Opportunities in the retail battleground
By Kate Hill
Partner Deloitte Private
ANYONE who braved the packed Westfield at Parramatta the week before or the week immediately after Christmas won’t be surprised to know that Australia is one of the most attractive new markets for overseas retailers, looking for growth.
Whilst forecast retail growth rates in Australia of 2.9% for 2012-13 are relatively modest, they are still higher than many growth rates in North America and Europe.
With the strengthening Australian dollar and the increasing use of online as a medium for shopping, many Australians have taken to purchasing products from overseas. This has awakened global retailers to demand for their products from Australian consumers.
It has also given them vital information on what Australian consumers want which is a significant benefit when setting up business in Australia. According to a recent global retail study*, the largest players who are already here in Australia such as Costco, IKEA and Zara are looking to expand their local footprint by opening new stores in 2013.
Combine this with the new entrants expected to arrive shortly, such as Pottery Barn, Uniqlo, Hennes & Mauritz (H&M) and Abercrombie & Fitch and our shopping centres and high streets are becoming an even more competitive retail battleground.
In terms of Western Sydney this may see a number of new entrants to the local market. Even if they don’t locate a store in Western Sydney you can be assured that there will be increased demand for our local logistics and transport operators who are critical to moving products between distribution warehouses and stores.
Retailers live and die by the effectiveness of their supply chain, whether it’s getting fresh produce to the shelves or ensuring new fashion lines are in the store quicker than the competition.
In terms of new opportunities for local entrepreneurs and investors, there may also be franchising and joint venture opportunities with those overseas companies looking to enter or expand into the retail market.
Increased competition will undoubtedly boost consumer choice. I for one can’t wait to check out some of the big fashion and homeware brands that will soon be available locally.
Meanwhile many local retailers may fear for their market share as they face a challenge from slick international operators. However, don’t forget that Western Sydney retailers still have a number of advantages including a greater knowledge of the local market, customers and seasons; an established customer base; and prime store locations.
Being price competitive will always be an important part of a retailer’s strategy, but it can only have limited success against a retailer with a global presence and potential greater economies of scale.
Therefore it will be vital to differentiate and adapt, be it through product or customer innovation, branding, sales channels, speed to market or customer experience.
From my perspective the top issues for Western Sydney retailers to consider in 2013 include:
1. Strong Australian dollar - Effective management of the sustained A$ means lower product costs for some but increased overseas competition (from both online and multinationals) driving down sales and margin for others.
2. Create an experience - in-store consumer experiences requires good products and good people.
3. Value focused consumers – means pressure on margins, focus on cost structures and online strategy.
4. Digital strategies – are required to engage with consumers and respond to a changing business environment.
5. Cash is king - financial, cash flow and working capital management remain critical to making timely and informed decisions – i.e. on supply chain, inventory investment, landlord negotiations, logistics and warehousing decisions; as well as how best to respond to new entrants.
Those who get the above right are likely to prosper in the retail market over the next 12 months. However, those who don’t may not be around next Christmas to enjoy another busy festive season, only time will tell!
Kate Hill is a partner at Deloitte Private, Western Sydney. Contact her at 02 9840 7049 or email khill@deloitte.com.au
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Why working harder is not enough
By David Ley
WORKING hard in your business is not enough to ensure that it will be profitable.
In the modern economy, hard work is not a competitive advantage anymore; everyone works hard. “Become a Key Person of Influence” is a book written by Daniel Priestly.
He points out that if you were to gather up all the hardest working people in the world, you would not find the top CEO’s and Entrepreneurs, you would find the people who are struggling to make it up the ladder or struggling to survive it all.
The competitive advantage is in thinking expansively, connecting with the right people and spotting fresh opportunities.
Michael Gerber who has been described as the world’s #1 Small Business Guru tells the story of Sarah who owns a bakery.
She started the business because she was a great pie baker, and all her best friends told her to open a pie shop because she was so damn good at it.
Now she starts work at 3.00 in the morning, works hard baking, selling, cleaning up, ordering, paying invoices, banking and then preparing for the next day.
She finishes work at 9.00pm then starts to figure out how she is going to pay the rent next month. She has been at it for three years and now hates pies, and hates the business. So the business is not about pies……. its about hard work.
The fatal assumption says Michael Gerber is that “if you understand the technical work of a business, you understand a business that does the technical work.”
The facts are that this is just not true. I f you are a carpenter, or an electrician or a hair dresses, or even a lawyer that does not necessarily mean that you have all the skills and knowledge to run a successful business.
So what advise would Michael Gerber give Sarah to turn her business around and make it both profitable and a delight to turn up to work every day.
For the answer, Gerber turns to the most successful small business in the world-McDonalds. The average McDonalds restaurant produces more than $2m in annual sales, and is more profitable than almost any other retail business in the world, with an average 17% pretax net profit.
The key is that McDonalds not only lends its name to the smaller enterprise but it also provides the franchisee with an entire system of doing business.
When he first established the McDonalds business, Ray Croc spent a considerable amount of time working on the business. He took an expansive entrepreneurial approach, establishing tested and proven systems to run the business, as distinct from the limited technicians approach of just doing the work. To explain a little further, lets look at what an Entrepreneur does.
The Entrepreneur asks the questions:
• How must the business work? Rather than what work has to be done?
• What systems must be in place? Rather than a business in which people work to produce inside results?
• What is our vision of the future and what do we have to do to change the present to meet our vision of the future? Rather than what is going on in the business now and how do I keep it going?
• The Entrepreneur also sees the business as a whole, totally integrated and they work towards shaping the business as they see it in their vision of the future. On the other hand the technician sees the business in parts modeled on the present day.
The success of McDonalds is obvious to us all.
As a further example of an Australian business that has done a fantastic job of establishing clear and well thought out systems we need look no further than ”Jims Group”.
Jim has successfully established systems and franchised 35 small businesses, with everything from mowing, to building, finance, glass, dog wash, security etc etc.
In the 25 years since Jim Penman turned his mowing round into Jim’s Mowing, and started expanding, he has created a network of 20 divisions and 2700 franchisees in Australia, New Zealand, Canada and Britain, and now has a turnover of $200 million. Just go to Jims web site to read more about his philosophy.
Now franchising is not for everyone, but the message is very clear. If you are like Sarah then its time to start working on your business, establishing clear well thought out systems that put the customer first, and start thinking like an Entrepreneur.
If this seems like a daunting task, and you are unsure how to get started and would like to know more, then get some help from a professional.
David Ley is a Director with Thexton Armstrong Ley. Contact at him at david.ley@thextonarmstrong.com.au
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How to avoid currency conversion fees
MORE than three million Aussies are planning a holiday into 2013.
A typical Australian family of four, who will spend approximately $16,000 when travelling to a popular destination such as Bali for two weeks, can save over $400 by switching to a card with no foreign currency conversion fees.
A recent study found that 57% of people bought goods on their credit card whilst travelling abroad and yet 78% of people did not know what they were paying in foreign currency conversion fees.
Many travelers are in the dark about the fact that whilst they are shopping up a storm and enjoying their trips overseas, banks are reaping the rewards by charging millions of dollars per annum in foreign currency conversion fees.
Jeremy Cabral, Publisher of leading credit card comparison website, CreditCardFinder.com.au says: “By simply planning ahead and making savvy decisions with holiday money, Australians can make major savings. Conversion fees can eat into your travel budget but there are ways to avoid this and save cash.”
Mr. Cabral has the following tips for Australians travelling overseas:
• Research your travel money options - Before you go overseas look into your credit card’s foreign currency conversion fees, charges and exchange rates as you can save yourself hundreds of dollars by doing so.
• Consider a no foreign currency exchange fee credit card - there are some credit cards in market which do not charge for foreign currency exchange conversion and can save you between 2% - 3.5% on foreign currency conversion charges. Visit http://www.creditcardfinder.com.au/foreign-currency-international-fees-for-credit-cards.html for more information.
• Notify your bank - Before you head off, notify your bank of your travel plans and contact details so they won’t flag your transactions as suspicious or fraudulent when they see international purchases on your accounts.
• Always have some cash on you – As a backup keep a small amount of cash with you just in case you are unable to use your credit card or withdraw money from an ATM.
• Keep all receipts from purchases or payments – This will allow you to correctly verify them against your statement on your return home and will be helpful if you ever have any transaction disputes or need to do a chargeback.
• Avoid exchanging cash at the airport – Airport exchanges have much higher transaction fees than your bank.
• Separate where you store your credit cards, cash and passport. It’s important to take more than one card overseas as a backup in case your wallet is stolen. It is also important to have a copy of all your identification documents.
Carrying large amounts of cash is a major hassle when travelling. It can be lost or stolen and there is no getting it back.
Credit cards with $0 foreign currency exchange fees are worth considering when choosing between travel money options.
Many of the banks have specifically designed credit cards for overseas travel that offer no currency conversion or transaction fees.
CreditCardFinder.com.au has several credit cards available on the website that are an option to consider for overseas travel and could provide you with significant savings, including:
Bankwest Zero Platinum Mastercard
• Foreign transaction fees are waived.
• Built-in airline travel and accident insurance protection wherever you are in the world.
• $0 p.a. annual fee forever.
• 0% p.a. for 6 months (reverts to 17.99% p.a.) on purchases.
• 55 days interest free on purchases.
• 24/7 concierge service to help you arrange travel, bookings, shopping and medical services.
• Up to 3 additional cardholders – free!
• 24/7 account access via Bankwest Online Banking.
Aussie Platinum Low Rate Credit Card
• No international transaction fees charged.
• Complimentary travel insurance.
• Annual fee of $99 per annum.
• 4.99% p.a. for 4 months (reverts to 13.29% p.a.).
• Interest free period of up to 55 days.
• A personal concierge service is offered to Aussie Platinum Low Rate cardholders. Get access to local knowledge 24 hours a day seven days a week, no matter where you are in the world.
28 Degrees MasterCard Credit Card by GE Money
• No transaction fees, and no withdrawal charges or any currency exchange charges.
• $0 p.a. annual fee.
• 20.99% p.a. interest rate on purchases.
• Interest free period of up to 55 days.
