While this article is not about SIP directly,it has an interesting opinion about the pharmacy sector in the future.
"Chains like Coles, Myer and Woolworths to take stock of changes"
* Blair Speedy * From: The Australian * December 26, 2009 12:00AM
MOST major retailers are already sitting on a full dance card in terms of the next five years.
Coles is intent on catching up with Woolworths, Myer has its new store opening schedule, and Woolworths and Metcash are entering the hardware market.
In buying the Mitre 10 hardware distribution business, Metcash chief Andrew Reitzer says he has grabbed one of the last remaining opportunities for major retail expansion in Australia -- the other being pharmacy.
In teaming up with Woolworths to establish a chain of big-box hardware stores to compete with the Wesfarmers-owned Bunnings, home improvement giant Lowe's is the second major US retailer to target Australia for major expansion in the next decade. The other, discount warehouse operator Costco, opened its first Australian store in Melbourne in August and expects to open a Sydney store next year.
The company has yet to declare the number of stores it plans to open but Costco Australia managing director Patrick Noone says that US stores are supported by populations as small as 500,000.
However, Deakin University business academic Stephen Ogden-Barnes says Australia's geography and small population mean it is unlikely to become dominated by US-style "megamart" retailers such as Wal-Mart.
"That hypermarket really depends on a large number of locations and high population density to make it work, and we don't have either," he says. "It's a different market and there are some real limitations in terms of population and geography that mean things that work overseas don't readily translate here."
For the same reason, he says Australia is unlikely to be colonised by such major foreign retailers as US clothing chain GAP or Britain's H&M, although Premier Investments, owner of the Just Jeans chain, has said it is on the lookout for licensing deals that would allow it to bring foreign retailers to the Australian market.
The prime suspect is Spanish fashion chain Zara, for which Premier chairman Solomon Lew's family company holds the Australian rights.
Meanwhile the pharmacy sector, which has successfully defended its monopoly on drug dispensing services, could fall to the majors in coming years.
Under an agreement between the industry, represented by the Pharmacy Guild, and the federal government, only registered pharmacists can own pharmacies, which also cannot be located within supermarkets.
Former Woolies CEO Roger Corbett unsuccessfully lobbied to have the restrictions lifted the last time the regulations were considered in 2006, but the federal government is currently negotiating the terms of a new Community Pharmacy Agreement to come into effect in July next year.
There has been little pressure to change the rules this time around, but once Woolworths has bedded down its new hardware venture and Wesfarmers has completed the Coles turnaround, they might be ready to make a new approach by the time the next agreement lapses in 2014.
It's an opportune time to get into the healthcare market, with the federal government warning the proportion of Australians aged over 65 is expected to rise from 13 per cent today to 22 per cent by 2049.
Ogden-Barnes says this will lead to a broader shift in retailing, as shoppers increasingly demand measures such as wider aisles that facilitate mobility aids.
"The current retailers will have to extend their relevance, or new players will be able to steal market share from them, based on demography rather than market category," he says.
The government will also decide how much of a role private equity investment plays in the retail market over the next decade.
After buying and then floating such companies as JB Hi-Fi, Just Group, The Reject Shop, Pacific Brands, Myer and Kathmandu over the past decade, private equity has played a key role in shaping the Australian retail market.
However, questions over the taxation treatment of capital gains on such investments could discourage future buyouts.
But regardless of the regulatory and market environment, Woolies boss Michael Luscombe says the fundamental nature of retail will never change.
"In the last 10 years, the retailing landscape in Australia has changed quite considerably," Luscombe says.
"There are new competitors bringing choice and diversity, new technologies improving the shopping experience for customers and new growth opportunities such as fuel and liquor all adding additional value for shoppers.
"But the basics remain the same as they always have -- serve your customers better than your competitors can -- that principle hasn't changed in centuries."
SIP Price at posting:
97.0¢ Sentiment: Hold Disclosure: Held
