Prices up, costs down? Here’s who stands to benefit from changing tides of retail

It feels like spring in the North. Not Darwin and Cairns. Dallas and Cannes.

Prices continue to rise in the key OECD economies for various and differing reasons but with the same two effects: higher gross margins for companies and higher prices for shoppers at shelf and website.

The hope is that this will lead to a little bit of old fashioned inflation and corresponding salary increases. Property assets should fall a little and then stay flat for a decade, helping our huge mortgages fall and more closely align with our growing salaries. All sounds perfect. Will price rises stop companies cutting costs or having to look for efficiencies and productivity? Well no, not really.

In Australia, we still have a long way to go to match the productivity of the new global online retailers and the low cost global physical retailers. In the growing online world, Amazon hasn’t yet settled into its buying, marketing and selling rhythm yet, although eBay continues to surprise on the upside in Australia.

In the anaemically-growing physical retailing world, low cost Aldi and soon Kaufland and maybe Lidl will eat more of our traditional grocery retailers’ basket size. TK Maxx already has 40 stores and Decalthon’s omnichannel entry will help it grow over the coming decade.

So, all bad news for Australian retailers and great news for Australian shoppers? No. It’s actually good news for all. That push for more competition is making Australian-domiciled businesses better. The sale of David Jones to South Africans and the Coles float on the ASX away from Wesfarmers are both good things. Our retailers are re-inventing themselves under new ownership.

On the supplier side, there have been huge changes too. Many of the major brands we’ve known and loved over the past 50 years have changed ownership in the past five years. From Vegemite to Kraft peanut butter and R.M. Williams boots. The new owners want to do things differently: the new R.M.Williams stores, branding, and range of clothes and boots are fantastic but it couldn’t have happened under the old ownership structure as there wasn’t the money to risk.

2018 will be marked by lots of small price increases for shoppers with 2.5% here and five percent there. It’ll be marked by salary increases led by the Fair Work Commission in June with another above CPI increase. Within companies, more technology, global sourcing, and global ownership will allow businesses to gently and consistently lower cost, improve efficiencies and increase productivity. A little price increase and a little cost decrease is a good and sustainable combination.

By the time spring reaches Hobart this year, we’ll all be a little leaner and a little wealthier.

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