Retail under threat or just evolving again

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Retail under threat or just evolving again

australian_flag_amazonRight now there is a lot of speculation that retail in Australia will be impacted negatively by international eCommerce players like Amazon. The general view seems to be that retail is under threat and there is nothing that we can do!

We aren't convinced that this is true! Retail has undergone several evolutions in the last 50 years and if anything the market has always got bigger and better each time. The retailers who embraced the changes and accessed the new opportunities flourished, while those that resisted missed out (or went bust).


 

Original Retail

 

What did we all like about  "original retail" and why did we leave?

Original retail was about personal engagement with the experience of shopping, and going to a particular shop for a purpose. If you look back in time (but not that far) you would see many small speciality stores in the suburbs that serviced local retail needs. There were clothing and fashion, sporting good, toy shops, bike shops, bakeries and cakes, shoes, books, news agents, hardware stores; you name it and you found it in your suburb or nearby. In general people went there when they needed something, and the retailer engaged with them to help fill that need. So the purchase was driven by a purpose and not by impulse. There are still some of these stores surviving today, generally driven by convenience (like your local IGA or similar) but largely these stores have all shut up shop.

It is important to note that the new generation of shoppers today have never had the opportunity of trying "original retail".

 

What came next?

 

Then we got shopping malls/centres. Chadstone Shopping Mall near Melbourne is generally considered the first mall in Australia that opened in 1960 at a cost of $6 million, a trifle compared to the malls we see today. But there came many, such as Brookvale Mall (the first I remember), Westfield Sydney, Macquarie Centre and the list goes on. These brought about a different shopping experience, all-be-it at times a less personal one. You had more choice and often more easily accessible, at least once you got there and found parking. The malls often saw the end of the suburban retailers as they either migrated into the shopping mall or their customers stopped coming, along with the growth of the larger retailers like Myers (then Grace Brothers), David Jones, Woolworths, Coles etc.

We saw an increase in "consumerism" and impulse shopping, where people would go to the mall to "shop" not to buy something specific that they needed. Also, because of greater construction and marketing costs malls tended to be more expensive for retailers, making retailers more aggressive with their sales targets and marketing. Along with an increase in competition and choice, these factors brought about the start of new trends like discounts, special offers, lower quality goods and more specialisation.

Large retailers (department stores) loved malls as they brought together larger volumes of shoppers. We saw the department store move from city (CBD) locations and become more distributed.

The same trends were occuring in most developed countries and not just Australia.

 

Along came the web

Online retail statistics source eMarketer August 2016

 

Online shopping became widely available in the early 90s, and close behind came the big names we know today. In 1994 Amazon started and it was not an instant success. A year later in 1995 eBay was started.

At the time neither could really be said to have created a unique model but it was the start of a change in the way consumers bought products online. Over time Amazon morphed into something more than just an online marketplace as it became a stronger competitor, and maybe leader, in logistics in the markets where it operated (and subsequently many other markets).

In 1999 eBay opened it doors in Australia with the launch of the eBay Australia platform. There was no noticable impact on Australian retailers or the online retailers at the time. What did happen is that more people found it easier to sell and buy online with eBay, and consumer's confidence in online retail began to increase. This was also the start of the trend of consumer's doing their comparison shopping online (using online stores as an information resource) then proceeding to a bricks and morter store to make the purchase. eBay's revenue in Australia is now estimated to be over $3 billion according to the Sydney Morning Herald story in 2015 by contrast Myer Group generated $3.2 billion in FY16 according to their investor report.

While there are millions of online stores the combined revenue of all those store, even though growing quickly, is still a relately small percentage of total retail sales worldwide at around 9% (US$1.92 trillion) of total retail sales (US$22 trillion), Australian online retail represents just 7% of our total retail sales. So you can summise that there is still a lot of opportunity on the online retail market both locally and worldwide.

 

The 21st century shopping mall

 

Is the growth of eBay and Amazon anything new for small retailers?

Much like the local retailers migrating to shopping malls to access larger shopper volumes in the 60s/70s, historically insular online retailers now have big established online marketplaces to leverage to access customers in a similar fashion. Again much like those local retailers, costs increased to access the new shopping experience, but that also drove dramatic growth in sales volumes due to changes in consumer behaviour and innovations in selling.

Now we get to 2017 and the year that Amazon plans to open in Australia (though arguably they are already here as Amazon is already a $1+ billion business in Australia with sales via the USA Amazon website).

So what do we expect to change?

Amazon now holds approximately 5% of the total USA retail market and an estimated 38% of the USA online retail market. When we look at Australia, Craig Woolford of Citigroup has estimated that Amazon revenue in Australia could reach $4 billion in 5 years or around 1.1% of the total retail market and 14% of the online retail market in Australia. But will that be a result of Amazon taking from existing businesses or by expanding and creating new markets. My belief and many analysts believe that it will be a some of each and as the market expands so will opportunity for existing and new businesses.

Much like with the growth of eBay, the presense of Amazon in our market and the changes it will bring should drive consumer confidence even further in online retail and speed the growth of an already rapidly growing market. While there will inevitably will be some canabalism of existing online retail sales by Amazon's own products, the revenue pie that Australian online retailers share should also grow significantly once Amazon fully makes its presense felt.

You need to ask whether you want to be the store that joins this next revolution, much like the local shop that moved to a shopping mall, or do you want to risk being left behind.

 

So what has changed in retail?

 

The answer is both nothing and everything. We have seen many trends in retail over the last 30 to 50 years. The main trends that have impacted small and local businesses are:

  1. The department store - changed the landscape and drew customers away from many small, local businesses with consumers behaviour driven by choice, convenience and a new experience
  2. The mall - created centralised hubs for retail which improved opportunities for smaller retailers by increasing access to larger shopper numbers
  3. The web - moved some sales from bricks and mortar to the internet, allowing small retailers to access bigger markets
  4. The smartphone and web 2.0 - broader access to online retail and simplified buying making impulse purchases easier, the net became a market in itself as well as a shopping tool for price comparison and product information
  5. Technical innovation - business efficiences, faster delivery, easier payments and in some cases staff reductions (and some might say service reductions as well) generally meant that small retailers could be more competitive with larger retailers, and customer confidence increased driving more online shopping.

It could easily be argued that the growth driven by all of these trends have resulted from the consumers' demanding more choice, more convenience and an easier shopping experience. While each of these trends probably felt terrifying for retailers at the time, the end effect of each was an increase in overall retail sales, more revenue for the retailers that jumped on board and an improved shopping experience for consumers.

However, these trends could also be seen as a repetition of the same overall behaviours. First we had local stores for convenience and experience. Then grew the big stores and shopping malls, bringing together more products and more shoppers for the benefit of both the consumer and retailer. Now we have online stores providing convenience for shoppers to purchase their products online, and that led to the growth of big online stores and marketplaces like eBay and Amazon which bring together more products and shoppers (we hope for the benefit of both the shoppers and retailers).

To access the opportunities arising from trends like these, all retailers have needed to define and understand their market to identify the opportunities as they arise and become more competitive. Given that we have seen department  stores like Myers, David Jones, Harvey Norman and others move into online retail (and on to eBay etc), often after years of criticising online retailers, its clear that even the largest retailers now see the benefits of competing online and across other channels. Large scale retail has never been cheap and needs huge investments to access these markets, provide modern levels of service and to future proof the business for new opportunities. By comparison small retailers can be flexible and adapt faster making them far more agile and offering a greater degree of disruption to traditional retail.

Less that 20% of Australian businesses have adopted a strategy that embraces both online and offline retail. Even fewer utilise marketplaces like eBay and Amazon to extend reach and customer acquisition. The gap leaves huge opportunities for smaller retailers to move into markets yet untapped by the big players, and take advantage of these modern trends to drive growth.

The entrance of Amazon, will just be another similar opportunity. At the end of the day, a large multinational is about to invest a phenomenal amount of time and cost into building its brand and service here, and that service includes a mechanism for small retailers to market themselves and their products to Amazon's customers. To me this can only be positive, Amazon would only enter into that investment if they see the opportunities for growth in the medium to long term in the online retail market in Australia. That growth can only be driven by the growth of the overall volume of comsumers shopping and purchasing online in Australia in the coming years.

 

How to future proof your retail business

 

Well I know that it will sound like an obvious answer but the first step is to develop and deploy an online retail strategy. eCorner has been helping small to medium sized businesses sell online since 2003 and we have seen all types of busness selling all types of prducts succeed online. Just having a website is a good initial step, all businesses should have a website. But if your primary business is about selling a product or service then you need an ecommerce strategy for your business because it will be almost guaranteed that your competitors will already have one. Just having the website is like laying the foundations of a building, its necessary but doesn't keep the rain off. To be successful online, you need to build the walls and the roof as well. To do that, you need to know who your website will be selling to, what they want to buy (and how) and how you are going to get your products in front of them.

There is a common misconception in online retail that (quoting Field of Dreams (1989)) "if you build it, they will come". Online retail just doesn't work like that. Just like a bricks and morter store, you customers need to know about you, be able to find your store, and be able to find what they want to buy once they get there. Spending the time before you start to know where you are going to invest time and money to market your store and present the right customer experience, is no different now to those retailers setting up their first stores in shopping malls in the 60s and 70s.

You ecommerce strategy should also embrace multiple channels to market including eBay and Amazon, as the reality is those portals are still some of the best places for you to acquire new customers. They have a much bigger marketing reach and customer base than your online store is ever likely to access otherwise and, while they can be expensive, a smaller slice of a bigger pie is still generally more pie.

Mobile commerce should now be built into every businesses processes allowing customers to find, search, browse and buy from you on any device anytime of the day or night, ecommerce does not have hours of operation.

Think about who your customers are and how they shop (or better yet go and ask them), and then ensure your products/services are present where they are looking whether it be on eBay, Google Shopping, Facebook or now Amazon.

 

Is eCommerce is a steep learning curve?

 

When you are ready to start selling online it does not have to be a difficult process and you can get your online business up and running following 10 Steps to eCommerce Success. There are many web developers and designers that will tell you how hard it is to get started. But the reality is that there are eCommerce solutions available that allow you to setup and run your own online store with ease and without the need for expensive web development. Costs will depend on your business size and your market sector. Running an online business is not really that different to running a bricks and mortar business and all the same day to day issues will generally apply.

You will need some basics like a domain name, SSL and email package along with your online store. We have some great offers right now to help businesses get stated online.

Start_Up_kit_banner

Asking questions before you start can be a good idea and there are lots of tutorials and forums around that can help you. A good place to start if you are a small business getting started are forums like Flying Solo where you will find people and businesses similar to yourself.

You should build a list of your requirements which will enable you to get better advice when you start to speak to eCommerce vendors and agencies, you can download a list in an Excel Spreadsheet format from our website - eCommerce Requirements List.

There are lots of features to help you sell online that are already built into most of the eCommerce solutions that are available, so you'll want to make sure that your chosen solution has the ones you need to engage with your customers. So check out some of the eCommerce features that are already there before you start and it can save some time and money.

 

What is the conclusion that we come to?

 

Every business needs to embrace eCommerce and to develop an eCommerce Strategy if you want to take advantage of the opportunities that exists in today's market or in the future when Amazon joins the fray. With online retail growing annually at a faster rate than retail in general it is obvious that markets will continue to open up. Amazon's arrival in Australia will add additional pressure on larger retailers but will open the way for smaller more focused online sellers to take advantage of the changes that Amazon will help accelerate, as well as leverage off Amazon's brand to get your products and brand in front of new, prospective customers.

 


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