You don’t get very far into a business section of a newspaper before you read about the woes of Australian retailing. Cautious, thrifty, GFC-traumatised consumers are one reason why it’s tough out there, but the real spanner in the works is online retailing.
For a various reasons (like doing my Chrissie shopping) I’ve been spending a lot of time in retail-land recently and I’ve been surprised how slowly traditional retail is coming to terms with this new challenge. Generally, I see an industry in denial, hoping that this challenger with the unfair advantage might somehow come unstuck and go away, or at the very least, hoping that the impact won’t get any worse. They are wrong, it will.
Regardless of the currently high Aussie dollar and the well-publicised GST dodge, nothing is ever going to return to normal. Traditional retail has to change and adapt and I haven’t seen much of that happening down at the mall just yet.
It’s tricky to get an accurate idea of scale and impact, but allow me to throw some slightly rubbery figures at you. To suggest 7% of all retail is now online might be towards the high end, but it’s also well within the range of possibility. Anyway, I think we’d all agree that if it’s not 7% now, it will be soon. The US and UK are reckoned to be in the 7.5-10% range.
So is 7% all that significant? Surely that means 93% sales are still happening in-store. Let me give that statistic some scale. The total Australian retail market is worth around $250 billion a year. 7% of that figure adds up to about $17.5 billion, or put another way, around 42 times David Jones’ total annual sales – 42 DJs! If the impact of online results in a commensurate 7% reduction in staffing, that’ll mean 84,000 jobs lost across Australia. It’s also reasonable to assume that ‘shopping 2.0’ must be having a detrimental effect on the margins of the rest of the market. If online owns ‘smart’, what does that mean for the image of offline?
As we know, some retail categories have been largely unaffected while others have been hit very hard. It’s easy to see why Gerry Harvey is bleating and why JB HiFi shareholders are no longer grinning from speaker to speaker. No one knows where the figure will eventually settle. The common expectation seems to be somewhere around 15–20%. So if online shopping is yet to triple, traditional retailers should expect a lot more strife yet.
But despite all this, I firmly believe that traditional retailing will survive and some players will actually prosper. There will undoubtedly be a shake-up as the industry moves from just trying to fight the new menace to adapting to the inevitability of online shopping. As usual, the winners will be those who innovate, those who work out and establish for themselves a key role in the consumer journey. I expect to see a lot more integrated online/offline offerings. It’s ironic that Apple, who have played such a big role in driving the online market are also amongst the best traditional retailers.
Traditional retailing will always struggle to beat online on price, but at some point it will work out what its strengths are and start to play to them. Strengths like ‘freshness’, ‘advice’, ‘immediacy’, ‘participation’, ‘entertainment’ and ‘certainty’.
In the online worlds, brands have become more important. If you can’t touch, feel and handle a product, then selecting a brand you can trust becomes more important. How will new brands launch? They will need some kind of stores, whether for selling product or for customer experience. Currently, in-store merchandising and shopper marketing are seen as quite unrelated to online marketing and retailing. Perhaps we’ll see more integration in the future.
I’m far from being a retail expert, but I think it’s going to really interesting to watch what happens over the next few years; to see who emerges, who reinvents themselves, who succeeds, and who fails. I expect to be surprised by the results.
Tom Moult
Executive chairman
Ogilvy
Have something to say on this? Share your views in the comments section below. Or if you have a news story or tip-off, drop us a line at adnews@yaffa.com.au
Sign up to the AdNews newsletter, like us on Facebook or follow us on Twitter for breaking stories and campaigns throughout the day.