Retail catches a cold; transport prepares for the flu
Retail is in the doldrums, with a blocked nose, sore throat and a wintry cold right in the middle of summer. But the infection won’t be limited to retailers – the sneezing, hacking and misery is destined to spread down the line, and suppliers and transport companies are likely to catch a dose too.
Let’s look at the evidence: sales growth is as low as it has been in a decade, driven down by consumers cutting back on discretionary spending because they are spooked by rising living costs, stagnant real wages and booming household debt.
In just two years, some of the biggest names in global retail have either gone into administration or sought bankruptcy protection. Those names include Sears, Rockport, Nine West, Payless Shoes and Toys R Us. These are not ‘fly-by-nighters’. These are well-established companies that have weathered many storms in the past, but have found the going too tough in the current environment. Many lesser-known local retailers have failed too, quietly shutting their doors (some after more than 30 years of trading) because their businesses have declined in parallel with their sales.
The reasons for the carnage in retail are complex. It is not simply a matter of people shifting their purchasing habits to the internet. Online retail hasn’t been growing at the rate we have come to expect either. Retail is down across the board – no matter what is being sold and where.
Whether in a shopping centre or on a strip, retail is haemorrhaging and that brings me to the point that concerns me the most: where retail goes, transport follows.
When sales in a store fall, the retailer has no need to replenish stock. The outlet remains full of unsold stock and the retailer neither wants – nor can afford – to buy more. As a consequence, the suppliers of the retailer suffer a similar downturn. Suppliers become reluctant to commit to forward orders and stop importing as much stock. Sitting between those suppliers and the retailers is the transport industry.
What happens to transport when retailers and their suppliers both stop buying stock? The short answer is they don’t have as much to deliver. That effectively doubles down on what e-commerce has been doing in recent years and it creates a dramatic change to freight flows.
The rise in e-commerce means the delivery model is evolving and more goods are being delivered directly from a central warehouse to an end user at home or in the office. As a result, we are seeing fewer fully loaded trucks and more parcel carriers and courier deliveries.
Nimble courier companies are getting busier because of both the growth in e-commerce and the decline in bricks and mortar retail. The decline in bricks and mortar retail means that retailers are ordering smaller quantities but are also inclined to order more frequently, resulting in smaller deliveries going to their stores more often.
All of this means that new types of distribution centres are going to be needed with the flexibility to handle both e-commerce and store replenishment. Whether it’s simply a matter of remodelling or the creation of smaller and more distribution centres, change is coming.
All of this comes to pass as long as retail finds a way to grow. But what if it doesn’t? The numbers we are seeing in Australia may well indicate that consumers have now shopped until they dropped. The last GDP figures showed that the big contributor to growth was public sector spending. This may be more than just a cold for retailers. It may even be a kind of retail influenza that Australia has not had to deal with in a very long time. If that is the case, then Australian transport is facing significant illness and e-commerce isn’t going to help.
The fact is, whether transport operators run truckload, less than truckload, or parcel deliveries, they will have to adjust to meet the needs of the retail industry. It’s a new environment and anyone with an interest in the transport industry needs to pay close attention to retail’s sniffles.