The elephant in the room for retailers
Last month a 146-year-old entertainment business announced it was folding. Branded ‘‘the Greatest Show on Earth’’ the Ringling Brothers and Barnum and Bailey Circus closes in May.
For millions of people the circus was part of their childhood. I can remember my parents driving me in from rural Canterbury in our old HQ Holden Ute to watch the Ringling Brothers Circus in Christchurch’s Hagley Park.
The smells, the animals and the taste of yellow and red popcorn all blended together to create an immersive experience.
The Feld family bought the circus in the 1960s and had 25 years of good revenue and 35 years of declining revenue.
In announcing the closure last month, Kenneth Feld listed various factors including declining foot traffic, rising transportation costs and increasing appetite for digital entertainment — all of which make the circus unsustainable.
I’ve been thinking about circuses a bit lately after a comment that a large retailer made to me last week.
Currently his chain of 20 stores is facing a number of headwinds including the growth of overseas online buying, the consolidation of global pricing and increased property rents.
He summed up the situation as saying retail was certainly no circus these days.
What he meant was that it’s bloody tough. Looking at a marketplace littered with the likes of Pumpkin Patch, Postie Plus, and Kirkcaldie and Stains, it’s not a new thing.
There’s a pretty good argument that the worst has yet to come as the world’s largest digital retail superpowers look set to finally move on New Zealand.
First Alibaba, China’s $300 billion e-commerce behemoth, has gotten serious about expanding into Australia and New Zealand.
It opened a regional headquarters in Melbourne earlier this month with a stated desire to grow the reach of its Tmall Global, something they started in cooperation with New Zealand Post a few years ago.
Second, 2017 is being flagged as the year that Amazon.com will get serious about Australia and New Zealand.
A leaked report provided to the investment sector talks of Amazon’s plans to ‘‘destroy Australian retail’’ with prices 30 per cent lower than benchmarked retail when it launches in September. Apparently it is including massive distribution centres in each state as well as Amazon’s relatively new Fresh grocery stores.
Here in New Zealand, the Bezos crowd have already been busy. Over the past year Amazon listings viewed from godzone started to provide prices in New Zealand dollars and even customised guidance around where import duty will start to apply.
Then Amazon’s video-streaming service launched in New Zealand two months ago with a price point well under the likes of Netflix and Neon.
For the first six months it costs just $4 a month before moving to a ‘‘normal’’ price of $8.30 a month. Coincidentally this is about 30 per cent less than the local competition.
Meanwhile Amazon has been securing its intellectual property in New Zealand in respect of trademarks and domain names.
Chances are that Amazon will fulfil to major New Zealand cities via a state of the art overnight delivery service from New South Wales.
Amazon’s Australasian entry will fundamentally change the context for retailing in New Zealand.
Businesses that compete on price or selection risk getting in a race to the bottom. Meanwhile, property rentals and labour rates keep increasing so margins will get even thinner (though not quite as thin as Amazon’s profit margin of 0.2 per cent).
What this means is that retailers of discretionary items (so not dairies or petrol stations) will need to focus on fulfilment, convenience and service.
Fulfilment will gravitate to same day, with increased demand for online delivery platforms that allow consumers to plug in their preferences and monitor progress from their mobile phones.
Increased focus on customer convenience will include a move to delivery of services and goods on an ondemand basis, something an Australian bound provider can’t do. Net promoter scores will become the mantra that retailers follow to optimise their business.
Meanwhile a speedy process for product returns or exchanges – the shirt that doesn’t fit – will become a competitive advantage for local retailers.
If I know I can log into a customer portal and get a return item picked up from my back door, or drop it in a letterbox to a freepost address, I’ll feel a lot better about buying.
Lastly, the local laws become an enabler. I know The Warehouse or Mighty Ape or Torpedo7 will always honour the Consumer Guarantees Act around acceptable quality.
I’m a lot less sure about a Chinese company, selling through an Australian fulfilment centre.
Personally, I reckon the thing that killed the Ringling Brothers circus was context.
The context changed completely for an entertainment based around keeping animals in cages, performing patronising tricks while living on the road. It became completely unacceptable and the business failed to recognise this.
The entry of Amazon to this market will change the context here.
Companies that recognise that will survive. Those that don’t might find themselves a bit like Ringling Brothers.