The School of Advertising, Marketing and Public Relations Business Breakfast Series kicked off again this year with a retail themed event. In collaboration with the National Retailers Association, CEO Dominique Lamb and I explored retail disruptions and possible solutions.
Amazon in Australia
Early reporting on the entry of global retail giant Amazon to the Australian market has been alarmist and with little substance. Considering Amazon’s potential growth within the domestic market, commentators have been too quick to compare the US and UK markets as an indicator of what Amazon may do within the local market.
Online penetration in the US sits at 10.9% and in the UK, almost 15%. In Australia, shoppers spent almost $22 billion online, representing about 7% of total retail spending. Such numbers suggest that the majority of shoppers, some 93%, are still venturing in-store to buy. Further, 80% of that online spending is done domestically, with incumbent retailers. While some 38% of online shopping in the US is transacted through an Amazon platform (30% in the UK), projections suggest that at best, Amazon may capture 25% of Australian online retail trade over the next 8-10 years.
Given Amazon’s traction in the US, and to some extent UK, their market share is arguably a result of timing and market maturity. When Amazon entered these markets (US in 1995, UK in 2002), internet shopping was in its infancy. Hence, a strong brand like Amazon quickly attracted first time users, who simply stayed loyal. Entering a mature online Australian market, possibly in 2018, Amazon will find it very different. Shopping behaviours have already been established, accounts set up, trust established and transactions successfully completed. Amazon will need a pretty big carrot to convince shoppers to switch. They also face challenges around outbound logistics cost, geographic distances and dispersion of population.
Speed: the new economy
Ongoing price wars are creating long-term damage to retailer margins. This relentless preoccupation on price promotion has seen product ranges cut, private label products re-launched and suppliers pressured. What shoppers and commentators are seeing in the Australian market has been playing out in the UK market for years.
While British grocers also bemoan the unsustainable price battles, UK retailer Sainsbury’s appear to be the first to focus on an emergent trend; the ‘Go-Economy’. Retailers in this space have accordingly focussed on fast delivery to compete, like Australian pure-play retailer, The Iconic, who were the first to promote a three hour delivery window. When you are competing against others with the same offer and often the same prices, getting your product into the hands of a customer first is always going to be beneficial.
The rise of Amazon Fresh in the US and UK, and the demands of the ‘I-Want-It-Now’ shopper, have put incumbent supermarkets under pressure to meet constantly changing expectations. Many, like Walmart and Morrisons, have teamed up with third party providers like Lyft, Uber, Togle and Ocado to achieve a same-day delivery promise. This year Sainsbury’s took the bold step to hire 900 new delivery drivers, aiming to bring delivery times down to just six hours. Not to be outdone, Marks and Spencer have announced a partnership with e-commerce provider Togle to facilitate a one hour delivery promise within London.
Touch: enhancing the customer experience
Today, shoppers are looking for more than just low price. Retailers and service providers need to look more broadly at developing long-term relationships that generate and enhance customer engagement, as the likes of Lululemon, The Standard Market Co., Wolff Coffee, Shoes of Prey, Mon Purse and Sephora have done.
Lululemon create a point of difference with recruiting authentic brand ambassadors. Unlike other sporting goods and athletic apparel retailers, who recruit professional athletes, Lululemon’s approach has been to use yoga instructors, cross-fit trainers and cyclists who ‘live the brand’. Accordingly, consumers see these ambassadors as ‘real’ and connect with both them and the brand. The Standard Market Co. focus on bringing ‘theatre back to grocery shopping’, with bespoke products, local food and cooking demonstrations. Meanwhile, Rebel connected with Australian street artist, Adrian Doyle to customise new Puma footwear. Mon Purse and Shoes of Prey, demonstrate how to bring about customisation and personalisation though digital design.
Technology: blurring online and offline
The future for retail is about micro-location context, virtual endless aisles and ‘shoppable’ vertical surfaces. Retailers have finally recognised that their customers are shopping and engaging with them in-store, online and through social media channels.
Macy’s use of beacon technology and micro-location information enables them to connect with their customers and adapt offers. With the costs associated with inventory increasing, US giant Home Depot and Australia’s Kitchen Warehouse have embraced the ‘endless aisle’ philosophy. Both retailers have a range of products available for immediate sale, however, the use of kiosks allowed shoppers access to a much wider range that can be searched, purchased and delivered the next day to the shoppers home. The use of these kiosks embedded outside of stores allows ‘window shoppers’ to make purchases of clothing and other items on display.
The next Business Breakfast, Man vs Machine, will be held on Thursday 1 June at QUT Gardens Point Campus.