The retail landscape looks very different now to what it did 50 years ago. How has this evolution impacted traditional business models and is it too late for them to catch-up?
Once upon a time, the streets were filled with thriving department stores and flourishing boutiques. Now, online stores are rising to acclaim while traditional retailers struggle to keep up.
It’s no secret the British high streets are floundering, with boarded-up stores and run-down shop fronts tainting what was once a true shopping destination. American malls have also felt the heat in recent years, with large online businesses like Amazon drawing customers away from physical shops towards digital platforms. The Australian market is also suffering, with foot traffic over Christmas reducing as more consumers jumped online to grab a bargain earlier in the festive season.
“Hindsight is a wonderful thing,” says Jordan Prainito, Managing Director of Australian homewares brand, Canningvale. “Every 50 years or so, it seems that retail undergoes change or disruption. 150 years ago, big cities appeared and railway networks gave birth to the modern department store. Fifty years after that, mass-produced cars enabled shopping malls containing many different speciality stores near newly created suburbs, which ended up challenging these bigger city bound department stores. Then in the late 60s and early 70s, we saw the emergence of the discount chains like Kmart Australia, Spotlight, Big W and so on.”
Prainito does implore, however, that each iteration of the retail landscape hasn’t destroyed what came before; it simply “enhanced and refined consumer expectations and convenience.” He believes e-commerce is no different.
This can be applied to the local market, as the Aussie retail sector is still in its digital infancy. While online shopping is growing in popularity and bricks-and-mortar stores are definitely starting to feel the heat, legacy retail businesses are still in good position to leverage their brand value and large customer bases to create a successful cross-channel offering.
The Australian Department Store: Death or Resurrection?
It’s impossible to have a discussion about legacy retail businesses and not talk about traditional retail at its finest – department stores.
In their heyday, the department stores that lined the streets of inner-city shopping precincts weren’t just any old shops they were an attraction. Impeccable customer service, beautiful displays and exclusive, high-end products that the rich would splash their cash on and the less fortunate would eye with lust were all front-and-centre.
Today, a lot of department stores are a shell of what they once were. Myer, for instance, is plagued with issues as concession holders pull their brands from the shop floor and the Board is just scraping by after being plagued with attacks from investor, Solomon Lew. This has translated to poorer trading results, with the company releasing an update in October 2018 reporting a 4.8 percent drop in sales and a 4.3 percent reduction in same-store sales.
Myer’s main competitor, David Jones has been facing a lot of the same issues Myer has, which have been enhanced by the shock departure of the company’s CEO, David Thomas resigning after only 18-months in the top role, marking the latest in a long string of departures. Sales for the last full financial year fell 0.4 percent on a comparable stores basis, although Woolworths Holdings did say last week that FY19 is showing signs of improvement recording a comparable sales boost of 0.9 percent for the first half of FY19. David Jones has also been making itself a formidable foe to Myer, with news breaking in August 2018 that several brands would be moving their products from Myer’s shelves to be sold exclusively through David Jones. The brands in question include Country Road, Mimco and Politix.
For each of these embattled retailers, online sales have been proving fruitful. Myer is no longer issuing quarterly updates, but in its most recent report which was issued late last year, the business reported an increase in online sales of 48.4 percent for the quarter. David Jones reported similar boosts to its digital sales in January, claiming online sales rose 46 percent over the all-important Christmas quarter and now represent 7.7 percent of total retail sales.
There’s no denying that stores like Myer and David Jones have a tough run ahead of them, but department stores and traditional bricks-and-mortar retailers aren’t dead just yet.
IKEA is a prime example of a physical retailer making a number of changes to keep up with the fast-moving retail industry in Australia, and across the globe. In the last 12-months, the Swedish furniture and homewares brand has announced plans to move away from its big-box store network to instead open smaller, more centrally located stores with more refined product lines.
The business, who traditionally has had quite a poor online presence is also pushing into the e-commerce space with big changes expected to take place over the next few years.
Another example is Bunnings. When you think Bunnings, you don’t typically think e-commerce, but the hardware retailer attracts roughly 4.2 million users to its site on a weekly basis. With this in mind, like IKEA, Bunnings is investing heavily in online infrastructure to capitalise on the growth of e-commerce in Australia. This will be in addition to the company’s already expansive store network, proving reputable Australian brands have the necessary foundations to move across to an omnichannel business model.
A Case Study: Canningvale
Speaking to Power Retail, Prainito acknowledged that modernising a business isn’t easy, but it is essential. “Originally, we were a factory with over 600 staff. Today, we are a global branded lifestyle cross-channel retailer,” he says.
Founded way back in 1977 in Perth, Canningvale started out as a manufacturer of terry towels that were exported to the US for sale in stores like Bloomingdales, Macy’s, Strouds and Eddie Bauer. But the business soon recognised its potential to leave a bigger mark on the retail sector, especially in its home market.
“Around the late 2000s, we started to think about a direct-to-consumer model that would allow us access to our individual customer and really learn from them about what they wanted,” Prainito explains.
“Traditionally, we have always worked with department stores and retailers to distribute our product to customers. Our transition was more of an evolution of our business, where we began to focus on the modern consumer who was no longer a single store or single channel shopper.
“This demanded a shift in the way we operated. We needed to create a strategy that connected with our core customers as they moved between department stores, marketplaces and various other touchpoints. It became clear that Canningvale needed a flagship online destination for core customers and potential customers to come and browse our various collections and ranges, check prices, colour trends, fabrication etc. This browsing would then inform their purchases that would happen in-store,” he says.
Far from simple, Canningvale encountered its fair share of hurdles during this key period in the company’s development. One Prainito says was particularly challenging was adapting its enterprise resource planning (ERP) system to meet the business’s growing demands.
“We had to rapidly adapt our ERP system, develop a core team that was digital savvy and streamline all forms of the business from raw material purchases all the way through to design and product launches.”
He also says that if the company had the chance for a do-over, it would launch its online store earlier.
“It has been incredibly empowering for us to have a direct to consumer relationship. We now have valuable data on a lot of customers and their purchasing habits, favourite products and trends. We have then used this to inform our future product ranges and adapted business models to accommodate our core customer preferences,” he says.
“The digital channel, in most cases, lowers entry barriers causing long established market shares of incumbents to be up for grabs. In some instances, this can cause value chains to disaggregate creating openings for focused and fast-moving businesses. Software can replace labour in many businesses. This creates an opportunity for everyone, so embrace it.”
Another digital channel that has helped aid Canningvale’s transition into the modern retail landscape is Amazon.
Amazon’s initial launch into the Australian market was widely considered underwhelming, but as the global marketplace continues to expand its local offerings and seller-base, it would be reckless to disregard the online giant entirely.
“We’ve had a positive experience with Amazon so far. We sell through a number of online channels, and other than our own website, Amazon has already become one of our leading online platforms in terms of sales. We’re now expanding into the US through Amazon with a local distribution partner,” Prainito says.
“As a business, we have made a concerted push towards selling directly to our consumers through online channels in the last few years. Amazon fits well into that strategy for us, as long as we hone our offers to match the consumers’ expectations when shopping at Amazon we should continue to see steady upward growth with peak sales events throughout the year which we can use to move underperforming stock as required, whilst also providing customers with incredible value.”
Paving the Way Forward
Across the board, we’re starting to see more bricks-and-mortar retailers lead the way in e-commerce. While digital-only brands are at the forefront when it comes to digital innovation, legacy businesses have the unique benefit of entering the online sphere with an established, trusted brand presence. They also have the advantage of implementing experiential shopping experiences that link online/offline channels in one cohesive shopping network. Nike is a global brand that does this really well.
In November last year, Nike opened its ‘House of Innovation 000’ flagship store in NYC, hinting at the future of the cross-channel retail industry.
“Throughout, consumers can enjoy services that are deeply customisable and effortlessly smart and seamless. The store recalls the immersion that many locals remember from their first visit to New York’s original Niketown when it opened its doors more than 20 years ago, leading to, as Nike Direct President Heidi O’Neill calls it, an “only-here” Nike experience,” the company said in a statement at the time.
Nike wasn’t always the reputable cross-channel brand that it is today, having started out as a sporting footwear manufacturer back in the ‘60s.
Going from a traditional retailer to a successful cross-channel retailer like Nike isn’t something that happens overnight. But, the Australian government has recognised that its retail industry is struggling and has started offering help to embattled legacy businesses.
For instance, the City of Sydney is looking to help bricks-and-mortar brands enter/accelerate their growth within the digital market with the launch of its first ‘Retail Innovation Program’. Working with investment firm, Investible, the local government will be running an eight-week accelerator program that combines face-to-face learning and mentoring with innovative online modules that are designed to help businesses make the shift to online trade. The program, which made headlines last week, will commence in March and feature 15 brands, with their learning’s being publicised across the City of Sydney’s digital network.
Six Aussie brands have also begun their transition from physical retail to online businesses with a new TV program ‘Bricks & Clicks’ starting on Channel 7 on Sunday 24, February 2019 at 1 pm. The program, which will follow the journey of six retailers as they work through Kochie’s Business Builders development course, is aimed at assisting the staggering 60 percent of Aussie retailers that haven’t cracked the online market yet.
“The greatest innovation challenge facing the Australian economy and business community is getting traditional bricks and mortar businesses online,” said David Koch said in an interview with his business publication.
“The biggest barrier to Australian businesses getting online is fear… fear of the complexity, fear of finding someone to trust to help, fear of the high expenses. Our aim is to prove these fears are myths,” he continued.
Tackling this and more, Koch is confident that the program will give businesses the hand they need with breaking into the online sector.
In the 12-months ending in December 2018, NAB estimates that Australians spent $28.6 billion on online retail, the equivalent of roughly 8.9 percent of all retail sales in the country. During this time, traditional bricks-and-mortar retail generated an estimated $320.1 billion in the year to November 2018. These figures prove online retail is a lucrative market that can help traditional sellers boost their existing in-store revenue.