The recent collapse of Australian luxury retailer Oroton reminds us of the ongoing disruption to the retail sector caused primarily by online shopping, which incidentally is about to receive a massive boost in Australia. We have recently seen the establishment of an Amazon fulfilment centre in Dandenong South, Melbourne, which has raised anxiety levels in the retail sector. Also, I should note that low wages growth across Australia is not helping the struggling sector.
The Sydney Morning Herald has referred to the Aussie retail bloodbath and US commentators frequently refer to their own retail apocalypse. There is an element of exaggeration to the retail bloodbath and apocalypse claims, but undoubtedly the sector has been struggling in many advanced economies. Nationally, employment in retail trade has increased only slightly over the last decade, and in Queensland it may have even declined (See charts below).
I am very concerned about what this means for young people, who are disproportionately employed in the retail sector. Adverse conditions in retail trade would partly explain why the unemployment rate among young people aged 15-24 has increased from 9.6% to 12.4% over the last ten years, and why their workforce participation rate has fallen from 71.1% to 67.5%.
Sure there will be jobs in fulfilment centres and related logistics, but these jobs are probably less suitable for the majority of young people than jobs in retail stores in nearby shopping centres, which make it easy for young people to combine part-time work and study.
No doubt there will continue to be jobs in bricks and mortar retail stores. But there will not be as many as there would have been in the absence of these trends. And young people, who are typically low-skilled, may not be suitable for many of the jobs in the retailers that will thrive in the future. While reading the October issue of my second favourite magazine Monocle—a close second to The Economist—I was struck by the level of product expertise and attention to detail that Monocle suggests is required for retailers to thrive in today’s hyper-competitive retail sector. Even more so than before, retail is detail. Monocle frequently advocates the ideal of the atelier, the workshop of an artisan. This is a very high standard to aspire to for retailers and their staff.
Monocle is essential reading for anyone interested in the future of retail
Encouragingly, the October Monocle does include two Australian examples of “smart shopping solutions” in its Global Retail Survey:
- The Deli Co, Melbourne, and
- David Jones food hall at Bondi Junction, Sydney.
Also, I should note, as my good friend Dr Parisa Mahyari discussed in a guest post last year, Brisbane City Council is working hard to improve the City’s retail offerings:
Edward St redevelopment: Exciting opportunities for Brisbane’s future
So it’s not all bad news for Australia retail. This Wednesday, we will see just how much Australia’s struggling retail sector is affecting our GDP, when the ABS releases the September quarter National Accounts.
Queensland will probably bolster the national figures, given the positive news from our resources sector. As John McCarthy from the Courier-Mail reported last week:
“No one is calling it a coal boom, but the coal industry has definitely returned to the position of the state’s engine driver and economists expect it will deliver a windfall of an extra $1 billion in royalties for the State Government. One of the state’s biggest coal ports Dalrymple Bay, near Mackay, has 45 ships waiting at sea for coal, the longest queue since 2010 when floods devastated the industry.”
The resurgence of Queensland’s coal industry and the royalties boost was something I noted in my 17 November post. Let us hope for a positive set of numbers on Wednesday!
Queensland Economy Watch 
Gene, as always, an interesting post.
But we should always be aware of the benefits that such innovation can bring, including the capacity of successful Australian entrepreneurs to compete in the online retail sector.
Have a look, for example, at the great work of Birdsnest, an Australian online fashion retailer, that has created a mini jobs boom for many part time staff in the regional centre of Cooma, NSW. Founder Jane Cay has made a point of being an outstanding employer for her team…
http://www.smh.com.au/small-business/entrepreneur/australias-nine-most-influential-female-entrepreneurs-2017-20170224-gukte5.html
Yes, the combination of the freer global market and technological innovations brings some challenges, but it also brings great benefits to our economy, especially for those willing to embrace new opportunities.
I suspect the difficulties facing our employment markets are less the result of such changes, than of the extended hangover from the “super-profits and excess wages” created during the recent mining boom. We’re fortunate to have missed a hard landing or “bust”, but the slow hangover provides a period of adjustment that we must get used to.
The super-profits are long gone. But the worry is the continuing real wages boom in the public sector, where reality hasn’t quite set in yet! Fortunately, the industrial tribunals are aware of these issues, and are making minor adjustments to the still largely centralised wage fixation system. And enterprise deals are becoming more realistic, as illustrated by the recent Streets factory compromise, that retained jobs in Australia at the cost of a more flexible work agreement.
We will probably know this adjustment period is over when we see non-mining business investment improve – a good signal that wages have returned to sustainable levels.
Thanks for your excellent comments Mike. Great points. Of course I accept innovation brings benefits, and Birdsnest is a good example of that. I have little doubt that in the long run we’ll be better off. But there will be a large amount of disruption over the next few decades that will be challenging for many.
Good post Gene. Your point about the decline in retail employment being a major issue for the younger cohort is relevant given my post a few months ago about the apparently disproportionately large impact being felt in regional QLD (as opposed to Greater Brisbane). As we know, high levels of youth unemployment are of particular concern in many regional areas and this industry disruption is likely to be one of the major contributors to that issue. http://www.conus.com.au/2017/09/online-retail-and-the-impact-on-regional-employment/
Thanks heaps Pete. Your post is good, too. I wish I’d recalled it before writing mine as I would have linked to it. Your post makes me wonder whether we could quantify the impact of declining regional retail employment on regional youth unemployment rates. It would be pretty rough but we may be able to do it with your regional industry data.
Gene, in regards to regional areas it would be also interesting to see data if any is available on the proportion of young people in regional areas who actually shop online as well, from my own personal experience with conversations I would envisage it would be very high, and perhaps higher than capital cities where the variety of walk in retailers is much greater. I am a big supporter of local retailers and have always thought in a way it’s buying our local young people a job, it would be interesting to see if they are interested in buying one for themselves.
Good question Glen. I haven’t seen any figures on online spending by region but I’ll look out for any. Thanks for the comment.
Gene
Great post. I’m not sure I’d like to have a lot of commercial (retail and office) property in my investment portfolio in the long term.
The changing nature of retail is not just impacting on employment. It is also impacting on demand for bricks and mortar retail space, reducing demand for space, reducing yields and reducing asset values. And as retail space is at the apex of pricing for commercial space, this will have a knock on for the yields for office space (as retail and office space are at least partially substitutes) when office space will face decreasing demand due to technology disruptions and remote working anyway.
Bottom line is that online shopping is probably going to have an employment impact (disproportionately on youth) and a wealth impact (disproportionately on older Australians that tend to own the bricks and mortar assets as part of their superannuation).
Great point Jim. The market will adjust as it always does eventually, of course. I expect we’ll see even more old retail spaces re-purposed as co-working spaces and innovation hubs like the Precinct in the Valley in the old TC Beirne building.