Online shopping is revolutionising the way we purchase goods and services – so what does the future hold for ‘bricks and mortar’ retailers? JEFF SALTON asks leading merchandisers to pick a winner: bricks or bytes?
Visit your local shopping complex’s food court on a Sunday around 1pm and it’s hard to imagine that some major retailers are crying poor. They say the Internet is killing their businesses because online merchants, who can do without expensive shopfronts, can sell items more cheaply. Moreover, overseas sites don’t have to charge GST on items under $1000.
But is that the real reason online shopping is gaining traction while traditional retail is suffering?
Will we all soon be shopping only from home? What will entice shoppers to endure full carparks, inattentive sales staff, higher prices, unruly children, messy food courts, trolleys, prams and strollers?
And it’s not just the retailers themselves who are worried. The Australian Government is also concerned. The Productivity Commission has launched an inquiry into the future of Australia’ retail sector.
Assistant Treasurer Bill Shorten says: “The Productivity Commission is looking into the implications of globalisation on the Australian retail sector. I strongly encourage bricks and mortar and online retailers, consumer groups, unions, shoppers, suppliers and other experts and stakeholders to make submissions to the inquiry.
“With retail one of the largest employers in the country, and with ABS (Australian Bureau of Statistics) data showing retail turnover in Australia for the 12 months to October at $242 billion, this Government recognises how important the sector is to Australia’s future and wants to ensure the sector continues to flourish for the next quarter of a century.
“Online retailing is here to stay. It is something every Australian consumer and every retailer is going to have to come to grips with, and sooner rather than later.”
WE ARE ALL INDIVIDUALS
So, what’s suddenly wrong with traditional retailing?
Online entrepreneur Ruslan Kogan, aged 28, says he knows exactly what the problem is: he thinks we’re waking up to the notion that we’re being treated like sheep when we go shopping.
Kogan says most retail outlets have to cater for the masses and hence have a product offering that reflects this. But he says he ‘knows’ his many thousands of customers personally, even though he’s probably never met them face-to-face.
He owns Kogan, an Australian online retail company established in 2006 that specialises in LCD and LED TVs, Blu-ray players, digital photo frames, GPS devices, PVRs, digital video cameras, and home appliances. He says he brings the best technology direct to consumers at unbeatable prices.
But talk to Kogan and you’ll find that Kogan.com.au is more than just an online discount store. There’s a lot that goes on behind the scenes to ensure the success of this website where electronics goods fly off virtual shelves.
Kogan started the company Kogan in his parent’s garage with zero external funding or capital, and has gone on to build a multi-million-dollar (and growing) online business, manufacturing and selling consumer and household technology. Kogan is one of the fastest growing companies in Australia and is now international with the launch of Kogan in the UK in November 2010.
In just over four years, Kogan has sold more than 200,000 products directly to Australian and international consumers through its websites www.kogan.com.au and www.kogan.co.uk
So how does a company like Kogan – and there are many others – know so much about its customers, their needs and shopping preferences?
And why does the popularity of this website make traditional retailers like Gerry Harvey from Harvey Norman so concerned?
“Our business is focused on the customer,” says Kogan. “We can gather an incredible amount of information about them to help make their shopping experience more enjoyable than a bricks and mortar retail outlet.”
He explains that the information they gather is extremely customised, although customers are really only IP addresses to them, not real people, so privacy issues aren’t breached.
“For instance, we know how our customers came to us, their geographic location and what purchases they made in the past at our website.”
Kogan explains that in future his site will be able to extract much more information from customers by getting customers to voluntarily tell him what they like and dislike.
CUSTOMISED CONTENT
He says sites like his will be able to adjust the content they show to suit an individual customer’s buying and browsing patterns because his shopfront is a digital environment and can be changed accordingly.
“We are only in the first phase of online shopping,” he notes.
Soon, he says, online shoppers will be able to tailor the information they want to see – not just what the retailers want them to see.
By using sophisticated analytics software his company (and others) can build an extremely robust database of information on all customers. Kogan says this cuts down the amount of time wasted by visiting shops or online sites and wading through useless information or products that don’t interest that particular consumer.
“We can build a profile of each customer and tailor the information we present to them on our website. Bricks and mortar shops can’t do that. They need to appeal to the masses. Can you imagine shops like Kmart only stocking things you like?” he says.
“They have limited shelf space and have to stock clothing, for instance, in a number of sizes, but you only wear one size. That’s a lot of wasted space for most shoppers. Then they have styles that you would never wear.
“Most people walk into a clothing store and have to look through racks and racks. Online, you don’t have to do that. Good online retailers will have a profile of your likes and dislikes when you log in to their store and instantly provide a personalised catalogue of items in your size and style, based on your previous buying habits or a questionnaire you may have filled out once.”
Online consumers can sign up to get notifications of specials, new products, etc, that actually will interest them, unlike many of the offers that bombard the presently. It’s much better, Kogan says, than an annoying sales person who doesn’t understand your likes and dislikes, and, frankly, doesn’t seem to care either.
And if you don’t want any more notices from an online company, most will let your simply and anonymously ‘opt out’. Confrontation avoided.
“We regularly talk to our customers through our blog and Twitter, and manufacture products based on these conversations,” says Kogan.
“That way, again, we’re not filling our ‘shop’ with stuff people don’t want.”
Kogan says the sophistication of some sites’ profiling is exceptional.
“I visited www.hunch.com and answered what I thought were some random questions. The results I got back were staggering. It told me the name of the only book I had read in the past 12 months and what my three favourite TV shows were. They’re probably the only shows I really watch.
“My girlfriend went to www.boutiques.com with the same kind of results. This site has been acquired by Google and is the best example I know of an online female clothing store.”
Kogan said his girlfriend exclaimed that she achieved in one night online what would have taken her six months if she had chosen bricks and mortar shopping, assuming she could find all the things she was able to locate at the one online shop.
IF YOU CAN’T BEAT ‘EM
Even Gerry Harvey, executive chairman of retail giant Harvey Norman, has seemingly bowed to pressure and has declared the company will be moving its online presence from merely a catalogue to an online purchasing model.
Harvey has been vocal this year in calling on the Federal Government to impose GST on overseas retail sites selling goods for less than $1000. He has since withdrawn his ‘demands’ as he adopts what looks like an ‘if you can’t beat ‘em, join ‘em’ stance.
Even retailing monolith Myer has launched a China-based online shopping website: www.myfind.com
The extremely low-key launch coincided with the lavish opening of its revamped Melbourne store, estimated to have cost $300 million.
Myer says its online store is similar to the arrangement Qantas has with Jetstar, and that the businesses are quite separate.
So, should traditional retailers close their doors now as the online onslaught ramps up? Should facility managers working in retail start looking elsewhere for jobs?
NOT DEAD YET
Physical retail premises are not dead yet, according to property investment group Stockland, which owns and manages 32 shopping centres throughout NSW, Queensland, Victoria and Western Australia.
When contacted by FM, a spokesperson said: “We see a healthy future for both online and bricks and mortar shopping in Australia.
“There’s no doubt that online retailing is here to stay. However, it is important to keep this in perspective. The RBA reported in its latest quarterly statement on monetary policy that online spending still accounts for only about 10 percent of all domestic card payments.
“We’re strongly positioned to adapt to online retailing. Our current retail portfolio comprises a number of high-performing assets located primarily in suburban and regional areas across the country. Our centres generally command substantial market share, particularly in regional areas, and they play an important social role in the lives of our customer,” the spokesperson said.
“For us, what’s important is having the right tenancy mix and offering our customers an overall shopping experience to attract them to the centre. This includes parents’ rooms, My funland play areas [dedicated to children] and other essential services. This is something we’ll continue to invest in.
“As at December 2010, average retail sales in our portfolio were nearly 18 percent higher than the Urbis (2009/10) average for sub-regional centres. Our foot traffic and sales continue to be underpinned by solid food and retail services categories.”
MORE THAN JUST PRICE
To keep shoppers coming back to bricks and mortar complexes, retailers have to offer something special, and which offers more than just competitive pricing. Otherwise, consumers will use their outlets to ‘try before they buy’ online (in other words, browse and try on a garment for size, and then shop around for a cheaper price online).
Retailers like Myer have banked on making shopping experiential – a very tactile environment where customers are immersed in the moment. Bunnings, recently voted Choice Magazines’ ‘2011 People’s Choice Bricks and Mortar Retailer (ahead of David Jones, Myer, JB Hi-Fi and Big W) has the slogan, “lower prices are just the beginning”, meaning there’s more to the store than a discount. Choice asked voters to rate the stores on:
- range of products
- staff helpfulness
- after-sales service
- store environment.
Bunnings was once staffed mainly by ex-tradespeople; I’m not so sure that is the case now. Online company eBay won Choice’s best online retailer award.
HELP NEEDED
Retail and property analyst and consultant Michael Baker (www.mbaker-retail.com) advises against looking at Australia’s large chains to see trends, but rather to places like the US and its leading retailers. He says they are the ones who are really doing the hard yards when it comes to trying to engage consumers in the new and traditional channels.
Recently, the National Retail Association’s chief executive Margy Osmond said in an interview on ABC News that it was likely more companies in the retail sector would collapse (after the stunning demise of Borders/Angus and Robertson).
“I would hope not, but I think that much is going to depend upon what is now the very fickle Australian consumer,” she said.
“We are seeing a flight to saving, which is out of character for Australians; it’s 20 years since we’ve seen this level of savings, and I think this is going to be a very pivotal year for the retail community.”
She added that recent high-profile collapses could be just the tip of the iceberg, overshadowing what is happening to many smaller retailers and wholesalers.
MORE NIGHTCLUBS
Kogan says the only bricks and mortar retailers who will survive the online avalanche will be the ones that “have the maximum IP (intellectual property) per cubic centimetre”. He says boutique outlets that offer exclusive brands like Prada, Gucci, etc, will survive because people who shop there don’t care about price – they want the genuine item and are prepared to pay for it. They have expectations before they enter the shop and aren’t usually disappointed by what they find.
The rest, he says, should be turned into nightclubs.
