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IBISWorld

IBISWorld
July 2011
Retailers struggle to attract reluctant shoppers
Since the global financial crisis, shoppers have tightened their belts and retailers are pulling out all the stops to attract consumer dollars.
Cloud computing 101: What it means for business
Cloud computing is set to change the way companies do business. But what exactly is cloud computing, and how can businesses make use of it?
Online education widens the net
Technological advancements and faster internet speeds are driving online education’s rapid growth. Providers are expanding to new markets, enhancing growth potential.
Losing the limelight to online media
While Australians take advantage of high-speed broadband technology for their digital entertainment, CD and DVD retailers and rental companies are suffering.
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Retailers struggle to attract reluctant shoppers

Despite steady income growth, Australian shoppers remained reluctant to open their wallets in 2010-11. Results varied for retailers, with sales of products linked to discretionary spending (particularly clothing) suffering most from subdued consumer sentiment.

Consumer spending behaviour changed dramatically after the economic downturn in 2008-09, and as yet shows few signs of returning to pre-crisis patterns. While Australians racked up high levels of household debt in the mid-2000s and still continued spending, they have since become savvier shoppers and are using the savings to pay down debt. Australia’s household savings ratio has grown to its highest point in over 15 years as consumers have become uncomfortable about their level of personal debt. During 2010-11, environmental disasters across parts of the country, interest rate rises and the proposed introduction of a carbon tax weighed on the consumer mood, causing households to take a conservative approach to managing money.

Department stores have borne the brunt of consumers’ caution. Myer and David Jones are struggling to increase revenue and profit as the market is close to saturation. In 2010-11, both companies concentrated on store refurbishments and discounting stock to attract reluctant shoppers. The continued promotion of sales and discounts since the economic downturn has had an overall deflationary effect, meaning shoppers now expect prices to drop and will defer their purchases of new items accordingly.

While fashion clothing remains a staple product segment for department stores, the entry of major international clothing labels like Gap and Zara into the Australian market is expected to further shake up the clothing retailing industry. European brands in particular represent a growth segment for the Australian market, as consumers seek to follow international fashion trends. Spain-based operator Zara is expected to perform well in the difficult conditions due to its broad range of merchandise, widespread brand recognition and affordable prices. The constant introduction of new items in-store will further encourage customer loyalty. As competition heats up, Myer is expanding its private-label offering to improve margins, while David Jones has focused on signing exclusive agreements with key fashion labels.

Middle-range retailers will continue to face intense competition, as the brands that benefited from the boom years of consumer spending in the mid-2000s like Witchery, Cue, Sportsgirl and Country Road are pressured to continue discounting merchandise. At the other end of the spectrum, low-cost retailers have performed relatively well as many consumers trade down from mid-range goods, while luxury retailers are less affected by price-based pressure due to their branding power.

A steady rise in overall retail sales is estimated for 2011-12, yet consumers will continue bargain hunting, refusing to pay full price for many products. Spending on clothing is likely to remain subdued until the consumers who started saving in 2008 feel they have paid down debts to a manageable level. Department stores will remain pressured by the consumer expectation for discounts and will face tough competition from specialty retailers, particularly as international brands with higher-quality brand positioning and lower prices enter the Australian market.

Relevant industries include: Clothing Retailing , Department Stores

Cloud computing 101: What it means for business

When it comes to business and computing, the term that seems to pop up left and right is ‘the cloud’. Apple’s pre-launch announcement about its iCloud has brought cloud computing into the spotlight again, with the term used in connection with big companies like Apple, Google and Microsoft. But what exactly is cloud computing? And what does this technological evolution mean for small-to-medium businesses?

Cloud computing is internet-based computing where businesses and individuals can share and store resources and information, as well as use software, which can be accessed through computers and other internet-enabled devices at any time. Instead of needing capital, cooling systems, server rooms, IT staff and software to set up or run a business, companies can outsource these requirements to cloud-computing providers.

Every business must store data and run business applications and communications. Many businesses install a server — or many servers in a data centre — and hire specialist IT staff to run it. With cloud computing, businesses instead rent capacity in a provider’s data centre and connect over the internet. The provider’s staff install, maintain and upgrade hardware and software as required. This model gives small-to-medium businesses access to high-end equipment, maintenance and security to achieve economies of scale in IT costs that previously only large corporations could achieve. Services like data storage, accounting, e-mail, customer relationship management, project management, spam and virus filtering, e-commerce, audio and video streaming and general databases are all available in the cloud. However, the technology and services of cloud computing are still in their developmental stages, with some concerns to be addressed before a larger-scale take-up.

While shifting to the cloud removes the cost of maintaining proprietary systems, businesses must still configure the generic cloud-based service for their unique needs and train their staff. Businesses could become dependent on their cloud providers – a concept that is beneficial for cloud-computing providers, but feared by some small businesses, as it may leave them overexposed. The shift to a cloud-computing model moves the systems, security and maintenance to a third party, so trust and privacy become important.

Due to global accessibility of cloud computing, providers can be based in one country yet accessed from many. This raises concerns about privacy and data access laws, and how they differ from one country to the next. Users unaware of the differences may find their data used for marketing or anticompetitive purposes. Cloud-computing users must be confident their data cannot be accessed by others or used by the cloud operator for undesirable purposes. However, big cloud providers like Google have some of the best security and backup procedures available. Continuing development will help address security and privacy issues, and as these concerns are addressed, more businesses will make the switch.

Cloud computing requires solid internet links and Australia’s broadband infrastructure may have held back adoption. However, the rollout of the National Broadband Network is expected to remedy this. Given that the cloud provides cost-reduction potential, it will take only a slight increase in business confidence to encourage potential subscribers to look at cloud business operations. While a large-scale shift to cloud computing is not expected yet, some big companies have already committed to cloud computing, including Commonwealth Bank and Westpac.

Near-future developments expected in the way businesses are run involve changes in the way of outsourcing. Organisations tend to move all their IT operations to outsourcing specialists or maintain them in-house. The future will be about tailoring specific outsourcing contracts instead of all-encompassing agreements. Existing large contracts may be divided according to what an organisation believes will offer the greatest advantage to its operations. The evolution of cloud computing will enhance the specialisation of computing contracts. Over the next five years, Australia’s cloud computing industry is expected to grow 4.5% per year.

Relevant industries include: Online Information Services, Internet Service Providers

Online education widens the net

Despite accounting for only a small share of the total education sector, online education has grown robustly since it emerged in the 1990s. As the internet and its applications developed, so too did online learning. The industry continues to expand rapidly, with nothing but more growth in sight. Several TAFEs and universities have led the charge, with organisations like Open Universities Australia developing new products and markets through online course delivery.

The introduction of new internet applications and new technology has been central to the development of online learning. As online education depends on available infrastructure and technology, the rollout of the National Broadband Network (NBN) will aid the industry’s future growth by raising the number of internet connections and increasing the speed of data transfer across the country. The NBN will make online education possible for those in regional and remote areas. Students living in remote areas are an obvious market for online education and the reason behind the early development of distance education. However, without sufficient access to the internet, this market has remained largely untapped.

Currently, the major market for online education is city-based students who are unable to attend a physical institution. This includes people with significant work or family commitments and those with physical disabilities. Employer-sponsored enrolments are another important market. Several providers cater to corporate training and offer customised programs. These are typically professional-development, management and IT courses. Online education offers the kind of flexibility of delivery that employers find valuable and can be an inexpensive training option. This market is rapidly expanding as online education gains greater recognition and acceptance.

The number of online education providers has skyrocketed, with more than 550 enterprises estimated to have entered the industry over the past five years. These enterprises are usually existing establishments that are extending their services to include online courses. Such providers have generally been more successful than newly established online-only providers, as existing education providers have a physical presence and are already recognisable and reputable.

The expansion of online education is not expected to cease any time soon. The bourgeoning industry’s growth will be supported by the continued uptake of high-speed internet services, growing acceptance of online education, government financial support for students and efforts to expand access to non-traditional students. Over the next five years, the penetration of internet services is expected to exceed 90%. This means an increasing proportion of Australians will become familiar with internet-based applications, which will support the continued growth of online education. Competition within the industry is also expected to rise as more providers enter the business and existing operators seek to expand their market share.

Relevant industries include: University and Other Higher Education, Technical and Further Education

Losing the limelight to online media

Revenue from tape format products was phased out of the Australian video product statistics in 2008 after VHS sales were no longer considered significant. Optical disc products are now facing a similar fate, as new media technologies like digital downloads and video-on-demand services fire up competition in the home entertainment market. Video piracy has also been a contributing factor, with consumer spending on sales and rentals of DVD and Blu-ray products suffering losses of $332 million last year because of illegal downloads.

The video hire industry has been hit the hardest by the increasing popularity of alternative media and is expected to be among the bottom industries in 2011 in terms of revenue growth. Franchise Entertainment Group, operator of the Blockbuster and Video Ezy video rental and retail chains, announced that in May it had invested $2 million in the rollout of 1,000 video rental kiosks across Australia. The group’s investment will make it the largest competitor in the video kiosk market, which currently comprises Redroom DVD and Hoyts-owned Oovie-branded kiosks. Besides this, the group is conducting a three-month trial introduction of Lucky 7 convenience outlets to existing rental stores.

The recent diversification of the group’s product offerings is in response to the decreasing popularity of video rental outlets. The group, which boasted approximately 900 outlets nationwide when it acquired the Blockbuster chain in 2007, now operates approximately 630 stores. Revenue for the video hire outlets industry is forecast to decline at an average annual rate of 2.7% over the five years through 2015-16 because of significant competition from new media technologies and video piracy.

Another company heavily invested in the CD, DVD and Blu-ray markets is Sanity Entertainment Pty Ltd. The company once operated as a subsidiary of Brazin Limited, but it was sold to Sanity’s management team in 2009 for an undisclosed sum and returned to its core business of music and movie retailing. IBISWorld considers the company a major player in Australia’s music retailing industry, with an estimated market share of 21%, second only to JB Hi-Fi, which has an estimated market share of 50%.

In 2008, Sanity responded to the evolving media environment by launching an online music subscription service. However, the service was scrapped four months after its launch as its popularity was hindered by uncompetitive pricing, restricted usability and heavy competition from Telstra’s BigPond and Apple’s iTunes services. The tough times experienced by Sanity after the ownership change resulted in company revenue declining 16% in 2008-09 and a further 21% in 2009-10. With retail spending in Australia at one of its weakest points in the past two decades, 2010-11 is unlikely to have been a turnaround year for the company.

If on-demand movie and music download services continue to pick up pace in Australia, CD and DVD stores may soon face the grim prospect of extinction. Companies like Franchise Entertainment Group and Sanity Entertainment will need to finds ways to drive new sales streams or risk becoming another footnote in history.

Relevant Company Reports: Sanity Entertainment Pty Ltd, Video Ezy Australasia Pty Limited

In the last month, IBISWorld has updated 131 reports, including the following:
C2811
Motor Vehicle Manufacturing
Revenue change in 2010-11: -12.2% to $9.68 billion
C2910
Prefabricated Building and Kit Home Manufacturing
Revenue change in 2010-11: 0.0% to $3.10 billion
I6642
Road Freight Forwarding
Revenue change in 2010-11: 4.1% to $3.20 billion
The industry has struggled to keep up with changing consumer preferences, resulting in large losses for the industry.The industry, which received substantial stimulus from the Government, remains at a record level of revenue.After a strong performance in 2010-11, increased manufacturing activity and trade will keep this industry powering ahead in the years to come.
To see the full list, click here
Feature Reports
FREE DOWNLOAD Industry Insights: The Clean Energy Plan and Australia’s Economy
July 2011: Download our free special report to find out which industries will be most affected by the Clean Energy Plan.

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