A challenging time for employers in the Australian retail market?

The last 24 months have been a challenging period for retail in Australia. While the challenges faced by the retail sector are not specific to Australia, given the size of the Australian market, the impact is great.

No less than 10 well-known brands have been forced to retract from the Australian market, go into administration, close down stores or reduce their product offering. The well-known names in this group include Topshop, Esprit, Marcs, Woolworths, David Lawrence, Payless Shoes, Rhodes & Beckett and ToysR Us.

These experiences are not limited to a particular category of retailer; rather, a broad range of companies have been affected, including clothing, grocery, baby goods and shoes.

Lowering the penalty rates under the Retail Award

Australia's Fair Work Commission (FWC) has recently conducted a wide-ranging review of Modern Awards.^[1] The General Retail Industry Award 2010 (Retail Award) is an industry award which covers a range of retailers from food retailing, department stores, furniture stores and homewares. The Retail Award does not exclude small business employers; so no matter the size of a business, employers in that industry must comply with the minimum terms set out in the Award.

The minimum rate of pay for a level one employee in the Retail Award is $20.08 an hour. Casual employees are entitled to a 25% loading to compensate them for lost benefits including paid holiday and sick leave. That makes a level one casual rate $25.10 per hour. Additionally, the Retail Award contains overtime and penalty rates. The penalty rate for Sunday work is currently 195% which, for a level one retail employee, equates to an hourly rate of $39.16

Retailers have complained for some time about increasing wage costs. In response, in 2017 the FWC decided to review and ultimately reduce penalty rates in a number of awards, including the Retail Award.

For the purposes of that Award, the FWC decided that:

• Sunday penalty rates will change from:
  • 200% to 150% for full-time and part-time employees; and
  • 200% to 175% for casuals.
• Public holiday penalty rates will change from:
  • 250% to 225% for full-time and part-time employees; and
  • 275% to 250% for casuals.

To reduce the impact of these changes on employees, the Sunday penalty rate change is subject to a transitional arrangement, which will see the penalty rate decrease incrementally until the transition is complete on 1 July 2020.

In isolation, it is difficult to assess the impact of the penalty rate reductions, particularly because the first year of transitioning only reduced the rates by 5%. However, the decision is still significant in recognising the changing nature of work - we have seen a definite shift from a traditional Monday – Friday work week to the current 7 day a week model where Sunday is no longer the most valued day of the week.

Can other 2018 retail trends help Australian retailer employers?

Real-time product delivery

This is not a new trend for 2018; however it is gaining ever increasing popularity with consumers. Whilst it is very manageable for retailers with significant profits, as they can afford to offer free postage and returns to customers, smaller retailers are less likely to be able to leverage bulk agreements with delivery companies and will therefore struggle to meet consumer's demand for instantaneous delivery, without passing on the fees to those same consumers.  The trend of real time product delivery will also remove an advantage currently held by bricks and mortar retail, as the value of immediacy (its current selling point) will also be offered by online retail.

Of course, this could provide more challenging times ahead for bricks and mortar retailers, resulting in further potential store closures and job losses. Casual retail employees who work or an irregular basis are likely to be the most vulnerable as they are not entitled to redundancy pay or long service leave in the event they lose their jobs.

Consumer shopping experiences

A positive retail trend identified by McKinsey & Co is a shift in focus from products to experiences.  For retailers this shift means a need to refocus on customer service and enhancing the customer experience in a way that online shopping cannot.

Technology can assist retailers in creating a seamless consumer shopping experience. As an example, the use of AI may be able to assist retailers in targeting product selection for consumers and also in analysing consumer data to assess product successes. Once acquired, this data can be used to inform retailers about where their focus should be regarding future products.

Essentially, AI could be used to take the intimate customer knowledge that would previously have been held in an employee's mind and using that knowledge to inform product design and delivery for the next season. An employee is likely to know, for example, that during the last two winter seasons the company has struggled to sell winter jackets until at least midway through the season and so perhaps there should be a delay in supplying the store with winter coats until then. All of this data can now be accessed quickly and effectively, through the use of technology, and all to enhance customer experience and overcome some of the challenges retail is otherwise facing.

^[1] Awards are industrial instruments with broad industry and occupational coverage, which proscribe minimum rates of pay, overtime rates, penalty rates and other terms and conditions.