2013 has been another tough year of transition for many retailers, with major Australian retailers such as Billabong, Lisa Ho, and Payless Shoes all paying a high price for poor management decisions. The rising volume and value of e-commerce transactions has started to impact the retail property landscape, and promises structural change and pain for many retail property owners.
Shopping is clearly an essential part of modern existence, but then so is putting out the bins for council recycling. Necessity clearly isn’t enough to generate retail enthusiasm and profitable repeat business in a retail landscape overcrowded with options. So retailers stuff our letter boxes and inboxes with discount offers, putting considerable effort into convincing us to merely visit their virtual and physical stores.
The slow motion train wreck of the 2013 election campaign has already been widely blamed for poor retail spending. As you might expect, the National Retail Association and the Australian Retailers Association both jumped on the latest ABS retail figures to claim that confidence and retail sales were already showing signs of improvement due to the change to a stable, business friendly federal government.
These attempts by retail lobbyists to link poor retail performance with election campaigns certainly generate a lot of media reporting, but fall apart under scrutiny.
Australian Bureau of Statistics retail sales figures have shown that retail spending has been trending sideways now for most of 2013, after solid growth in 2011 and 2012. August 2013 figures show very flat retail spending across most product categories.
Australian’s were inundated in 2011 and 2012 with almost non-stop media speculation of the imminent demise of the Federal minority government. Australia has effectively endured a three year long election campaign. Strong ABS retail figures for 2011 and 2012 contradict the theory that constant media reporting of government instability and negative electioneering have a huge impact on retail spending.
An economic analysis by Goldman Sachs published in 2013 looked at the impact of Australian federal elections, and found that election campaigns actually lift retail spending, with a decline usually occurring immediately after an election.
The election campaign with the clearest post election boost on retail spending was the 2007 election, where Kevin Rudd deliberately provided cash handouts to Australian families, in an attempt to pump prime the economy in the midst of the global financial crisis.
In case you were wondering whether it matters which political parties are involved, in October 2007 when John Howard set the election date, retail lobbyists warned that sales of household goods would dry up, or at best be delayed during the election period. With the luxury of hindsight, we can now see that the ABS figures for November 2007 household goods retail spending were strong both before and after the election.
Politicians and election campaigns are clearly not the core issue facing struggling Australian retailers. Many of the key problems facing Australian retailers are self inflicted, and related to a lack of innovation.
Inside Retail recently rated Big W, The Iconic, Sportsgirl, and Deals Direct as the top Australian e-commerce sites, and eBay and Amazon as the top international sites servicing Australian customers. Woolworths proudly announced in their recent corporate results that Big W is Australia’s largest domestic online retailer, with 42% growth in online sales in FY2013.
Most Australian retailers are however still just operating on a small scale online, using a modern version of catalogue and mail-order retailing. It appears that we are however finally experiencing a period where major Australian retailers are implementing serious e-commerce capabilities.
Woolworths is projecting that online sales for Big W will reach $1b in FY2014, or roughly 22% of revenue for the division. This target is ambitious given their previous performance online, and shows enormous optimism. It is comparable to the online revenue benchmarks being achieved by top performing major bricks and mortar retailers in the US, such as Neiman Marcus. As a point of comparison, JB Hi-fi, Specialty Fashion Group, and David Jones all achieved online sales of less than 4% of their overall revenue in FY2013.
In terms of the transition to e-commerce revenue streams, major US bricks and mortar retailers are typically three to five years ahead of major Australian retailers, and have already substantially re-engineered their businesses to place e-commerce at the centre of their customer offering. There is widespread deployment of “click to collect” sales models, in-store purchasing of out of stock items, and even same day delivery in major urban areas.
In the US and China in 2012 and 2013, Kantar Retail pricing studies have shown that in-store prices for some product categories are already considerably lower than online prices. Bricks and mortar retailers are already taking advantage of the many opportunities they have to sell additional high margin products to a person who is in-store, allowing them to reduce prices below levels achievable online. In some cases retailers are already systematically undercutting their own online prices for their in-store offerings.
Mobile phone technologies are now also offering major new opportunities for e-commerce to occur in real-time wherever a customer might be. PayPal has been attempting to shoe-horn their way into shopping centres for some time now, and has recently continued that push with an interesting technology called Beacon. Beacon relies on a PayPal app being installed on a person’s phone, which then automatically communicates the shopper’s details to the retail point of sales computer system when a person enters a store.
PayPal’s new concept obviously creates the potential for creepy new invasions of personal privacy, while also offering new sophisticated customer service opportunities for businesses. The concept allows for customers to automatically “check-in and pay” by simply walking into the store. The pitch to consumers is “No cash, no cards, no signatures required”. It could perhaps just as easily be “Buy stuff without dealing with pesky staff”.
Not every in-store innovation is quite so intrusive or high tech. Samsung recently received a number of Australian industry awards for their in-store point of sale marketing.
Rather than relying on stunts or complex technology, Samsung showcased product ranges in dedicated displays, with strongly themed and relevant multi-media explaining the “story”.
According to Samsung, this lifted average sale price, and reduced the need for discounting. When a store is busy and customers can’t find sales staff, “it’s the dynamic point of sale material that does the silent selling”.
Retailers are clearly not the only businesses that are facing a bumpy transition to a more e-commerce focused world. But retail leaders have traditionally achieved business growth via opening new stores, while running very labour intensive operations. The future returns and viability of these traditional retail strategies are far from clear.
The Internet and powerful mobile phone applications have already had major impacts on suburban and inner-city lifestyles. Customers might not always be right, but they need to feel they are the centre of retail attention. Retail leaders should re-build their offerings around the changing lifestyles of their customers, and focus on embedding innovation into the core of their businesses.