Shifting the fundamentals of retail
Over the last decade, large Australian retailers have overwhelmingly chosen to place their investment bets on bricks rather than clicks. The retail strategy favoured by Australian investors and debt financiers has been simple – saturate the country with identikit stores, fill them with products sourced in China, and make it difficult for customers to buy products online. Build shopping centres and customers will spend – and if they don’t, stuff a never ending supply of glossy catalogues into every nearby letterbox.
As far as business models goes, it has certainly been popular, and successful for some large players. Not surprisingly, high retail rents and the soaring Australian dollar have thrown a spanner in the works. The real pain has only just started to bite retailers, and the strident whining about foreign online competition is only going to get louder. The many external pressures facing local retailers are summarised in this recent report by Grant Thornton.
David Jones has just announced their yearly figures, revealing both revenue and profits in decline, and Myer has warned markets to expect the worst. So given the implosion of major book retailer REDgroup, and Gerry Harvey throwing good money after bad at Clive Peeters, you might reasonably have expected the recent annual reporting season to be an absolute blood bath for retailers.
Fortunately for the industry, things aren’t quite that grim. Several major retailers are thriving, having successfully incorporated online transactions into their business mix.
Perhaps the most remarkably transformation is Domino’s Pizza, which has overcome the traditional franchise phobia of online sales, and aggressively grown their mobile phone based transactions. Combining centralised online/mobile ordering with local execution and delivery has proven a winning combination, with their 2011 after tax profit coming in 20% higher than 2010. More than 40% ($150m) of their transactions are already handled via mobile phones, with their strategic plan designed around reaching 60% within 30 months.
JB-Hifi has shown that an incremental approach to online retail can also work, with their full year results showing an overall profit increase of 12%, and online transactions increasing 51% for the year. CEO Terry Smart summed up their strategic approach this way – “Our buying power and low cost of doing business will ensure we maintain our competitive online offer.”
With the retail industry in a state of flux, it raises many questions about shopping centres themselves, and the role they might play in the future.
Stockland’s annual report indicated some of their thinking on the future of the shopping centre. For their large portfolio of Australian shopping centres, strategic focus is now firmly on “day to day value and convenience”, and avoiding over-building retail space.
This strategy is expected to require a gradual shift in the mix of retail offerings, moving towards a focus on food, leisure, services, and entertainment. Stockland expect discount fashion retailers will survive in shopping centres, while premium fashion spending will shift online.
In any business, it is critical for leaders to regularly revisit the assumptions of their strategic planning. Industry wide structural change doesn’t happen often, but competitive threats can easily turn up at any time. Some of the factors you should consider when facing significant external threats include:
- what proportion of revenue/profit is under immediate threat?
- are your competitors being affected?
- can you adapt while sticking to current goals and plans?
- have you strayed from core business?
- where are your resource gaps?
- Who runs an antivirus scan these days? Apparently almost nobody
- New Chrome extension spots unencrypted tracking
- Australia a growing source of DDoS attacks as well as a target, Arbor warns
- GHOST bug is real and possibly nasty, but not so spooky
- Cyberthreat sharing must include strong privacy protections, advocates say
- Qantas tests virtual reality for in-flight entertainment
- Report: Data-driven marketing the norm as marketers aim for 1-to-1 customer connections
- Updated: Jeanswest sets sights on customer growth with new omni-channel capabilities
- Mondelez A/NZ head of marketing services takes up China role
- Why social listening platforms are failing