The perfect storm hitting retailers: Gottliebsen

Commentators and politicians often fall into the trap of thinking that the corporate giants represent the business community. They don’t. The engine room of Australian business is the myriad of medium and smaller-sized businesses (SMEs), so what they are doing has enormous ramifications for the nation.

In this week’s Management Insights MasterClass series, we reveal that a massive revolution, which will change the face of our business community, is taking place within SMEs. There is no better person to describe what is happening than the chief executive of MYOB, Tim Reed, whose company provides accounting software systems for about 70% of Australian SMEs.

But while this revolution is lifting confidence among a wide range of SMEs, one group is in the doldrums: retailers. It’s as though the government, the Reserve Bank, and technology have ganged up on the retail sector; but more of that later.

The revolution is actually in two parts.

The first part came in the middle of the global financial crisis when SMEs began tailoring their business to cashflow and wanted MYOB systems to help them achieve their cash goals. Cashflow management is at the heart of every business but in the era of virtually unlimited credit, the SME sector was not as vigilant as it should have been.

The second part of the revolution is more profound. Reed explains that small and medium businesses are asking: “How do I make more from the internet?; “How do I engage my customers online?”

Incredible as it may seem, the majority of Australian businesses do not have a website. Lots still use a ‘Yahoo’, or a ‘Gmail’ email account, not realising that their email address is now seen by more people than their logo, or the name on their physical premises. In the past, companies with websites were concerned with colours, etc. It is now far more important to rate well in the search engines.

We have been forecasting the swing to electronic business for years, but Reed explains that now it is actually happening over the whole spectrum of business. Once companies get “with it”, it will change their marketing production and distribution and greatly increase productivity. In the process, many will be left behind.

The Minister for Communications, Stephen Conroy, is building the national broadband network (NBN) to enable companies that make this transformation to transact much faster. Tim Reed says that sole traders and micro-businesses are not nearly as confident as middle-sized enterprises; it’s not easy being a sole trader in times of such dramatic change.

And Tim Reed confirms what we are seeing in the figures: his retail clients are having a hard time. It’s an almost perfect storm. Australians went out on a borrowing binge for home loans and now interest rates plus power and council charges are rising. Those higher bills mean less money is spent in retail stores. At the same time, industrial relations legislation has lifted retail operating costs and many retailers are also affected by the rise in online purchases.

Most retailers are maintaining turnover by slashing prices, but this hits profits.

At this stage, the two-speed Australian economy looks like it is retailers and the rest, however, the retail slump will eventually affect a wider group of people.

This article first appeared on Business Spectator.