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The 10 biggest issues facing start-ups in 2013: #4 Falling consumption

Friday, 14 June 2013 | By Gunilla Haglundh

What are the main issues Australian start-ups are grappling with? Accountancy and business advisor network DFK recently conducted a survey of its clients and staff to identify the top 10.


We’ve already highlighted number 10, cloud computing, and number nine, exit strategies. The beefy Australian dollar is in at number eight, while political uncertainty is seventh, growing pains number six, while number five is how to hire and keep staff or let them go quickly.


Today we look at number four and examine the falling levels of consumer consumption that are hurting the retail and manufacturing sectors.


Confidence among small to medium enterprises has not improved much since the global financial crisis.


Very small businesses are more positive than medium-size businesses, which are really struggling, and the traditional retail sector is screaming for more regulation for online businesses, specifically the lowering of the GST-free threshold for online purchases.


“At the end of the day, this is business. Business is brutal. If someone finds something better or cheaper than what your business is providing, they will leave,” says Michael Gray, partner of DFK Australia New Zealand.


Start-ups appear to be less responsive to improvements in external factors such as an easing in the European crisis. They are more affected by what is actually happening in their business. Capacity utilisation has fallen to its lowest level in history.


Job losses have been most prevalent in manufacturing and wholesale. The recently announced closure of Ford’s Australian-based operations in Melbourne and Geelong will have a negative effect on unemployment. Labour costs grew less than anticipated, meaning weak employment. Price inflation has been consistent with poor trading conditions.


This, combined with a modest cost increase in general, implies further press on margins, especially for retail.


It is no secret that retail is struggling, not only in Australia but in all developed nations, and internet trade is a big factor.


“Several retail clients of mine think it’s unfair that they are hit by 10% GST while internet trade is not. I don’t think that the Australian government will do anything about that. The cost of the logistics will most certainly outweigh the revenue. That’s why you don’t hear the politicians applauding the idea,” says Gray.


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There will soon be a whole generation used to making all their purchases online and who do not waste their days with traditional shopping. Many retail and eCommerce experts see this trend as an indicator that internet trade will continue to grow.


"In this very competitive retail environment we have advised clients to set up an online presence with the after-sales service benefits included. We have found the results to be pleasing so far, with clients turning negatively performing business divisions (on the verge of closure) into positively performing divisions,” tells Graeme Bellach, partner of CIB Accountants and Advisers.


However, traditional retail has some advantages over Internet trade – warranty and after-service to mention but two.


“It’s about identifying where your business is unique and stands out from others. The traditional retail industry needs to promote their after-service, for instance, or anything else that differentiates them,” says Gray.


Even though struggling retailers complain about non-compassionate landlords increasing their rents, new shopping centres are still being built.


“There is more to retail than the actual shopping. It’s also about the experience – to spend a whole day at the centre, having coffee, go to the library, have a massage or visit your accountant – everything under one roof,” says Michael Gray.


The assumption in building more shopping centres is that since the population is growing in size, our consumption will inevitably increase too, though possibly at a slower rate than what has been the case in the past.


However, they better be good and offer exceptionally good value, especially for the younger generation who are time poor and lack patience, before they switch on to something else.


"The customer is the key and most want an online shopping experience these days, which is crucial to their busy lives, so retailers need to provide this service if they want to survive,” Graeme Bellach.


Top advice for struggling retailers


1. If your store is not online, get it out there. If you don’t know where to start, make segment by segment of your store available to the online trade.


2. Leverage between your online trade and traditional. Make special offers online available for when they are visiting the store.


3. Build a community online for your products.


4. Try a new line of products online before bringing them to your store in order to keep logistical and inventory costs down.


5. If you have decided to stay as you are without any online trade, your services or products need to be very unique. Even if they are, you may still find yourself in difficulties within a few short years without an eCommerce presence.