Opinion: retail and its effect on transport

By: Brendan Richards


As retail catches a cold, transport prepares for the flu

Opinion: retail and its effect on transport
Brendan Richards

 

The announcement last year from Big W that it would be closing some 30 stores in Australia was a worrying sign. The fact is retail is in the doldrums. Sales growth is as low as it has been in a decade as consumers cut back on their discretionary spending while their living costs go up, real wages remain stagnant, household debt booms and job losses become more frequent.

In just the last two years, some of the biggest names in retail have either gone into receivership 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 found the going too tough, despite having weathered many storms before. Along with them are the lesser known companies – the local retailers who have quietly shut their doors (some after more than 30 years of trading) because their passion has evaporated along with their sales.

The reasons for the carnage in retail are complex.

It is not, as the media love to speculate, simply a matter of people shifting their purchasing habits online. The fact is that online hasn’t been growing at the kind of rate we have come to expect either. Retail is down across the board – no matter what is being sold and no matter where it’s located. Whether in a mall or on a strip, retail is haemorrhaging and that brings me to the point that no one ever mentions.

Where retail goes, transport follows.

As retail sales fall, so does the purchasing of the retailer. Their shops are already full of unsold stock and they neither want, nor can afford, to buy more.

As a consequence, the suppliers of those retailers suffer a similar downturn. They are reluctant to commit to forward orders and they stop bringing in 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.

As shipments become faster and required over shorter distances, the fully loaded truck is starting to become less frequent. What we are seeing instead is a rise in parcel deliveries. Parcel carriers and courier companies are getting busier because of both the growth in e-commerce as well as the decline in bricks and mortar retail. E-commerce means goods are being delivered from a central warehouse to a home or office. The decline in bricks and mortar means that retailers are not ordering as much 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 need to be developed that have 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.


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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 private sector actually retracted and the only reason we had growth overall was because of public sector spending.

This may be more than just a cold for retail. It may even be a kind of influenza that Australia has not had to deal with in a very long time. If that is the case, then Australian transport is in a world of trouble and e-commerce isn’t going to help.

The fact is whether transport operators run truckload, less than truckload, or parcel they will have to adjust along with the retail industry. It’s a new environment and all of us need to pay close attention to retail’s sniffles.

 

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