Following her speaking engagements at the Online Retailer Conference in Sydney, Retail Systems Research’s Nikki Baird has shared some insightful and interesting views on the Australian multichannel retail market.
Respected US cross-channel retail expert Nikki Baird was in Sydney in July for the first time, speaking at the Online Retailer Conference & E-Commerce Expo. Though here to impart her wisdom on delegates, Baird also took away some observations on the local retail market, which she has articulated on her company blog in a two-part series.
Her analysis of the Australian market draws some interesting comparisons between ours and the US market. For those not inclined to read the lot, here are three take-aways:
– Australian bricks and mortar attitudes to online are opposite to American and European views of online.
– Multi-channel retailers in the US focus on using online to drive traffic in-store, but it’s the store experience that is the let-down. Baird suggests that by 2009 the model had flipped and online shopping was delivering a better experience than in-store shopping, disrupting the conventional wisdom.
– Price transparency has far greater implications for the local market than it does in the US, where the global economy sets global pricing and Australian retailers will struggle to compete
You can read the full articles at the Retail Systems Research blog, but here are some of the thought-provoking snippets:
Retail in Australia: My Impression (Nikki Baird)
The online pureplay ecosystem is very vibrant there, it actually feels to me more so than in the US, which is saying something. And bricks and mortar retailers, through some interesting market developments, have been very slow to embrace the idea of cross-channel. They did go out and establish online channels like everyone else during the great internet land grab of the late 1990′s. But many quickly rebranded the online channel to something separate in order to avoid price transparency issues with their bricks-based brands. In the US, it would be the equivalent of if Petsmart had established Pets.com instead of a startup.
In some ways, I feel like Australian retailing is a bit like traveling through the looking glass into an alternate reality. I felt like Australian retailing looks a lot like what American retailing might’ve been if Amazon had never existed – or if the company had ever only defined itself as a bookseller.
It led me to an interesting question: what if Amazon had never approached its strategy as it had? Had never grown to be the online giant that it is? Well, first, I think a much larger number of niche pureplays might have proliferated for a lot longer and across a much wider breadth of retail than what we find today in the US. Also, I’m not sure that bricks and mortar retailers would have turned so quickly to separate online vs. store branding in order to solve their channel conflict problems. Whether it’s something unique to the US or not, just knowing the retailers that I know, I can’t help seeing them as being convinced their own brand online would be a benefit. In other words, brand hubris might have encouraged them to stick with their main brand online as well as in stores.
Back to the Future
The biggest attitude difference that I saw at the conference between Australian and US retailers emerged during a panel session at the event. The panelists spoke about a bricks and mortar executive attitude that apparently is prevalent right now in Australia. The attitude can be summed up like this: “If online is only 3% of my business [the number thrown around at the event], why would I want to invest in it? It’s just not big enough to command my attention.” In the US (and UK, and increasingly western Europe at large), retail executives’ attitudes are the exact opposite. The thinking is, “If store sales growth is flat or negative and online is growing at 15% or more, why would I invest in stores? Why wouldn’t I take all that money and pour it into online where not only will it support fantastic growth, I have much more leverage because online isn’t nearly as asset-intensive as stores?”
In some ways, I would say the Australian perspective is the attitude that we saw in the US circa about 2002. What changed in the US to lead to such a different point of view today? Amazon. Amazon forced two major differences.
First, it made it very difficult for niche online pureplays to survive. If you look at all of the retailers that the Online Retailer conference honored in their awards this year (check the site for an update on the winners), outside of the marketplace category, only one retailer was not a niche player, and that was Woolworths. I’m sure it’s possible to find a comparable niche US company like Australia’s Surfstitch, but they just don’t operate at the same level of scale relative to their market size as Surfstitch can in the Australian market. When you look at the Internet Retailer 100 in the US, I’m guessing less than 30 of the top 100 are niche players in the sense of an online specialty retailer. The rest are either consolidated online players or the online presence of multi-channel brands. It’s not all bad news – because it’s difficult to be a niche player with depth and still compete with Amazon, I think the US has benefited from some innovative online retailing models in the pureplay space, like Etsy, Threadless, and Aha Life. Like Gilt Group.
Second, Amazon has forced traditional retailers to reevaluate their differentiators. From RSR’s research, multi-channel retailers invest in online in order to boost their cross-channel customer experience – they see making online connections into their stores as a vital way to differentiate from a pureplay’s purely online experience. The downside is that multi-channel retailers in the US have been a bit asleep at the wheel when it comes to the receiving end of all of this investment – stores. The store experience just hasn’t kept up with the quality of the experience that you find online. It used to be that the online division talked about trying to make the online shopping experience as good as a store experience. Now, retailers talk about making the store experience as rich as the online experience. In the US, I would peg the timeframe of that shift around 2009. And shortly after that is when I began my campaign to raise awareness that the store is in trouble – that it just won’t be able to keep up with the pace of digital change. And for a lot of other reasons – way too many reasons – there is no way that retailers are going to be able to fix stores quickly. So they’re going to be a drag on US retailers for a while still.
Transparency is already impacting the Australian market, and it’s an even worse kind of transparency than exists in the US. It’s bad enough to be price comparison shopped against Amazon. Try competing with Chinese manufacturers.
This is the most dangerous sentiment that retail is exposed to right now, because broken trust takes way longer to repair than it does to build a new relationship in the first place. In the US, retailers have to fight against Amazon for transparency. The first product category to go this route was electronics, particularly high price-point electronics like flat screen TV’s. In Australia, the future may hold not only competition against Amazon on price, but increasingly also from the Asian factories that make these products, as they find it easier and easier to reach into the Australian market. And when American retailers get to a certain volume, they may find it advantageous to start fulfilling orders into Australia from their Asian manufacturers, making it even less expensive to service the Australian market.
What it Means for Stores
As for the future of stores, here’s what happened in the US. Retailers didn’t brand their online sites differently, so consumers had an expectation that the experience they could get online would be seamless to the experience they could get in stores. And brick & mortar brands found that strongly supporting a traditionally branded online experience helped people find them vs. Amazon – these are brands that people know and trust. At the same time, when online sales hit about 5-7% of a retailer’s total sales, the economics shifted – dramatically. The cost of a transaction in a store is way higher than the cost of an online transaction. Real estate, inventory, labor – these are all much more expensive for a store than a call center and a warehouse and they aren’t nearly as leverageable.
So at the same time that traditional retailers realised that yes, online is cannibalising some store sales and stores are not financially positioned to sustain that kind of shift, they also realized that stores are the biggest differentiator they have to the online behemoth of Amazon. Except that stores can’t really take advantage of that potential differentiator, because they are designed around the idea that the customer path to purchase begins and ends in the store. The shift right now in the US is all around store – how to make employees smarter, how to make stores smaller or at least diversify what’s under a store roof so that it’s more services and not so much product.