.
They're using the internet to promote their business online, expand their sales volumes and access a wider customer base. Retailers can also build more sophisticated profiles of their customers, based on their online sales history, and pursue more targeted marketing.
As online shopping increases, the retailers that are willing to use the latest technologies – the ones their customers are already using - will give them an advantage over their competitors.
By responding to consumer demand, changes in technology and shifts in consumer patterns, they will keep themselves at the forefront of the retail world.
Getting the policy settings right
I want to turn now to what the Government is doing to help retailers in these uncertain and changing times.
The Government recently announced it will commit new funding of $2.1 million over four years to the Australian Bureau of Statistics to keep track of online spending by Australian consumers. This new information will ensure that policy makers, retailers and consumers can better understand this growing segment.
In the Budget this year, we announced the Spreading the Benefits of the Boom package, supported by the Minerals Resource Rent Tax, which delivers much‑needed help for families and also supports small businesses through a loss carry‑back reform and the instant asset write-off that started on 1 July.
This is a major tax break for Australia's 2.7 million small businesses.
Australians know how important the mining industry is, but they also know that we can only dig up Australia's resources once. The MRRT will help us lock in the benefits of the boom and help those other important parts of our economy, such as retail, that aren't in the mining boom fast-lane.
We're redirecting the funds in a way that helps the economy and especially small businesses. And by providing families with extra disposable income we are also providing a boost to the rest of the economy, especially the retail sector.
The Australian Government also has a pro-active agenda to build a strong, prosperous and fair national economy.
The Government is committed to getting the policy settings right and improving regulatory arrangements across the economy, through initiatives such as the National Partnership to Deliver a Seamless National Economy.
And we are engaging all sectors of our economy to work with us on deregulation and competition in initiatives that will drive productivity.
We understand that the impacts of ineffective or burdensome regulation are felt by firms, and ultimately consumers, in the form of higher costs and prices.
We want to work directly with business to work out the most efficient ways to deal with regulation in this country.
This is an important change in the way our Government is approaching these issues – and it reflects our determination that we form a strong working partnership to advance the goals we share.
Reducing burdensome and unnecessary red tape frees up industries to innovate and compete, which will deliver better outcomes for businesses and consumers. We've already made good progress here.
The Australian Consumer Law, which I was proud to have implemented last year, replaced twenty Commonwealth, State and Territory laws with one national law that improved consumer protection, reduced compliance costs and increased productivity. The Productivity Commission recently estimated the benefits of this reform to be $880 Million per year.
To build on the achievements of the Seamless National Economy Agenda, following discussions with the newly established Business Advisory Forum (BAF) the Council of Australian Governments (COAG) agreed in April 2012 to advance six priority areas for reform to lower costs for businesses and boost productivity.
Planning and zoning regulation
One of these six priority areas identified by BAF and COAG centres around improving development assessment processes for low-risk, low-impact developments.
In the words of its communique from April, COAG:
. . . acknowledged the need to ensure these processes operate efficiently and do not create unnecessary delays for development proposals. Premiers and Chief Ministers agreed to consider adopting ambitious targets to improve development assessment processes for discussion at the next Business Advisory Forum.
It is well understood that State, Territory and local planning and zoning regulations can often have a big impact on competition and on the ability of businesses to expand and access new sites.
This is an important reform that business leaders have recognised should be pursued by State and Territory governments.
And let's be clear, the Australian Government recognises that planning and zoning is a State and Territory responsibility, and has no plans to involve itself in the details of planning and zoning regulation.
That said, whilst being a State and Territory responsibility, planning and zoning regulation impacts on national productivity and competitiveness.
Bulky goods retailers are especially affected by poorly designed planning rules and I know that the BGRA has had a strong focus on promoting reform in this area.
Since bulky goods retailers require significant floor space, there is often limited potential to locate stores within designated activity centres – partly due to the lack of large sites and to increased land values. A further challenge is that planning policy can often discourage out-of-centre development.
Of course, a balance needs to be struck between preserving community amenity without unnecessarily restricting the ability of retailers to offer consumers what they want.
At the same time, it has been pointed out that more flexible planning rules are needed to accommodate new store formats and encourage innovative designs to meet changing consumer needs.
Last year's Productivity Commission report Performance Benchmarking of Australian Business Regulation: Planning, Zoning and Development Assessments identified a number of constraints imposed by planning and zoning systems that unjustifiably restrict entry into markets, and reduce the flexibility of businesses operating in a particular zone or centre.
Retailers looking to expand into new areas are coming up against a brick wall of restrictive zoning rules.
This simply serves to entrench the market position of certain retailers while creating unnecessary barriers to entry for would-be competitors.
Consumers suffer at the hands of a lack of choice, a lack of price competition and a potentially moribund retail dynamic in areas where new entrants are effectively shut out.
The Productivity Commission's 2011 report on the Economic Structure and Performance of the Australian Retail Industry also made five related recommendations regarding planning and zoning. In the words of the Productivity Commission:
To minimise the anti-competitive effects of zoning, policy makers need to ensure that areas where retailing is located are both sufficiently large (in terms of total retail floor space) and sufficiently broad (in terms of allowable uses) to allow new and innovative firms to enter local markets in a manner consistent with planning objectives.
State and Territory Governments need to show leadership through reform of planning and zoning regulation.
Some jurisdictions, such as Victoria, have taken positive steps recently, but a few positive steps in one State are not enough.
The Australian Government wants to continue building a strong national economy in the areas of our responsibility. We expect State and Territory Governments to reform their planning and zoning systems to ensure that they facilitate and encourage business growth and innovation.
Perhaps more importantly, those of you in the audience here today expect State and Territory Governments to deliver planning and zoning reform. Your businesses are the businesses hampered by inflexible and poorly designed planning and zoning regulations. Your customers are the customers who are deprived of lower prices and greater choice because of these regulatory impediments.
Unfortunately, despite the commitments made at COAG in April, the States and Territories appear to be dragging the chain on improvements to their development assessment processes.
To date, the COAG Taskforce overseeing the development of the six regulatory reform priorities mentioned earlier has not sighted any reports from the States and Territories regarding progress on development assessment processes.
With the next Business Advisory Forum and COAG meeting to be held before the end of the year, there is a real concern that States and Territories will shy away from agreeing to a plan for tangible reform in the area of planning and zoning.
Whilst this is a real concern – there is no excuse for inactivity.
Best practice has been identified by the Productivity Commission. The business community, including organisations such as the BGRA, has made clear the need for reform. What is needed now is action.
Continuing the conversation
In conclusion, the Gillard Government is committed to ensuring a strong and prosperous future for retail in Australia. We are keen to work together with the retail sector to enable the sector to take advantage of the opportunities available to it and tackle the challenges. We want to join with the sector to engage in a forward looking conversation about where we want the sector to be in five or 10 years' time.
To this end, the Government has established the Retail Council of Australia, which includes the Executive Director of the BGRA, Philippa Kelly.
In July, I chaired the inaugural meeting of the Retail Council and welcomed the opportunity to bring together retail stakeholders to talk about the issues important to the sector and our economy.
I have no doubt that the BGRA will make a valuable contribution to the Council and I look forward to working with Philippa and the other members of the Retail Council of Australia as we work to secure a strong future for retail in Australia.
The Retail Council will be having its next meeting next week in Sydney, where we will be discussing the findings of the Low Value Parcel Processing Taskforce. I know that the low value import threshold is an important issue for the retail sector, and the report will shortly be released by the Government to facilitate an open discussion about its findings and recommendations in order to inform the Government's response.
Conclusion
I would like to thank the BGRA for the opportunity to address you.
Retail is a key part of the modern Australian economy, and an important part of our economy's future.
The future has both opportunities and challenges, but I am confident that the retail sector will be able to seize the opportunities and confront the challenges to grow and flourish in the years ahead.
Thank you again, and I wish you all the best for the remainder of your forum.
[1] BGRA Submission to the Productivity Commission Inquiry into the Economic Structure and Performance of the Australian Retail Industry, June 2011.
[2] Australian online shopping market and digital insights, July 2012.