Articles

Growth Isn’t What It Used To Be.

The long-term average growth rate in retail sales is around plus 4 per cent per annum. Currently Australian Bureau of Statistics All Retail Sales Data (which does not include online retail sales) indicates growth of close to plus 1.8 per cent over the last year. If you add in the claims of online retail that it represents an additional 6 per cent of retail sales and is growing at 25 per cent per annum, retail sales in Australia are growing at or near the long term average.

So why does it all feel so doom and gloom?

Firstly – prior to the so-called ‘Global Financial Crisis’ – we were enjoying a prolonged period of retail sales growth of close to double the long-term growth average. That level of growth made a lot of ordinary retailers think they were pretty good and the rest get a tad complacent and fat.

Secondly, we embedded an expectation for high growth and built business models dependent on high growth. Now, media and investors that don’t see strong growth numbers start making all sorts of noises about why this is so and prophesize falling skies and apocalyptic horsemen.

It is to all our benefit that we start adjusting to the new era of growth for the 21st century.

Many international economic forecasters believe that we are facing two decades of low worldwide gross domestic product growth for mature economies of no more that 3 per cent. The worldwide opportunities for growth are becoming limited and rapidly exploited.

In that scenario the global expectation of growth has to be more modest and as a result our business models and business strategies tuned accordingly. Both governments (and related government authorities) and business will need to adjust.

In the last decade we have taken most of the supply chain and cost cutting opportunities available to us. What remains are scarce opportunities and those that are harder to realise.

Consolidation will become more prominent as many retail businesses are forced to merge for survival. In a global marketplace, governments will have to come to grips with how best to maintain robust domestic economies while staying popular with their international political buddies and their desire for ‘open markets’.

But above all – for individual retail businesses – it will mean a focus on profitability through growing only those sales that are profitable. The Pareto Principle which establishes that 80 per cent of your profit comes from 20 per cent of your customers will see growth focussed on realistic levels and through execution that increases the commercial relationship with the 20 per cent of customers that really matter.

While the heady days of the recent past were a fantastic party, the long-term average is not that bad. We just have to knuckle down to what good looks like now and how to achieve it for our businesses.