While the continued influx of major international brands on the Australian retail landscape is forcing retailers to innovate and adapt, retail analysts and commentators agree that it’s still ‘business as usual’ for bricks and mortar retailers. Managing Director Australian Consumer Retail and Service (ACRS) Research Unit, Monash University Sean Sands shares his perspective on retail’s future for the rest of 2017.
There’s been a lot of talk about the Amazon juggernaut rolling into town this year, however its arrival and that of other big international brands doesn’t signal the end of bricks and mortar retail as we know it.
It does mean that the rise of the on-demand culture will continue. For some retailers, it will mean tweaking the way they do business. Others are already prepared to take on the retail giant.
Sean Sands says the continued discussion about Amazon this year will be around whether it can replicate its success here.
“Yes, there will continue to be a lot of talk about Amazon hitting our shores and its plans for a distribution centre in Melbourne. There’ll also be a lot of talk about Alibaba, which also has a presence in Melbourne. But, Amazon’s arrival will not upend our retail sector. At the end of the day, Amazon is just another retailer. Amazon can’t deliver experiences like bricks and mortar stores can. I think Australian retailers will become better at what they do.”
Amazon has said it is looking to win Australian customers with low prices, vast selection and fast delivery, but some commentators suggest that Amazon will struggle to get 5 per cent of online sales.
“Most domestic retailers are already adapting to the changing competitive landscape and the evolving customer expectations around price, quality, speed and service,” said Sean.
Even so, for retailers looking to ‘Amazon-proof’ their business, the first step is to invest heavily in deeply understanding their customers.
“It will mean retailers not just knowing who their customers are and what they like to buy, but really seeing the world through their eyes so they can do things better than their competitors,” Sean said.
This will include addressing differences in pricing, boosting customer engagement and loyalty, using data analytics to better understand shopping habits, bringing their website and mobile stores up to speed and putting in place faster delivery systems.
“We have seen Australian retailers investing in store design and concept and flagship stores and some small operators leveraging growth and really engaging with the customer in a tough retail climate. I think this is likely to continue.”
Of course where there are challenges, there are also opportunities.
“Amazon and Alibaba’s presence might be a positive for some retailers. Small to medium-size domestic retailers have a chance to leverage Amazon’s role as a consolidated marketplace and likewise Alibaba could springboard a retailer’s entry into China,” says Sean.
Retail strategist Peter James Ryan writing in Inside Retail believes that “physical retail is, in his opinion, the highest form of retail and with over 90 per cent of the sales dollars, customers are indeed voting with their wallets.
Sean agrees that the social aspect of shopping, trying on new clothes and being able to touch and feel things cannot be underestimated.
“Customers still want that social aspect to shopping and they are seeking more physical touchpoints.”
Sean believes that Australia is well placed to continue to integrate retail disruptors.
“Australian retail landlords have invested heavily in experiences and place making, developing an engaging tenancy mix, and creating an environment where retailers can do well.
“The relationship that retail landlords have with their tenants will be increasingly important - more collaboration, not just a conversation about space and money.”
General Manager Retail Leasing Tony Tsekouras said Stockland is very aware of its role in creating more relevant retail experiences for its customers.
“Increasingly we know that a visit to a shopping centre is a family day out. We want to curate vibrant centres that offer exactly what customers demand. That’s why we’re investing in new ways to capture shopper attention with better food and beverage options, a better mix of tenancies, and unique in store and in centre experiences. We’re also using pop-up shops to learn more about our shoppers’ needs and desires,” said Tony.
What you can’t buy online is leisure and entertainment offerings that are major drivers of foot traffic to retail centres and are likely to continue to improve, with families in particular enjoying the opportunity to combine their shopping, leisure and entertainment under one roof.
“Retail centres are becoming an extension of our social preferences and are locations in their own right. This approach to ‘humanising’ the retail experience not only instils a sense of community but also delivers to customers a meaningful experience that can’t be bought online and that encourages repeat visits and extended dwell time,” says Sean.
That means more open space and free space focused on community and family activities.
“We’ll start to see more farmers markets, more urban art, and more upcoming and young retailers in pop-up stores.”
The trend toward the experiential will be a driver of successful retail in the future.
Sean says “People don’t just buy products; they choose experiences. The most successful retailers today understand that customers are spending more on experiences so it’s a question of retailers asking how they can be there.”
The retail winners will be those that adapt their bricks and mortar presence to really differentiate their brand with experiential concept stores that engage the consumer.
Like Supercheap Auto’s innovative new flagship store in Sydney. It’s customer experience centre features new services, digital experiences and unique design features to meet the changing needs of customers. An outdoor LED screen welcomes customers on arrival, offering information and advice to visitors. Inside, a floor-to-ceiling video wall provides localised content that responds to customers’ movements on entry. The new centre was designed to serve as an informative and practical hub as well as an experiential one. Brands such as Cotton On have improved the customer experience in store through multiple touchpoints.
David Jones is undertaking a $100 million upgrade of its food business over the next three years, which will include stand-along food stores to tap into the changing habits of food shoppers seeking food experiences. The first stage of the food journey the new look food hall at David Jones Bondi Junction opened this month.
The standalone food stores will offer the same experience as the food hall in the Sydney flagship store, but will have curated lines of products.
Other examples include LuluLemon, which has dedicated floor space within its stores for free yoga sessions and Legoland’s Melbourne concept store where much of the floor space is dedicated to experiencing the product with rides and build and play zones. Sydney activewear designer Nimble and Melbourne bookseller Readings are more than just a place for shoppers to make a transaction.
“Retailers can meet customer expectations with differentiated product that customers can attach a value to,” says Sean.
The globalisation of the retail sector has seen brands enter the Australian market with a new price point, faster speed to market and bigger buying power, which is bringing lots of price competition to the market.
While retailers enjoyed positive sales results in June, the lower margins are a result of the year-round sales.
“Consumers now expect sales to be all year round and retailers are caught in a spiral of price effect. Retailers are competing heavily on price and there’s a real squeeze on margins,” said Sean.
Sean believes the big spending for the remainder of the year is likely to be in food.
“Food will continue to be a key differentiator for brands looking to attract consumers.”
Clothing will also continue to be strong in Victoria and NSW with the changing seasons.
Australian retailers that give consumers a reason to visit their store will continue to do well in 2017.
“At the end of the day bricks and mortar is still very much the glue in retail,” said Sean.