- BRW Lists
Published 29 November 2012 05:14, Updated 30 November 2012 04:55
Everywhere you look these days, established retailers are dropping like flies. The casualty list is long – Retravision, WOW Sight & Sound, Angus & Robertson, Borders, Colorado Group, Retail Adventures and Darrell Lea are just some of the archetypal retail brands that have closed their doors for good in the past few years.
Times remain tough for the retailers left standing, from Harvey Norman whose profits dropped 20 per cent in the September quarter to David Jones, which reported a 40 per cent slide in net profit in its last set of full-year results.
About five years ago, retailers were caught sleeping by two huge trends – technology and the changing needs of the consumer. The founder of retail consultancy Retail Oasis, Stephen Kulmar, says Australian retail was “myopically focused” on business efficiencies and cost savings from about 1999 to 2007.
“Retail was simply caught with its pants down when the markets stalled, the consumer became more sophisticated and digital enablement changed the shopping behaviour,” Kulmar says.
“Since then, retail has been in a spin reorganising, reprioritising and refocusing. Catch up is never good as there are always casualties.”
But all is not lost for big retail names. Living in the digital revolution means businesses can move rapidly to regain lost ground – so long as they get on top of the following six trends.
1. GLOBAL THREAT, GLOBAL OPPORTUNITY
Consumers can now buy from anywhere in the world with the click of a mouse. And with the high dollar, they’re also heading off on overseas holidays with one suitcase and returning home with several. Some retailers are playing a defensive game and focusing on lobbying to get GST applied to online purchases from foreign websites at a lower threshold. But as most consumers would tell you, the price differential is usually much more than 10 per cent.
Myer chief executive Bernie Brookes is blunt about who is to blame. He says international suppliers are “taking advantage of the Australian consumer”, with cosmetic companies and men’s apparel brands particularly notorious for differential pricing.
“They have been profit gouging in Australia for a long time and that’s coming to an end because the consumer can go online and buy that cosmetic or polo [shirt] from overseas and bypass the Australian distributor and the Australian retailer,” Brookes says.
“Everybody seemed to blame the retailer for that but if you look at the retail margins in Australia, they’re no different to anywhere else in the world.”
Now retailers such as Myer and its main local competitor, David Jones, are finally starting to see the results of months of intensive negotiations with suppliers, with prices permanently dropping up to 50 per cent in some cases. Brookes does want the government to close the GST “loophole” but it’s not his main game; he describes driving down the wholesale price as the company’s number one priority along with improving customer service.
The fact that local retailers are now competing on an international stage also offers opportunity. David Jones chief executive Paul Zahra says a future upgrade to the website would allow the store to sell overseas, which he sees as an opportunity give the retailer’s strength in Australian designer fashion brands.
For start-up Shoes of Prey, which lets you design your own shoes, the company was born global. Co-founder Michael Fox says two-thirds of Shoes of Prey’s sales are outside Australia and the company ships directly to customers from its manufacturers in China.
2. BUY ANYWHERE, ANY TIME
The catchphrase du jour in retail is “omni-channel sales strategy”. It’s a fancy term for a simple concept – what it means is that shops need to sell wherever customers are looking to buy. This is what is leading traditional retailers to embrace online shopping and open pop-up stores. And it’s also the reason some e-commerce companies are considering partnering bricks and mortar retailers.
The key is getting the balance right. Active wear retailer Lorna Jane is planning to reduce the number of stores from 120 to 100 next year but expects to make up the difference with online sales, which are now equivalent to about 20 of its bricks-and-mortar stores.
Lorna Jane’s digital strategist, Sam Zivot, says the company has a highly developed social media strategy, with a particular focus on Facebook. With 550,000 likes to its main Facebook page plus pages for individual stores, it has one of the largest and most engaged Facebook fan bases in Australian retail.
“Facebook is our fourth-biggest driver of traffic and revenue on our website – it equates to about 10 per cent of revenue from an online perspective,” Zivot says. “Email is still number one, followed by organic search and paid search.”
Similarly David Jones’ Zahra thinks it is an advantage that the company has only 36 stores as it grows its online channel. In early November David Jones launched its new online shopping store, a mobile-optimised shopping site and shoppable iPad app with 90,000 different products (stockkeeping units, or SKUs).
But for Zahra, the key is not about replacing the chain’s 36 bricks and mortar stores but about how the different channels can work together.
To that end he is also working hard to restore David Jones’ famous service proposition. In the past year the company has introduced 100 new floor supervisor roles and 200 style advisers, 45 in-store events, a personal shopping suite and a bridal suite. Customers can also book time with specialist sales staff via the website.
“My vision for the company is to be the best branded department store shopping experience to everyone we serve any time, anywhere, every time,” Zahra tells BRW. “Customers are in the driving seat, they’re choosing how they interact with a retailer, it’s not the retailer telling the customer what to buy.”
Furniture retailer Coco Republic also sees online and physical retailing as complementary. Executive chairman Paul Spon-Smith says customers want to see furniture in person but staff now have iPads so they can show customers the full range beyond what’s available in the showroom. The Apple store also has an integrated approach with features like EasyPay that lets people scan and pay for accessories with an iPhone app using their Apple ID.
3. INSTANT GRATIFICATION
So long as the price is right, there is one clear way for Australian retailers to compete with their international counterparts – fast delivery and easy returns.
Last week fashion retailer Cue, which famously manufactures all its clothing in Australia, announced a partnership with Want It Now. It is thought this deal makes Cue the first bricks and mortar retailer in Australia to offer evening delivery and three-hour delivery for orders from its online store, albeit only in Sydney for the time being.
The service lets Cue customers book their delivery slot for the same day or up to five days in advance and gives them access to the Track’n Trace app that lets them track the progress of the courier. “This is a bold move, which not only puts Cue ahead of its fellow fashion brands but ahead of online retailers,” Cue chief executive David Kesby says. The Want It Now service, a division of Mail Call Couriers, is used by more than 60 retailers, mostly e-commerce companies.
Another company offering innovative delivery options is Parcel Point. The idea is to provide consumers with the option of picking up a parcel from a local store with longer trading hours than the post office, such as a newsagency, video rental outlet or convenience store. Parcel Point co-founder and CEO Adam McArthur says Parcel Point now has 1000 locations and is rolling out its coverage using heat maps showing online retail activity by postcode. He points out that the service benefits the retailers providing the collection service as well as the online retailers sending the parcel. “It’s driving online shoppers into their location – they’re not just hoping someone will come into the store that day, they know that people will be coming to pick up their parcels and may buy other things while they’re there,” McArthur says. A CoreData survey, commissioned by Parcel Point, suggests 82 per cent of consumers would buy up to twice as much from retailers that offer more convenient delivery.
Delivery is an area where physical stores can offer a hybrid model. Myer is set to introduce “click and collect” to let customers order online and pick it up in-store and Brookes says the company will soon offer express delivery options. Both Want It Now and Parcel Point offer a returns service but physical stores have the advantage over online-only and overseas counterparts because customers can return online purchases to any store and deal with a real person under the framework of Australian law.
4. BIG DATA
Businesses that don’t analyse customer data are missing a trick. Understanding the customer leads to more targeted marketing messages and a better business strategy, helping inform such decisions as where to open stores and warehouses and what products to stock. The trick is not just collecting the data but investing in data mining technology to analyse it properly; worldwide the company most famous for this is Amazon.
Online retailers are naturally data rich but loyalty cards, store credit cards and payment apps can bridge that gap for bricks and mortar retailers and help give them a single view of the customer. Many retailers, such as clothing chain Jigsaw, recruit loyalty club members in stores and follow up with targeted offers by email, redeemable both in stores or online.
The next horizon is likely to be mobile. Technology start-up StreetHawk offers stores the ability to send targeted SMS messages to customers when they are nearby, using the location functionality on mobile phones for customers who have opted in.
5. BACK-END IS CRUCIAL
Cloud computing, supply chain logistics and point-of-sale software is hardly the sexy end of retail. But more than anything else, the back-end technology is essential to delivering a better shopping experience for the customer.
Amazon Web Services senior vice-president Andy Jassy says cloud computing is tailor made for retail, the cloud architecture making it easy to get the IT resources to run experiments or to deal with peak demand. “Trying to guess the peaks of the holidays ... is very hard and error prone,” Jassy says. “You either guess too high and sit on all this wasted capital or you guess too low, provide a bad customer experience and run around like a chicken with its head cut off trying to get capacity ... and you overpay. With the cloud you don’t have to guess – you provision what you need, if you need more you seamlessly scale up and at the end of the peak you just give it back to us and stop paying for it.”
Appliances Online has cracked the code for next-day delivery for most customers even though it deals with bulky items such as refrigerators and dishwashers. The company has six warehouses and has integrated the back-end of its website with not only its own enterprise resource planning system but also most of its suppliers.
Winning Group co-founder and CEO of both Winning Group and Appliances Online, John Winning, says the information on the website is refreshed every five minutes and this means customers can see if product is in stock and if not, how long the wait would be. “A shopper in Melbourne might see that it’s in stock and can be delivered the next day and a shopper in Queensland might see that it’s not in stock but if they wait two or three days it can be delivered by Fisher & Paykel,” Winning says.
The Appliances Online warehouses are open until 11pm, so a customer can place an order at 5.30pm and still get next-day delivery. The order is sent directly to the infrared scanning “guns” used by the staff on the packing forklift, so they never have to deal with a paper order. They select and scan the right items and take them to the delivery area for that part of the city. The customer receives an SMS when the items are assigned a run and on the day of delivery, they get a call from the driver at around 8am with a two-hour window and again when the driver is one hour away. The experience stacks up to the promise, as this reporter can attest.
David Jones has piloted a new point-of-sales system in its suburban Hornsby store and will roll it out across all 36 stores after the Christmas and summer sales season over six months. The upgrade is long overdue – the current system is more than 20 years old and involves taking paper imprints of credit cards and staff entering a lot of information manually.
Zahra says the new system, called PCMS, is used by British department store chain John Lewis and slashes transaction times by half. It will also will let staff bring up information. “If you walk into a David Jones store today and ask, ‘Do you have this size?’ staff don’t actually know,” Zahra says. “In the future they’ll be able to bring that item up on their point-of-sale system and say, ‘Yes, there are three units out the back, there’s none on the floor, let me go and check’ or if we don’t have the stock we can say, ‘It’s at this particular store and we’ll get it shipped directly to you’. This is something [US fashion retailer] Nordstrom put in place five years ago and from that single initiative they saw a 1 per cent sales increase. In our business a 1 per cent sales increase would be significant.”
6. BESPOKE PRODUCT
Product customisation is a growing trend. For example, online retailer Zazzle lets you buy customised t-shirts, coffee mugs and similar products. Start-up Shoes of Prey takes it to another level with the ability to design your own shoes using templates on the website.
Shoes of Prey’s Fox says there are 90 trillion possible designs and consumers are responding well, with more than 100,000 designs saved into the system so far and about 15,000 actual pairs of shoes shipped.
“There's a shift towards people buying experiences because they already have all the products they could possibly want,” Fox says.
A related trend is verticalisation, where retailers develop and sell their own products. (The flipside of the concept is manufacturers opening retail stores, such as in the case of Apple). Supermarkets have done it for years with home-brand products but increasingly, retailers are developing stand-alone brands.
For example, Myer has 57 store-owned brands, such as Sass and Bide, Wayne Cooper, Heritage and Basque. Brookes says these brands account for more than 20 per cent of the product sold at Myer. “We procure them, we work with the factories in Asia, ... we manage those brands as brands, we market them, and we have freestanding stores for Sass and Bide.
“We have a very mature vertically integrated model that means we have exclusive product that no one can buy anywhere else.”