And in the aftermath of Starbucks’ drastic downsizing, it is also a big contra-statement about the viability of foreign retail formats on Australian soil.

It is actually the third Australian store for the 200-unit British chain, but the first to be located in one of our genuinely iconic shopping centres. As the retailer’s proud Australian MD, David Herman, thinks of it, Pets at Home is ”going mainstream.”

Can Pets at Home beat the odds and become a durably successful foreign retail concept in Australia? Small pet supplies retailers and the established larger chains will be watching with interest.

If the newcomer does succeed, it will be a slap in the face to our nation’s choir of retail ockers, who have been in fine voice since Starbucks hacked off three quarters of its Australian store fleet a few weeks ago.

Starbucks’ actions elicited nothing short of glee in some quarters: another foreign retailer bombs!

The coffee beans aren’t as good as the ones at competing coffee outlets! The barristas don’t know how to brew the stuff! The management doesn’t understand our culture!

And then there was the unmistakable whiff of Tall Poppyism: We won’t be told which coffee to drink by a big-shot multinational!

If you think you’ve heard this kind of claptrap before you’re not wrong.

Every time a foreign retailer or business of any kind begins to struggle in the Australian market – and make no mistake about it, there have been many – the pie-and-chips crowd moves in to gloat over the remains.

The sad thing about this kind of xenophobia is that Australian retail is in some respects in a wretched state, falling further and further behind the world’s best, and desperately in need of foreign investment and innovation in the sector.

Sure, we’ve got a genuinely world class department store chain and some powerful brands like Billabong that have gone forth and conquered.

But retailers like David Jones, Billabong and a small handful of others are not enough. Retail has its own gene pool that constantly needs to be reinvigorated from outside, or it becomes weak and sickly.

Indeed, foreign investment is probably the only thing that can genuinely improve Australia’s standing in the retail world over the long haul, and may be one of the few obstacles to the gradual exodus of consumers to the internet where they can easily obtain global brands outside of this country.

This exodus is already occurring. After all, if the brands don’t come here then it’s only to be expected that consumers will go to the brands at the first opportunity.

In the year through June 2008 sales by US retailers over the internet totalled a formidable $US 134.1 billion.

Although data isn’t available on how much of this total was attributable to foreigners, the retailers themselves make no secret of the fact that it is one of their most effective and fastest-growing global marketing and sales channels.

The problem for our retailers in Australia is that people travel too much these days and get too much information over the internet. They know what’s out there and they will increasingly gravitate to it. This may not be immediately noticeable in the form of a dramatic sales fall-off for local retailers.

It happens over time, insidiously, under the radar, like the ageing of the population. International retailers that come to Australia with physical stores can help stop some of the leakage.

They can infuse our retail scene with new products, formats and service models that Aussie retailers can be maddingly slow to adopt. (e.g. where was unit pricing until Aldi, a foreign retailer, arrived?)

Pets at home, a superstore format that incorporates the usual pet food and ancillary products with a number of associated services, such as pet grooming, veterinary services and pet adoption, is the latest incarnation of a concept that has been around in the UK, through Pets at home’s parent company, and the US, in the form of retailers such as Petco and PetSmart, for a number of years.

But in Australia it was virtually unknown until David Herman came along.

The pet services/merchandise convergence gives the store terrific destination appeal and enables the retailer to capture crossover product sales from the grooming and vet operations.

For example, animals examined by the vet can get their prescribed medicines a few paces away at the in-store pharmacy.

Pets at home is not the lone ranger of foreign retail in Australia.

Canada’s high-end technical sportswear concept Lululemon Athletica is slowly getting traction through its stores in Melbourne and Sydney, while Lush, an upscale health and beauty retailer from the UK, is already well established.

Germany’s Aldi is snapping at the heels of the supermarket majors, a phenomenon that was well documented during the recent ACCC inquiry into food prices.

Costco, the US warehouse club retailer, may soon enter the fray as well and has the potential to make a significant impact on the existing players in a number of merchandise categories.

Pets at home, Lululemon Athletica, Lush, Aldi and Costco are five worldbeaters. Australia’s small retailers should watch closely because there is a lot to learn about just about every aspect of the retailing arts.

And the retail ockers can stop thumping their chests and sit down.

International retail entrants will not stop the inexorable appeal of shopping on the internet for exotic foreign brands, but they will help us keep up with the best that store-based retailing has to offer.

The global economic downturn has had a significant impact on the retail sector – albeit to a lesser extent on the grocers, due to the fact that food remains a non-discretionary purchase.

Nonetheless, grocery retailers have primarily responded to the downturn in two ways:

1. Promoting value through the expansion of discount stores, economy ranges, price investments and increased promotions.
2. Reducing costs and preserving cash by slowing growth plans and making staff redundant.

Over the next five years, Planet Retail forecasts the Top 30 to grow sales through grocery formats at a compounded annual growth rate (CAGR) of 5.2 per cent, compared with the 10.8 per cent recorded for the previous five years.

Store numbers, meanwhile, are expected to rise at a CAGR of 3.5 per cent, reflecting the fact that a slowdown in expansion will see retailers focusing on their most profitable existing stores.

Discount and small formats to the fore

One of the winning formats for the Top 30 will be the discount channel, which is expected to add $71bn in sales over the next five years. Driven by retailers such as Aldi and Schwarz Group, the no-frills format continues to attract cash-strapped consumers both in developed and emerging markets. By 2013, the Top 30 retailers operating in the discount segment are poised to open an additional 12,600 stores.

Discount stores are just one of the smaller store formats doing well. Retailers are increasingly likely to focus their efforts on small-box stores, given that they require less capital both to build and operate. In fact, stores less than 26,910 sq ft are poised to grow their store network by 4.1 per cent over the next five years compared with just 2.2 per cent for the large hypermarkets.

Also, in the long run, the outlook is positive for proximity retailing as demographic changes mean that there will be more single households combined with lower incomes (because of a higher share of pensioners) and less widespread car ownership.

This is especially the case in the US, where Tesco’s entry has sparked a series of reactive pilots, the most notable being Wal-Mart’s Marketside format, the retailer’s first new concept in the US in a decade. It is too early to say whether small-box will change the face of grocery retailing in the US, as this type of format caters to a very different shopping mode (high frequency/low spend), assortment (greater emphasis on fresh, private labels) and consequently calls for more frequent distribution.

As well as requiring relatively high investment, hypermarkets and superstores, despite being the backbone of many retailers’ strategies, are faced with a lack of available sites, increasingly prohibitive regulations, and a high degree of retail maturity in developed markets such as Western Europe and North America.

However, in the future, the channel will find more fertile grounds for growth in the developing markets of Asia and Latin America. Retail giants such as Auchan, Tesco, Carrefour and Wal-Mart still want to expand their hypermarket presence in markets such as China.

That said, the fact that such retailers are experimenting with smaller formats in these regions (eg, Tesco Express and Wal-Mart’s Smart Choice) suggests they are already planning for the increasing saturation in the large store sector in the emerging markets.

Indeed, internationalisation will continue to be a key trend, with the world’s largest grocers continuing (and in some cases increasing) their investment and commitment overseas. For many, such as Tesco and Carrefour, reducing their reliance on saturated home markets is part of a long-term strategy that will involve them looking beyond the present economic climate to years, if not decades, ahead.

With this in mind, markets such as India – where market entry by the world’s largest retailers is imminent – and Vietnam assume an even greater importance.

Multichannel, single-brand

Another key trend is the move towards multichannel/single brand. Carrefour’s conversion of its French store base to trade under the eponymous Carrefour name should help to strengthen the brand and create buying synergies across its supply chain and via its marketing campaigns. The retailer’s recent announcement that it is to replace its existing No. 1 economy private-label range with the new Carrefour Discount brand is all part of this approach. It is likely that future conversions will occur – particularly in Europe, where operating multiple formats is commonplace.

Private labels set for renewed focus

Against a background of tightening consumer spending, private labels are set for strong growth in almost all markets and for virtually all retailers.

Like discounters, the growth of private labels is nothing new. However, as economies weaken and consumer confidence dips, we are seeing accelerated growth in this arena. The trend is not just confined to the more mature markets either. While private label penetration is presently lower in emerging markets such as India, Brazil and Mexico, these countries are poised for the fastest growth in the coming years.

Also worth highlighting is the sophisticated positioning of own-label products emerging from some retailers, much to the dismay of many brand manufacturers. Retailers are cherry-picking consumers at both ends of the market by developing their economy ranges as well as premium lines.

One such example of a shift in strategy is Tesco’s new Discounter brand. Representing a shift away from the traditional three-tier strategy, Tesco is launching its first labels without the Tesco brand in order to fight German discounters Aldi and Lidl.

The growth of private labels represents a huge threat to the brands that have to compete, not just in terms of price but also for less shelf and promotional space.

With this in mind, Wal-Mart’s recently revamped, expanded and relaunched Great Value private label offering is sure to send a shiver down the backs of both major food and drink manufacturers and competing retailers in the US. With price differentials of up to 20 per cent over national brands and with a stylish new look, this might be the most significant makeover in the US retail sector in recent years, with significant long term impacts.

Is price here to stay?

The big question is what will the retail landscape look like when economic conditions improve? Certainly, some trends such as internationalisation will remain as important as ever as retailers are looking at the long-term picture in such cases.

But, what of the current popularity of discounters and private labels? In both cases, evidence suggests they will continue to grow – albeit at much lower levels than what we are seeing at present.

The past two decades have seen ongoing growth of discounting and private labels globally, even when economic conditions have improved. With many consumers stepping foot inside a discount store or switching from a brand to a cheaper private label for the first time, such recently formed shopping habits may prove to be difficult to break.

Robert Gregory is retail analyst at Planet Retail.