An­drew Bax­ter ex­plains why the buyer is still king;

In re­tail’s dis­rupted world the seller dances to the buyer’s tune

The Australian - The Deal - - Contents - An­drew Bax­ter Con­tact: Fol­low An­drew on @an­drew­bax­ter3 An­drew Bax­ter is chief ex­ec­u­tive of Publi­cis

ETAIL, ecom­merce, pure plays, online re­tail, omni chan­nel, clicks and bricks, tra­di­tional re­tail – these are to­day’s busi­ness buzz­words when it comes to shop­ping. They cover the three types of com­pa­nies fight­ing for the cus­tomer’s dol­lar – the 100 per cent online re­tailer, the 100 per cent in-store re­tailer and those do­ing a com­bi­na­tion of both.

The share­mar­ket loves the fast rev­enue and as­set growth of the pure online play­ers. The long-time re­tail­ers pre­fer prof­its. But in the end it’s the cus­tomers who will de­cide the win­ners. Ap­ply­ing a mar­ket­ing lens to this sce­nario al­lows us to bet­ter as­sess the bat­tle­ground.

In the US, cus­tomers are spend­ing 91 per cent of their shop­ping dol­lars in stores and 9 per cent online. In Aus­tralia it’s closer to 94 per cent and 6 per cent. In Bri­tain, John Lewis is con­sid­ered best prac­tice in do­ing both, with 72 per cent and 28 per cent.

In Aus­tralia, Myer and David Jones are closer to 99 per cent and 1 per cent while Officeworks is about 87 per cent and 13 per cent. All are prof­itable. As is Catch of the Day, Aus­tralia’s most suc­cess­ful etailer with more than $350 mil­lion of an­nual sales. And Ama­zon is the world’s show­case when it comes to a pure online re­tailer with $US88 bil­lion of yearly sales achieved in less than 20 years of busi­ness.

In­ter­est­ingly, whether online, in-store or both, the most ba­sic mar­ket­ing prin­ci­ples of re­tail re­main – the right prod­uct, the right price, pro­moted well with good cus­tomer ser­vice and con­ve­nience. All of the re­tail­ers above have the right prod­ucts. Their top-line sales are tes­ta­ment to that. While some are flat, and oth­ers are grow­ing fast, none are go­ing back­wards, con­trary to pop­u­lar belief.

They’re all pretty good at pro­mot­ing and com­mu­ni­cat­ing their re­tail of­fers. Myer, David Jones and Officeworks have ex­tremely dis­ci­plined and ef­fec­tive advertising pro­grams. John Lewis is the same. Ama­zon, Catch of the Day and Myer lead the pack with their di­rect mar­ket­ing pro­grams, while the two online re­tail­ers, as well as John Lewis and Officeworks, have the bet­ter ex­pe­ri­ences from their web­sites and apps.

The dif­fer­ences start to kick in with cus­tomer ser­vice. Myer and David Jones have long been pil­lo­ried for their lack of in-store staff, a legacy of cost cut­ting fol­low­ing the fi­nan­cial cri­sis. There’s no such neg­a­tiv­ity sur­round­ing the other brands. Officeworks, for ex­am­ple, has seen much praise for its in-store teams and the pure-online re­tail­ers also re­ceive glow­ing en­dorse­ments for their cus­tomer-cen­tric ways.

Con­ve­nience is at the heart of re­tail, the abil­ity to easily buy and re­ceive your prod­uct. A hun­dred years ago depart­ment stores were de­vel­oped to house mul­ti­tudes of global and lo­cal prod­ucts in one place. To­day that is still true, but it’s truer of West­field, which is more a des­ti­na­tion than the depart­ment store, and Catch of the Day, which brings the most pop­u­lar items in a depart­ment store to another place – online.

Ama­zon’s Book De­pos­i­tory, on the other hand, con­cen­trates on one spe­cific cat­e­gory – ev­ery book you might want. Like­wise, Officeworks is the place for the pop­u­lar sta­tionery items you need, ei­ther in one store or on one web­site, but is a des­ti­na­tion in its own right. Yet each Officeworks store only car­ries 10,000 items and its web­site just 20,000. In striv­ing for con­ve­nience, its model is to carry lots of the few.

Myer and John Lewis’s model, con­versely, is to carry few of the lots, with more than 200,000 items in each store. John Lewis has 80 per cent of its in-store range online. John Lewis has only 29 tra­di­tional depart­ment stores in Bri­tain, cater­ing for 60 mil­lion peo­ple. Myer has 67 stores for 24 mil­lion. With John Lewis stores be­ing less con­ve­nient to get to, online closes the gap.

The other bat­tle­ground in con­ve­nience is dis­tri­bu­tion ef­fi­cien­cies. Catch of the Day has moved to a 70-ro­bot ware­house in Mel­bourne while Myer set up its own fa­cil­ity in China.

Then there’s the last ba­sic tenet of mar­ket­ing – price. This is where prof­its are made or lost. Last year Myer, David Jones, Officeworks and John Lewis all made more profit than Ama­zon. The re­tail­ers’ pri­or­ity is to make or buy a prod­uct at a cer­tain cost and sell it at a higher price. But in set­ting the sell price, they must fac­tor in op­er­at­ing costs – dis­tri­bu­tion cen­tres, ware­hous­ing, trans­port, de­liv­ery costs, staff and so on. Last year Ama­zon charged its cus­tomers $US4bn for de­liv­ery and it cost them $US8bn to do it.

Myer and David Jones see this area as their big­gest chal­lenge to prof­itabil­ity in online. It’s a game of cat and mouse. How long will pure-play re­tail­ers such as Ama­zon, and lo­cally The Iconic, be pre­pared to lose money to en­sure they keep their prices low for con­sumers? And how long will Myer and David Jones hold back on push­ing hard into online re­tail­ing in or­der to main­tain prof­itabil­ity?

At the mo­ment con­sumers are vot­ing with their wal­lets, and tak­ing ad­van­tage of ar­guably the low­est point in the pric­ing cy­cle. Why wouldn’t they when they’re ef­fec­tively buy­ing the prod­uct at be­low what it costs the re­tailer to get it to them.

Whether Aus­tralian re­tail­ers want to be 100 per cent online, 100 per cent in stores, or a com­bi­na­tion of both, it’s clear that the big­gest driv­ers of op­por­tu­nity from a mar­ket­ing per­spec­tive are con­sumers be­ing able to con­ve­niently buy and re­ceive the prod­uct they want, at a com­pet­i­tive and sus­tain­able price, with great cus­tomer ser­vice. Hav­ing the right prod­uct and the right pro­mo­tion of that prod­uct is still im­por­tant, but won’t swing the pen­du­lum as much as the other mar­ket­ing driv­ers in to­day’s mul­ti­fac­eted re­tail en­vi­ron­ment.

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