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Page 1: Understanding the Australian Consumer - lek.com · Understanding the Australian Consumer ... Other retailing* 4.0 ... **Household goods includes furniture, floor coverings,

LEK.COM

Spotlight on Australia Understanding the Australian Consumer

L.E.K. Consulting / Consumer Spotlight

The period from 2011 to 2013 was very difficult for Australian retailers. An uncertain domestic political environment

and the slowing of the investment boom in the resources sector – Australia is a large exporter of iron ore, coal and other

metals to China – created uncertainty over employment, weakened consumer confidence and undermined growth in the

Australian real-estate market. Australians hold a greater proportion of their wealth in real estate than people in many

countries in the Organization for Economic Cooperation and Development (OECD); so weak property prices translate

quickly into a perceived drop in wealth. Slowed rates of new housing construction also hurt the home-furnishing and

consumer-electronics segments.

The fundamentals of the Australian economy are sound, however, and the outlook for revived consumer demand is

positive. Australia has low unemployment and relatively low interest rates. Personal disposable income is expected to rise.

Additionally, Australia had a divided parliament from 2010 to 2013. That ended with the 2013 national election and a

period of greater stability is expected to benefit business and consumer confidence.

Australia is country of 23 million people, mostly concentrated in major urban centers and large regional towns. Five capital

cities of Australian states account for almost 60% of the population. Australian gross domestic product was approximately

$1.5 trillion in 2012 – or roughly one percent of U.S. gross domestic product that year – and has grown at an average

annual rate of two to three percent since 2008.

Food and household goods dominate retail turnover in Australia. Food retail has been a key driver of sector growth at a

4.5% CAGR for the past five years. Two large retail conglomerates, Wesfarmers and Woolworths, are leaders in grocery

retail and have major positions in liquor, discount department stores and home hardware retail, as well as convenience

stores and fuel retail.

L.E.K. ConsultingCONSUMER SPOTLIGHT

Quarterly Real GDP Growth (Q1 2008 – Q1 2013)

Source: OECD Key Economic Indicators

1.0

-1.5

0.5

0

-0.5

1.5

-1.0

Q1 2008

Perc

enta

ge

Ch

ang

e o

n P

revi

ou

s Q

uar

ter

United KingdomUnited States

Australia

OECD – Europe

Figure 1

-2.0

-2.5

-3.0

Q3 2008

Q1 2009

Q3 2009

Q1 2010

Q3 2010

Q1 2011

Q3 2011

Q1 2012

Q3 2012

Q1 2013

Page 2: Understanding the Australian Consumer - lek.com · Understanding the Australian Consumer ... Other retailing* 4.0 ... **Household goods includes furniture, floor coverings,

LEK.COM

CONSUMER SPOTLIGHT

L.E.K. Consulting / Consumer Spotlight

The shopping center or “mall” format is particularly popular in Australia, with large operators like Lend Lease, Westfield

and AMP controlling many key locations. Unlike the U.S. and U.K., the “hypermarket model” has not flourished in

Australia. This is in large part because the large supermarket operators also control the three key discount department-

store brands.

Australian retailers must contend with the country’s relatively high retail rents, due in part to the clustering of the

population into major cities and the concentration of shopping-center ownership. In response to the high cost of

floor space, “homemaker centers” featuring multiple

bulky-goods retailers (furniture, whitegoods, consumer

electronics, garden, etc.) have developed in lower-cost,

easy-parking locations in many cities recently. These sites

have also attracted new entrants such as the U.S.’s Costco.

Like the U.K. and U.S. consumers whom they resemble

in affluence and values, Australian buyers are receptive

to strong consumer brands. Australian consumers have

welcomed the entry of a range of global brands in recent

years, including GAP, Polo Ralph Lauren, Topshop and

others. Entry has been achieved via a range of strategies

including licensed distribution, retail partnerships

(“concessions”) with department stores and direct

vertical retail entry. Historically, private-label offerings

have achieved relatively low market penetration in

Australia, although this has changed somewhat in recent

years with Coles, Woolworths and Aldi each driving their

house-brand share higher.

Australian households were slower to adopt e-commerce compared to the U.K. and U.S., but growth in online retail

spending far outstripped bricks and mortar growth in the three years after the Australian dollar reached parity with the

U.S. dollar in late 2010. Because so many Australian retailers were late to the party in online and mobile commerce, many

are still playing catch-up and launching omnichannel and mobile digital and social-media strategies. At the same time,

however, the strong Australian dollar and the expansion of online offerings by major global brands have seen Australians

spend an increased proportion of their disposable income online. With many expecting the Australian dollar to weaken

as the U.S. strengthens, many local retailers are anticipating improved price competitiveness with the online offer of

international rivals.

Meet Our Experts

Stuart WestmoreMelbourne

Jon WeberBoston

Please contact us at [email protected] for additional information.

L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and brands mentioned in this document are properties of their respective owners.

© 2013 L.E.K. Consulting LLC

CAGR (%) (2008-12)

TOTAL 3.4

Department stores 0.0

Apparel 1.3

Food Services 6.8

Other retailing* 4.0

Household goods** 0.8

Food retailing 4.5

Note: *Other retail includes newspapers and books, recreational goods, phar-maceuticals and online retailing; **Household goods includes furniture, floor coverings, houseware and textile goods retailing, electrical and electronic goods retailing and hardware, building & garden supplies retailing.Source: Australian Bureau of Statistics, L.E.K. analysis

200

150

50

0

Bill

ion

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f A

ust

ralia

n d

olla

rs

2008 09 10 11 12

224

300

Australian Retail Turnover by Industry Group (2008-2012)

Figure 2

250

100

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