Despite recent improvement in consumer sentiment, bricks and mortar stores continue to face many challenges. Growing competition not only comes in the form of online pure play retailers, but also manufacturers selling direct to consumers via online, and global retailers leveraging off their online presence to take advantage of the strong Aussie dollar and choice-hungry consumers.
Online pure plays are evolving rapidly, bridging the gap between the online and in-store experience. According to a Frost & Sullivan Australian report on online shopping market and digital habits released in July, online shopping expenditure in Australia is expected to reach $16 billion in 2012, a growth of 17.6 percent from last year.
Some 55 percent of Australian online shoppers indicated that lower prices than those in physical stores was the most important reason for shopping online, the report revealed, with ever greater price transparency driven by improved search engine functionality, price comparison sites and the rising penetration of smartphones.
A further worry for traditional bricks and mortar stores, albeit good news for retail property investors, is the trend of online retailers looking to establish a physical presence in Australia.
“It’s so competitive in that online space that they are looking at ways to get an edge, and so they are looking to open stores,” says Jones Lang LaSalle head of retail Tony Doherty.
CBRE’s latest annual global retailing research paper revealed that e-commerce was the biggest driver in the globalisation of the retail sector, and is set to play an even more important role in shaping the demand for retail real estate in the future. CBRE found that in the most advanced markets of the US and the UK, more than 80 percent of retailers that operate an online delivery service also had a physical store presence.
Yours to lose
Showrooming, a trend where shoppers view a product in-store and then search for the best price online, is yet another bugbear for retailers. According to the Frost & Sullivan report, 50 percent of users of mobile devices use them to find a nearby store and 36 percent use them to compare prices in-store.
Yet Doherty says this type of consumer behaviour represents an opportunity for retailers to be more transparent with their consumers and tell their story. He argues that the retailing formula has not changed in all his years in the business.
“It’s a matter of understanding your customer and then catering for their needs,” he says. “Once you cater for their needs, you have a market in which you can generate sales.”
Managing director of Retail Doctor Group Brian Walker says that online retail and technology has simply triggered yet another structural change, which is nothing new to the retail world.
“Technology is driving an information revolution, which is driving a far more diversified consumer,” he says. “Yet retailers doing well around the world still have the basic principles in place: they have a very strongly differentiated offer, their brand is well-known and they tend to back it up with good fulfilment and supply channels, as well as a good brand and customer experience.”
The next stage of the evolution is cross channel retailing, Walker explains, where retailers will have “a superb physical store experience, supported by a good integrated online trading site, plus social media, digital and mobile commerce, plus radio, catalogues and so on”.
“So the channels for consumers have not only grown in number, but in greater reach,” Walker adds, “and this is the challenge and opportunity for retailers.”
Michael Baker, principal of Baker Consulting, believes this evolution is a long time coming.
“A few years ago I would tell people that if Australians ever found out how people in the US are shopping, there is going to be hell to pay,” he says. “The backlash against domestic retail that we are seeing is because people have now found out.”
But Baker notes that Australia has a lot of positives and the broader consumer spending numbers have actually been good over the past few years.
“If you’re out there as a retailer and you’re unhappy, I would argue it’s because of you,” he says. “If you make the product and experience compelling enough, they will come.”
Baker says it is fantastic that international players like Zara, Costco and Topshop are entering the market and pulling Australia into global competition. “It’s going to raise standards.”
The likes of Sportsgirl are already lifting the bar and Walker is impressed with how it is playing with media walls and interactive billboards, digital technology and their online offering. “They do some interesting things and are a good example of cross channel integration where their large bright stores, good social media and online strategies, and their other media strategies, are all running along seamlessly.”
Doherty agrees Sportsgirl is a brand adapting well and says it is an example of a retailer meeting challenges head on. He also likes Cotton On’s “Try on Your Sound” initiative, which involves garments tagged with a radio frequency identification code that initiates a playlist once a customer enters the change room.
While innovation is happening, a global study by Ebeltoft Group, in partnership with Retail Doctor Group, revealed that Australia is lagging far behind in its cross channel capabilities.
Baker says Australian retailers have been reluctant to invest in either visual merchandising or technology because they are concerned about the future of retail space.
The role of centre managers
Shopping centres, on the other hand, understand that they need to embrace the type of change and opportunities that technology brings, says Urbis director of consumer research and marketing Sue Say.
But the structural change in retailing is presenting centres with the challenge of adapting its tenancy mix, Say notes. They are re-evaluating their competitive advantage, what Say calls ‘the theatre of shopping’.
“We are going back to the origins of shopping centres, which were the meeting and social places,” she says. As a result, more casual dining places are being developed in and around shopping centres as opposed to food courts, and centres are placing more emphasis on entertainment, Say adds.
Food and groceries are also likely to become a more important component of the shopping experience. “It is a very large proportion of retail expenditure in Australia and a large proportion of that is relatively insulated from online shopping.”
Say adds that, while retailers are asking more questions about rent and where retail is headed, vacancy rates remain low and the well-run centres still have retailers knocking on the door. However, another challenge in this structural change is understanding what space they need.
“Retailers looking to have a greater online presence may want smaller premises, while other retailers focused on creating a great customer experience may opt for larger floor plans,” Say explains.
Baker suggests that the former won’t necessarily seek out smaller premises. “Looking at the showroom model, if you want effective visual merchandising and to produce an experience that people want to go back for, you can’t do that from a tiny cubicle.”
Australia’s specialty stores need to get bigger, Baker says, noting that Australia’s relatively small floor sizes are already an issue for international players like Zara and H&M.
CASE STUDIES making the experience count
- Women’s active wear retailer marketing gym and sportswear, yoga and lifestyle clothing as well as intimate apparel and accessories
- First store opened in Brisbane in 1993
- Now has 130 stores worldwide. Lorna Jane has just launched in the US with five stores opened in California, and a further seven due to open by the end of the year
- In Australia, Lorna Jane stores are mainly located in super regional and major regional shopping centres, plus some key strip stores
- Leases are negotiated on a five to 10-year basis.
- Offers a range of holistic certified natural and organic aromatherapy and herb-based skin care products
- Focus on customer experience
- Eight stores, located in Sydney, Brisbane and Melbourne in shopping centres and shopping strips
- Shops located in areas matching customer demographics
- No plans for new stores
- New focus on social media to engage with customers
- Online sales have improved by more than 60 percent in the past few years.