The loss of Australian retail

In 2008 Mitsubishi closed its plant in Tonsley Park, Adelaide with a loss of 930 jobs.

Ford will close its manufacturing in Broadmeadows and Geelong in 2016 with a loss of 1200 jobs. It reported a loss of $141 million in the last fiscal year and cumulative losses over the past five years of more than $600 million. Costs to produce cars in Australia are double those compared to Europe, and four times more than Asia.

In 2017 Holden will close its operations in South Australia and Victoria with a loss of 2900 jobs. Holden has said that car manufacturing in Australia is unsustainable.

The unions concede that it is highly likely that Toyota will cease operations in Australia in the foreseeable future due, among other things, to the unviability of the components industry once Ford and Holden have gone.  If (when) this happens, 4200 jobs will disappear.

Between these four brands, will be a total loss of more than 9000 jobs over a period of around 10 years. This is not considering the flow on effect which will force many dependent businesses to close with further job losses.

This despite the government pumping $4.5 billion into Holden, Toyota and Ford over the past 10 years.

On January 10 I wrote a column titled ‘The retail kingdom’, highlighting the challenges posed by retail foreign entrants coming into Australia. No less than 27 of the world’s largest 250 retailers now operate here.

What I didn’t mention is the number of Australian retailers going offshore.

The similarity between this scenario and the motor industry is tenuous to say the least. One is in the manufacturing industry and the other is in retail. And while the motor industry is simply closing, the Australian retailers who go offshore keep their Australian operations going – for the meantime anyway.

But the analogy is there.

Henry Ergas, Professor of Infrastructure Economics at the University of Wollongong says the reality is that our labour costs are extremely high by international standards, productivity levels are low, and labour force flexibility is even lower.

Of course this is only one factor in the manufacturing equation, the high dollar being another.

On January 22 Inside Retail announced that Smiggle will be opening its first store in the UK next month, with up to eight planned shortly thereafter.

David White, Deloitte Australia partner recently told ABC News Breakfast:

“In 2014 as competition continues to ramp up at home we expect to see more Australian retailers seeking the growth opportunities available through international expansion to Asia.

“We think Asia is a really good opportunity for retailers. In the past, look back 10 years ago, a lot of Australian companies were very hesitant about moving into those types of countries where there’s less stability, question marks over the talent pool, etc,” said White.

At our firm we are finding a consistent flow of interest from Australian retailers to head offshore.

As mentioned above, this does not necessarily mean that they will close in Australia like the motor manufacturers are doing. But what it does mean is that there will be shift in emphasis.

Once a retailer gets a successful foothold in Asia,  Brazil or the US for example, it is a matter of time before these markets become more important than the local market, and when this happens, often the operation relocates its head office, which only makes sense.

So we will see a gradual swing from the combined effect of foreign retailers entering Australia with their head offices overseas and Australian retailers going offshore with the likelihood over time of moving their head offices overseas.

As David Whites says, the talent pool in Asia was a question mark, but this has changed. If it transpires that the costs of operating in Asia are a quarter of those here, as in the Ford example, who in their right minds wouldn’t move their operation?

Stuart Bennie is a retail consultant at Impact Retailing and can be contacted at stuart@impactretailing.com.au or 0414 631 702.