It’s Crunch-time.

If I hear another cop-out excuse citing the customer reaction to the “Global Financial Crisis” as an explanation for crap performance by a retailer in this country I think I’ll puke. The GFC did not, is not and will not affect what customers do, but it sure as hell has affected what retail businesses do – despite the fact it never really touched us. During the last 2 years Australian households have continued to spend in record dollar amounts. The retail market – despite the belief and actions of many in and around the retail industry – has continued to grow. It may not be growing at the rate that would silence the retail industry’s equivalent of ‘Chicken Little’ but it is growing.

And there is only one reason that it is not growing faster.

Australian Bureau of Statistics data (ABS All Retail Sales) indicates that volumes are rising at more than 4 times the rate of sales dollar increases.

With few exceptions, almost every area of retail is under-going deflation.

And lets be very clear, the customer is not to blame. They are spending more and more money. Customers do not price the goods. Retailers do. The industry and competitive reactions are driving retail into a pricing spiral that will see many weak retailers die. As Warren Buffet once said, “It is only when the tide goes out that we can see who’s swimming naked.”

Retailers who sell undifferentiated goods; retailers who sell the same national brands as all their competitors; retailers who have stripped out ease of purchase and convenience for customers; retailers who have stripped away differentiation; retailers who can be easily benchmarked on a like for like basis by customers will be put under increasing pressure.

Truly differentiated global retailers have already made in-roads into Australia and more are on the way. Global dynamos like Aldi have proven they can blow away barriers to entry more easily than many had assumed.

Retailers cost bases are going to go up. Labor costs, exchange rates, interest rates will all begin to bite as the rest of the world begins to catch up to Australia’s economic performance. To be competitive, Australian retailers need to invest and investment costs money. Deflation won’t support investment.

Differentiation isn’t a marketing buzzword. It is an economic prosperity driver. If the customer can’t benchmark you, you cannot be substituted more cheaply. Volume growth in the 21st century will not make up – as are seeing in the ABS numbers – for the unit value given away by deflation and discount. When one of the leading lights of business thinking Jack Trout coined the term “Differentiate or Die”, he wasn’t joking.

The crunch time is here. The end of the lifeline extended by lenders and tolerant shareholders is fast approaching. Time to do what it takes to control your own destiny and reverse the deflation trend. Because the ones that survive will be the ones that can adapt and change – fast.