The media love a good story – and for them, a good story means a bad news story: If it bleeds, as they say, it leads. In recent times, and particularly over the summer, we’ve seen acres of newsprint and hours of TV and radio proclaiming the ‘Death of Retail!’ and the ‘Retail Apocalypse!’
It is not necessary to change. Survival is not mandatory.
– W. Edwards Deming
But What Is The Real Retail Story?
The reality is rather different. The five-year growth trend for retail turnover is 3% year-on-year, and for the year to December 2019, 2.8% (source: ABS Dec 2019). Over that period, the range of numbers run from just under 5%, with the low point of just 1.8% in 2016. In fact, retail has been in the positive growth range for the past ten years!
But it is true, things really have changed. In particular, three large-scale trends have combined to bring about a seismic shift in the Australian (and wider) retail landscape:
1. GENERATIONAL CHANGE
In the past five years, the commercial engine of the Baby Boomers (aged 53-71) has been surpassed by the Millennials (aged 21-36) as the economic force in this country, in terms of purchasing power. Now Baby Boomers are moving into a period of retirement, constrained or fixed incomes.
This is the generation that grew up with the birth of shopping centres, franchise groups, fast food, retail chain stores; a generation that has been the backbone of retail for the last half century.
By contrast, Millennials grew up with the internet, gaming, social media and the web. They aren’t afraid to shop online and to rent rather than buy, and they consider the social and ecological ramifications of their purchases. They buy differently from their grandparents. This group, combined with the Gen Xers (aged 37-52), represent 50% of the population and are the prime economic drivers.
2. TECHNOLOGICAL CHANGE
The speed of change in technology has accelerated, and now you can’t have a conversation in retail without talking about AI, AR, VR, IoT, Chatbots, CX (Customer Experience), RFID, NPS and a whole host of acronyms related to managing data, performance and customer experience.
It was Peter Drucker who said:
The greatest danger in times of turbulence is not the turbulence: it is to act with yesterday’s logic.
Not all retail businesses are keeping up with the need to change, the need to adapt to the new customer.
3. GOOD ENOUGH THEN IS NO LONGER
In the 2008–2013 period we came out of the global financial crisis, with many businesses stretched to their breaking point and hanging on by their fingernails.
Hanging on by your fingernails is not a business plan. In an already competitive market where we’ve seen the introduction of ALDI, ZARA, H&M, COSTCO, Amazon and other internationals, the need to be ever more efficient, ever more effective and even better managed has exposed the lack of commercial skills or ability to change of some of our retailers. What was good enough in the first decade of this century is not good enough in the second, and simply will not survive the third decade. These retailers risk the fate of wagon wheel makers in the automobile era.
The internet hasn’t killed bricks and mortar retail; indeed, there are retailers doing well – JB Hi-Fi, Bunnings and Officeworks spring to mind. What has changed, however, is the way we shop.
Customer Expectations Of Retail Experiences Keep Changing
We see articles suggesting that millennials all shop online and that it’s impacting stores. This is simply incorrect. Research indicates that in fact millennials enjoy shopping instore; but they demand better service, they expect to have an experience and they are highly selective. And if you can’t meet those high standards, they’ll simply buy your product or an equivalent online. That sale hasn’t disappeared, it’s just happening in a different form.
In fact, far from the internet overwhelming bricks and mortar, at the recent NRA Show in New York, a key talking point was the increased level of activity and interest from pure-play online retailers, actually starting to open their first brick and mortar stores. And why would that be? Because they understand only too well the immense brand power of a store and the unmatchable benefit of experiential retail. The consumer wants to see, feel, try and experience the product.
The next big challenge will come from Augmented Reality and Virtual Reality, enabling the consumer to experience the product in a digital world. There’s no doubt this will further reduce the number of physical stores, but those that survive will be more about a purchase journey and the experience, than about a mere financial transaction.
How Some Retail Businesses Still Thrive
So, if the internet is killing retail, how is it that JB Hi-Fi, Bunnings, Officeworks and others can be thriving? It’s because they go all out to provide the experience the consumer wants. When you walk into JB Hi-Fi, you immediately understand what world you’re in: you’re in a market, you believe you’ll get a good deal, it’s a fun experience.
Drive down to Bunnings on Saturday morning and you’ll find an extensive range; they work very hard to convince you that you’re getting ‘value for money; the car parks are full, there’s a sausage sizzle… it is a quintessential Australian weekend experience.
At Officeworks, you’re greeted at the door, there’s a super-wide range, with colourful products displayed on white background in a well laid-out out store. With any of these stores, there’s a strong likelihood you’ll walk out with more than you went in to buy, or at least with a bigger wishlist.
None of this happens by accident, and it’s no coincidence that these chains use technology extensively to improve their offering. They measure CX experience; and they use customer tracking studies, AI and very sophisticated inventory management systems to shape and from all this generate vast amounts of highly valuable data to inform and influence how they do business.
THE NEW NORMAL
So, are we really in the midst of a “retail apocalypse”? NO. Retail is tracking OK.
Is there a radical retail step-change requiring all retailers to adapt, change and meet the ever-increasing level of customer expectation? YES. Certainly there is.
To discuss what the changes of the retail world may mean to your business, have a chat with Brian Kelly on 0419 281599 or contact him here.