The Emperor’s New Clothes and the Demise of Australia’s Retail Sector

MANY PEOPLE ASK ME for my opinion on the nature of the Australian economy.

The truth is that the Australian economy is, perhaps, remarkably strong. And the reason I say “perhaps” is because it appears that everyone believes this. Everyone, that is, except the average Australian you speak to on the street.

Not that you should believe them.

Unfortunately, Australia has bought the media-spun, Chicken Little lie that the sky is falling. And while this may be partially true in some parts of the world – think Greece – this could not be further from the truth in Australia.

And it’s the first industry to suffer when consumers tighten their wallets that is suffering. In 2011, Australia’s retail sector took a well-documented hit, with a number of home grown mega-retailers closing their doors despite Australians having plenty of jobs and plenty more money than other Western nations. Fanned by a strong Australian dollar and the accompanied increases in online spending to ship goods from the USA and Europe at rates cheaper than the local shopping mall, one could suggest it’s a triumph of free market ebb and flow. But is it?

Despite all of this, Australia has been rightfully highlighted as a model of intelligent positioning and fiscal responsibility in the Western world and is certainly positioned well to keep growing nicely for decades to come, yet all the while the Australian people, succored by their media, have bought the party line that they, too, are suffering through instability spawned by the GFC.

More than the few dollars saved to ship a iMac from the USA, the damaging decline in their retail sector – again, despite any real economic hardship – can be accounted for by consumer confidence. Or the “Emperor’s New Clothes”.

So this begs the real question that has a crucial lesson for all investors and business owners, alike:

Can the psychological state of the consumer impact the economy more than the necessities that form the basis of economic growth?

At a quick glance, the answer appears to be both yes and no. But, at a closer look, I’d suggest it’s “no”.

Let me explain this:

The average Australian and Australia as a nation is experiencing a prolonged period of prosperity not seen on record. This is all due largely to the resources boom of the past decade.

The country is growing steadily by serving, essentially, as a parasite to the booming Chinese economy.

At the same time, Australia’s residential property market has barely experienced as much as a blip since Countrywide exposed Freddie and Fannie in the US. Property values in most major markets are increasing nicely… still.

The unemployment rate experienced an “uptick” of 0.1% in November 2011, to hit a whopping 5.3%. Say it isn’t so!

Translated to American terms, that equates to nearly a full half of the current unemployed in jobs. Yes, a full half! If half of America’s currently unemployed were capably employed in their field would that make a difference to consumer sentiment in the USA? Just a little bit?

Australians enjoy a renowned quality of life and this is somewhat helped by a massive minimum wage of $15.51 (approx. $US14.00). The country is growing, the population is working and cashed up, their houses have held and, largely, increased in value, the Australian stock market is ticking – but retail is getting blown out of the water?

I mean no mockery of those in the retail sector who have lost their shirts, but this failure in the Australian economy is occurring in spite of the factual data that largely suggests it shouldn’t. It is clearly an aberration.

Much of this is the Australian media’s fault. However, it’s the individual’s responsibility not to get brainwashed, though.

At the core of my business philosophy is the idea that money will transact towards value, almost without any effort.

This powerful driver is next to impossible to stop. It is for this reason that the world economy will press forward, even if it stumbles, until it is ever fully prevented from doing so. Short of a global nuclear crisis, there is no reason to believe this will ever be the case, not even if the American dollar crashes and the entire European Union becomes insolvent. Someone will still need stuff from someone else, requiring that person to somehow generate that stuff!

So here’s the lesson:

Contrary to lagging consumer sentiment, the undying, fear-inducing media attack on business confidence in much of the Western world, the economic activity of a continent, a nation, a people or a small business will not be determined by psychological state of the consumer. Australia’s economy proves this, right now. Instead, it will be determined by effectively communicating the superior ability to transact in value.

One must identify the value proposition:

Where is the core value being transacted? Where is the substantial value? Is this country, product or service actually valuable?

The money didn’t go anywhere. The big green, one-eyed monster didn’t steal it. Scrooge McDuck isn’t swimming in it. It just followed value.

Money will always transact in the direction of value. You’d better have substantive, documented and real value to transact – and you’d better know how to most efficiently and effectively communicate the value in the coming years, whether to customers, vendors, your employees, your investors, or potential acquirers. Or you could face the same fate as Australia’s retail sector – and just like it, despite all the facts that suggest you shouldn’t.