Retail is all about the prices, right? Or maybe the convenience? Then the online sphere should be putting everyone else out of business…right?
We recently sold a leading south Australian importer and distribution business called Aquaport to a much larger, branded distributor called Breville.
“No news there,” you might say, “that’s what you do.”
But now we have gained insights from taking a deep dive into the retail sector, albeit on the supply side. We thought it might be a good idea to share these special insights, given the recent go-live of the Amazon.com.au site and the usual upcoming frenzy around the success of retailers’ Christmas.
The Amazon Juggernaut
Traditional bricks and mortar retailers have known about Amazon for a long time. There are varying views on the impact Amazon will have on the local retail market – some, including Gerry Harvey, think the whole thing has been blown out of proportion. Harvey suggests that it will take ages for Amazon to go live as they need premises and extensive planning. He told Fairfax Media in June this year:
“Amazon, to my knowledge, haven’t even bought a block of land in Australia. Let’s assume I buy a block of land tomorrow. I’ve got to buy it, pay for it, put in a development application. If that happens within three years, that’s very quick. And I read that Amazon is going to be fully operational in late 2018.”
News flash, Gerry: they have rented a place and are up and running now. Let’s hope, for your shareholders sake, that you haven’t underestimated other aspects of their impact on the Harvey Norman business. For example, Harvey Norman makes a gross profit of c30% while Amazon makes a gross profit of just 7%. Harvey Norman like to make net what Amazon gross and Amazon are happy not to net anything while they build their operations. Scale is what Amazon is all about. To put it into context, Amazon recently grew in one quarter alone by the same size revenue as Woolworth’s entire business sales!
Yikes, Gerry, now that’s what you call scale.
No Need To Panic… Yet
If you’re a bricks and mortar retailer – or you supply them – before you start hyper ventilating, let’s take a deep breath. Online retail sales in the US are still just 8% and in Australia we are already at 6%. The future is anybody’s guess, but as Bob Dillon once said, “the times they are a-changin’.”
There are no doubt opportunities a-plenty for retailers of all types and sizes, but only retailers and suppliers who develop a clear vision and have a close connection with their customers will thrive in the years ahead. Those that don’t will come under pressure.
Large retailers do fail. Woolworths (not the Australian grocer) was an iconic name and on every high street in Britain for 100 years, then went broke and officially dissolved in 2009. Toys R Us in the US became Toys Were Us, ending up in chapter 11 bankruptcy in 2017. Our own recent experience with Dick Smith here in Australia is a salutary lesson of the danger of debt and how easy it is to lose focus.
You would have thought that the winner here is the consumer – cheaper prices and more choices, with savvy millennials shopping online for everything – or maybe not.
94% of consumers still shop traditionally.
We consumers are tactile creatures, we like to feel and touch, walk around a little, check something out from different angles, look in the mirror, dither! Let’s face it, many products just don’t lend themselves well to the online platform. There is also the often quoted ‘experience’ factor suggested mainly by retailers or shopping centre bosses.
The “Retail Experience” Still Counts
Unfortunately, while that may be true in some circumstances, I am aghast at some poor quality retail experiences. For example, I recently visited Domain, the furniture retailer, at a big box centre. I had a look around, located the desired book shelf, sized it up and down, touched it a few times, and took a picture. Measured it again – for some reason, I’ve got plenty of room. Then I thought of a question. I looked around for an assistant. Nobody in sight. Walked around and around and eventually found a person. Before I got everything out of my mouth, he told me I was in the wrong section. Went back to the right section and kept on looking. Still nobody to help. 15 minutes went by – still nobody. “Bugger this,” I thought, so I took another picture – this time of the bar code – and went to check out.
“I’d like to buy this,” I said as I pointed to my picture of the bar code.
“No problem,” I was told, “we have 3 in stock in the warehouse. You can pick it up today.”
“Fair enough,” I thought, and paid the girl. Job done. Oh, if only it was that simple.
I headed down to the warehouse, provided my docket, and waited 20 minutes to be told that they are out of stock. “But the girl in the shop said you have 3,” I blurted.
“No, we’ve only got one and it’s damaged, but don’t worry,” the warehouse guy assured me. “We will call you Monday and deliver you one at no charge.”
Ok, sounds sensible enough, I thought. No call Monday – in fact, no call for two weeks. Eventually, I called. After I got out my explanation of why I was calling and gave them the order number, I hear, “Yes, it’s here.”
“Ok,” I said, “that’s good, but I was expecting it to be here, with me, at my office.”
“Oh, you want it delivered?”
After a long, frustrating conversation, I arranged delivery and avoided being charged a delivery fee. All’s well that ends well… Not quite. After two delivery attempts, eventually third times a charm… 7 days later.
If that’s the kind of ‘experience’ that’s going to keep Amazon at bay, retailers had better think again. Come on, retailers, get with the program. How much intelligence would a CEO of a large retail chain get by shopping in his own store? Hopefully, he or she would figure out exactly what needed fixing by Monday morning.
In a world of never-ending change, the one constant is that the customer will always be right!
How ever you shop this season, enjoy the experience.