Rumours are circulating that the Australian mining boom may not have the staying power that was originally forecast. Chris Morley asks the question, if the mining industry begins to weaken, what flow-on effects will that have on the retail sector?
Earlier this week, we heard the news that within two short years the mining boom might be slow down significantly more than first predicted – cooling down over the next few years. This in turn will potentially put a hole in government budgets in the near future.
The mining boom has long been the feature of Australia’s much publicised ‘two speed’ economy and has impacts on all aspects of our market. What better example is there than retail? Where online business grow at a huge rate and bricks-and-mortar merely trickles along.
So what has the mining boom done for us retailers and what will this slowing down of overseas interest in our coal and iron ore do to our retailers?
The current interest in our resources has had a dramatic impact on local retailers. One of the main reasons the Australian dollar is above parity is the mining boom. Overseas orders for Australian resources means they need to buy in Australian dollars. Hence demand increases and the dollar’s value goes like a helium balloon.
The high Australian dollar has made life tough for local manufacturing, but has more relevantly made overseas retail more appealing as goods can be purchased off-shore cheaper via the internet. Those purchases overseas, sparked by a distinct lack of local options, lead to GST debates and increased interest in the online sector. Any reduction in the Australian dollar as a result of a slowing down of purchases for minerals will likely see the percentage of online purchases reduce from the current estimated 25 percent of all online spending. This should be further incentive for local traders to get online and/or make sure their local offering is of the highest standard – failing to do so leaves open the door for international sellers to create a local offering, i.e., ASOS.
The mining boom has also created significant demand for products to be delivered to remote or difficult places as workers and their families have moved to new locations or spent more time away from home. This trend has shaped delivery services and infrastructure in favour online sellers. This market of miners and their families is typically ‘cashed up’ and have not been well served by bricks-and-mortar shops – hence the need for online shopping. Those businesses that have embraced free shipping for their sites will tell you the difficulty of averaging out Australia wide prices to factor into costs to make free shipping work; typically, the heavier the product, the more time spent on a calculator. It also must be said that this market is also very loyal to Australian websites, as deliveries coming from overseas to these remote locations are typically expensive – so much more so than to cities that the cost benefits are markedly reduced.
Interest rates may also fall slightly as the interest in Australian mining wanes. This will occur as the Reserve Bank tries to stimulate consumer spending, which will most likely decrease as a result of the slowing down of investment in projects and softening employment figures. The mining boom has delivered Australia the ability to ride out some tough global times, as well as raising the dollar and offering new locations to deliver goods to. However, if it does slow as predicted, retailers need to be ready for a lowering of the dollar’s value, which might increase demand for local retailers and cause a potential realignment of the distribution models that are currently in place.
Retail is part of a macroeconomic system and it is important that directors of business of all-sizes are aware of potential future economic changes as well as industry-specific ones.