Inside Retail Magazine’s Top 25 Retailers list underlines just how difficult retail trading conditions are in Australia, with nine of the biggest retail companies in the nation set for lower sales in the current 2012 financial year than last year.

The Top 25 Retailers list monitors retailers in one ownership, and therefore excludes some of the large banner groups such as IGA supermarkets, Mitre 10, and Retravision, as well as some of the hybrid retailers with both corporate and franchise store networks.

While Harvey Norman and the Good Guys chains operate with franchise structures, they have been included in the Top 25 Retailers list because effective control over the operations remains with the head office entity.

The list is compiled on a moving annual turnover basis, adjusting full 2011 financial year figures for the more recent trading results reported on the first half of the 2012 financial year.  Revenues are calculated predominantly on Australian sales turnover.

There are several interesting changes in the 2012 Top 25 Retailers list, the most notable being the exit of the Franklins supermarkets chain that was acquired late in 2011 by Metcash, with the stores currently being onsold to independent retailers.

The second key issue highlighted by the Top 25 Retailers chart is the continuing struggle for department stores and discount department stores with Myer, David Jones, Big W, Kmart,  and Target all generating lower sales for both 2012 and 2011 than in 2010.

Kmart managed an increase in 2011 but has slipped back again in the current trading environment.

An analysis of sales suggests that Big W has maintained its placing as the fifth largest retailer in Australia and the best performing of the discount department stores, notwithstanding a re-engineering of Kmart over the past two years.

While Woolworths is outperforming its Wesfarmers retail stablemates – Coles food and liquor, Kmart, and Target – Wesfarmers’ Bunnings Warehouse business continues to be a powerhouse, booking annual sales of $7 billion to make it the third biggest retailer in Australia.

Bunnings faces fierce competition from the new Woolworths-Lowe’s venture, Masters Home Improvement, in the future, but it is likely to retain the third ranking for some years to come, courtesy of its own aggressive store development program.

While Coles food and liquor business continues to gain ground on Woolworths at the head of the table, there remains a wide gap between the two companies in real terms, with Coles particularly struggling to match its rival’s liquor performance through the Dan Murphy chain.

Neither Woolworths or Coles sales include the petrol and convenience store operations they operate.

Retailers generating growth in sales in current market conditions are the big two food and liquor businesses, the Chemist Warehouse Group, and two companies that have completed significant takeovers – 7-Eleven, which bought the Mobil retail network, and Super Retail which acquired Rebel Sport and Amart.

JB Hi-Fi continues to grow sales but is now finding the headwinds that other retailers have faced for a number of years are beginning to slow the rate of growth, notwithstanding a continuing rollout of stores.

Aldi is in the same boat, with growing sales but more subdued growth levels than it has historically achieved as it faces more competition, triggered by Coles and Woolworths discounting strategies, and some cannibalisation of sales by new stores.

The worst performer in the Top 25 Retailers rankings appears to be Retail Adventures, which does not publish its sales, but is believed to have suffered a significant decline in the past two years.
While it actually has continued to grow its sales in each of the past two years, the Dick Smith chain is headed for a restructure and divestment following a review by Woolworths.
These changes may see the Dick Smith business exit the Top 25 Retailers list through an ownership change.

Flat sales
Most of the Top 25 Retailers are expecting flat sales in calendar 2012 as consumers maintain a cautious outlook amid political and economic headlines that are not boosting confidence.
While sales are flat, profits are also under pressure with higher rents and wages costs, and margins are being eroded by discounting and online sales.

Retail market conditions are heavy going for retailers across the board with few standouts and, as one retail executive told Inside Retail Magazine, the retailers reporting good increases in sales or profits now are only doing so because they are trending against poor figures last year.

The retail conditions are opening up opportunities for acquisitions, with Myer and Premier Investments keeping an eye on potential takeover targets and Super Group, Spotlight Group and BB Retail Capital also potentially well placed if the right businesses were on the sale block.

JB Hi-Fi has started to mature as a business and may well be inclined to look at acquisitions, although the company has not indicated any interest in Woolworths’ Dick Smith business.
For Woolworths and Wesfarmers, acquisition opportunities may exist, but any purchases seem certain to face tougher scrutiny from the Australian Competition and Consumer Commission in future.

Meanwhile, Harvey Norman has soured on acquisitions after losing heavily on the acquisition of the Clive Peeters and Rick Hart chains.

* This feature first appeared in the April/May 2012 edition of Inside Retail Magazine.
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