No help coming for retailers

On the surface, the draft report from the Productivity Commission’s inquiry into the structure of the retail sector appears to have some good news.

The Commission has recognised that zoning laws have restricted the supply of retail property, thus forcing rents higher. It says planning and zoning regulation and processes should be improved.

The Commission has recognised that Labor’s Fair Work Act has pushed up some labour costs and reduced flexibility for employers.

The Commission has recognised that restrictive trading hours are holding some retailers back and has called for the harmonisation of trading hours across the nation.

The Commission has recognised that Australia Post and Customs need to become more efficient to help local retailers ship goods more easily.

The Commission even recognised that it would be equitable to reduce the $1,000 GST threshold on imports.

All in all, it’s a series of recommendations that if implemented would help retailers regain a bit of the ground they have lost to overseas competitors in the last few years.

Except for one thing – there is little chance any of these changes will happen quickly.

Getting local councils and state governments across Australia to agree on the standardisation of zoning laws and planning regulations would take decades, if it was even possible. Even getting councils to admit zoning laws needed to change would take years.

Getting state governments to harmonise trading hours is another task likely to take more than five years. We can’t even agree on daylight savings on the eastern seaboard, and in Western Australia many shops in Perth remain unable to open on Sundays.

The Fair Work Act won’t be changed under Labor (Assistant Treasurer Bill Shorten said yesterday that “the solution and the way forward for the retail sector doesn’t involve cutting the basic wages of low-paid people”) and may not be changed under a Coalition government, given how desperate the Opposition are to steer clear of IR at present.

Fixing Australia Post and Custom’s parcel handling won’t be quick (nothing in the public service ever is) and there is absolutely no chance the Government will cut the tax free threshold and effectively raise taxes for those online bargain hunters – especially at a time when it is struggling to sell the carbon tax.

As Shorten said yesterday: “There’s no way you could sell that bill of goods to the Australian people.”

Indeed, Shorten made it pretty clear yesterday that there is little the Government can do for the retail sector in the short- to medium-term.

On last night’s 7:30 Report on the ABC, Shorten bluntly said that large retailers have been taking Australian consumers for a ride for three decades.

“I’m saying that the big retailers have relied on a business model for 30 years,” Shorten said.

“They relied on the combination of large bricks and mortar shopping centres and department stores. They would also rely on sending their buyers to low-cost jurisdictions in Asia. They’d buy up clothes and other items cheaply, they’d come back here and then they’d sell ’em at big mark-ups.”

“What’s happened is that increasingly the consumer’s bypassing the middleman of the big retailers and hunting for the bargains themselves.”

The Productivity Commission report suggests that in the five years to 2009-10, retailers made a return of about 22% on shareholder funds, second only to the mining sector.

What Shorten is saying that these big returns blinded the retail sector from the growing threats of household debt and online competition, both inside and outside Australia.

As a result, retailers failed to innovate and meet the market.

“The retail industry itself needs to sharpen up its act, it needs to innovate and adapt to consumers’ changing needs,” Shorten told the ABC.

He’s right, even if he’s doing nothing for Labor’s hopes of securing the retail sector’s vote.

The retail sector needs to get better at multi-channel sales, where online and offline offerings complement each other. Retailers need to get better at customer service, better at product delivery, better at managing on tighter margins.

Unfortunately, the collapses we’ve seen this year suggest the retail sector will also need to get smaller – that’s probably the only way we’ll see rents come down, for example.

But the retail sector needs to do this stuff on its own – whatever the Productivity Commission recommends, there’s no help coming from governments.