Larger businesses in retail are generally more profitable than smaller businesses with many of the largest businesses historically among the most profitable in the economy. The larger retailers in Australia would appear to have enjoyed better returns on capital than their overseas counterparts and have continued to do so since the global financial crisis. Growth in retail sales has been slow in recent years. While short term or cyclical factors have contributed to this slowdown, the growth of retail sales has experienced a long term slowdown due to changes in consumer buying habits.
Consumers are choosing to spend a smaller share of their income on retail goods because over the recent past, they are saving more and they are spending greater shares of their expenditure on services such as finance, rent and education. Further, while there has been price deflation in some sub-categories of retail, overall, sales volumes have continued to grow. The level of productivity in the Australian retail industry is low compared to retail in other countries in Europe and North America. However, the growth rate of productivity in retail, over the past two decades, has been similar to the average rate for all industries in Australia.
Retailers have achieved productivity growth by increasing the capital intensity of their operations, including through adopting information and communications technology. Furthermore, investments in big box retailing have also been a factor. These changes occurred earlier in the US, and since then, US retailers have continued to achieve productivity growth by improving management and operations to make more effective use of labour and capital. These opportunities appear yet to be fully realised by most Australian retailers.
A snapshot of the retail industry Retailing makes a significant contribution to the economy The retail industry is one of Australia’s largest employers. Currently, there are almost 140 000 retail businesses employing about 1. 2 million people or 10. 7 per cent of the total working population. Together, retail workers earn about $32 billion in wages and salaries each year, or 6 per cent of the economy’s total. The retail industry also makes a significant contribution to economic output, contributing $55 billion or over 4 per cent of GDP each year.
However, it is a relatively small contributor to investment (table 3. 1). Table 3. 1 The contribution of Australian retail trade 2009-10a Retail trade Gross value added ($m) Employment (‘000s) Wages and salaries ($m) Investment ($m) Capital stock ($m) Number of businesses (end 2008-09) a Includes motor vehicles & parts and fuel retailing. Source: ABS (Australian System of National Accounts: gross fixed capital formation and capital stock, Cat. no. 5204. 0; Labour Force, Australia, Cat. no. 6291. 0, Counts of Australian Businesses, Cat. no. 8165. 0).