For many global retailers, Australia represents a relatively untapped market. Its geographical location, opposing seasons to North America and Europe, smaller critical mass and more attractive growth opportunities in domestic markets in Europe and the U.S. have meant that Australia has remained somewhat sheltered from many international competitors.
However, with many economies in Europe and North America experiencing significantly declines in growth, Australia has become of more interest to many global retailers. 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.
Similarly, with an advanced economy and stable political and legislative structures, setting up operations in Australia is a relatively easier prospect doing so in other less developed countries. It also allows global retailers to use this expansion into Australia as a springboard into the potentially highly lucrative growth economies in Asia.
With the strengthening of the 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.
Global retailers also have a number of potential competitive advantages over local Australian retailers. With operations globally, there are naturally potential economies of scale which can be used to bring products to Australian shores at cheaper prices. Many global retailers, particularly in the fashion retail space, have invested significantly in building their brand equity. Such brands are highly attractive to many consumers, as we have seen with the new store openings of Zara and Topshop in Australia which have proven to be highly successful.
Many such retailers are more advanced in terms of vertical integration, which allows new products to be brought to consumers quicker, more conveniently and at a lower price. Customer experience and customer service are also areas where typically many global retailers are more developed.
What does this mean for Australian retailers?
Undoubtedly, the influx of global retailers to the Australian market has and will continue to increase competition. However, we shouldn’t forget that Australian 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.
For Australian retailers to be successful it’s vital that their response to global competition is positive and developed around a well thought out long term strategy. 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.
With some of the largest global retailers entering the market it’s an opportunity for Australian retailers to step up to the challenge. Australian retailers need to have a long term strategy which addresses globalisation and which ensures they have a point of difference. In doing so, many more Australian retailers will be competing and potentially succeeding against some of the biggest retailers in the world.
David White is Deloitte's national leader for retail, wholesale & distribution and author of the report: Global Powers of Retailing 2013.