Retail Transformation in Disruptive Times

Article written by Matthew Webber

It is both confronting and somewhat depressing to turn the pages (physically or digitally) of a newspaper to see yet another retailer fall victim to the economic climate. There is nothing nice about an empty shop front, the loss of jobs or the withdrawal of an important community institution.

“Insights from Matthew Webber | Matthew Webber is a specialist in strategy, program delivery and training, focused on driving business performance by developing commercial, operational and innovation capability. With over twenty years international experience, Matthew has worked across the globe with organisations undergoing immense change and comprehensive transformations. Inspired to create a world championed by kindness, where equitable opportunity is available for all - Matthew shares his vision through best-selling books and his sought-after keynotes. ”

It is though happening at such a rate that we are almost becoming immune to the headline story and this creates an additional challenge for us all.

These fallen retailers are often iconic brands that people have relationships with,  sometimes these brands have become national treasures, and they are employers of thousands (sometimes tens of thousands) people.   

They are in fact serving an all important role in society whether that be supplying little Mary’s bike for Christmas, putting food on the tables for everyday people, or providing clothes for everyday wear or of course for a memorable event.

Retail is indeed an institution, it is iconic, it is for many an emotional experience. It is little wonder we don’t want to see it change. The problem is though it is changing, and the ball of momentum is rolling down the hill and picking up pace.

Like any change process – whether that be for the retailers themselves, or for the customers that hold them dear we need to understand Why it needs to change in order for us to change. It is then important for us to look forward and see what the future holds, and then importantly how do we get from here to there.

Why Change?

Survival

Sometimes in life we have to make the message simple so not to dilute or cloud the message. In this instance there is no greater reason to change than for survival. It is that simple and clear.

This is, for all purposes a likened to being in a paddock being chased by a ferocious Lion – with the good fortune that you can find safety (and opportunity) though only available if you run towards it. If you stand still, your future is bleak, if you run in a direction other than the one that presents the opportunity you will also meet the same fate – albeit a little more puffed out!

Survival can mean so many things and have different meaning to different people – whether that be the ability to remain in business to fulfil a dream, having the opportunity to provide jobs, or even the in the pursuit of retail excellence to provide a great service to your customer.

What though is clear, is you must be first  concerned with basic needs, in this case survival to then meet our psychological and self-fulfilment needs as Maslow’s hierarchy of needs would suggest.

There can be no greater reason for change than survival.

What does the future look like?

The good news is that the future is up to you. You can create the future in any way that you like, and one in which fulfils your objectives. There are some guiding principles that you will need to consider though as you create the future. 

1.     Customer centricity

Having a healthy obsession with your customer is key. This is about understanding their needs, being empathetic to their problems and having the ability to design solutions that will create an experience that they can emotionally connect with.

2.     Option creator

Customers need choice to meet their changing needs. They need options that they can have their needs met.  Creating a rigid business model will almost certainly fail in a world where the consumer is craving personalised attention in a very busy world

3.     Fast (and furious)

With the onset of technological advancement, and an economic environment where the power balance has well and truly shifted to the customer – there is a need for speed. This relates to the entire experience – how they interact with you (in person or digitally), the fulfilment of orders or the creation of solutions. Your supply chain (physical, information and financial supply chains) will need to support this. Your customer needs what they want yesterday – it is the world we live in.

4.     Digital

Digital must dominate your business model – whether that be providing your customer with the ability to buy online, the way you structure your supply chain or the way that you collect insights and learnings about your customer, industry, market and opportunities. Your customer is digital, so must you.

5.     Trusted

Your customer needs to Trust that you will deliver in your promise, trust that you have their interests at heart, trust that you understand their problems and how to solve them and have trust in the information, data, and emotional insights that they share with you. The move to a faster, more digital world comes with a greater onus on the Retailer to deliver on Trust. Remember people are at the centre of Trust.

Steps you can take

Now we have a flavour for the reasons why Retailers must change and a view into the attributes that are required to establish the future vision, it is important we consider how to get from the current environment to the new world.

1.     Listen to your customer

As simple as this sounds, it is the most important thing that you can do. The trick is to listen in a way that seeks to understand (just as Stephen R Covey would suggest in 7 Habits of Highly Effective People). It is easy to listen in a way that just validates your views, but if you listen in a way that can identify their real problems and how they would like you to solve for them – value will be created.

You will need to immerse yourself in their world, understand the data (including from social media) and look to their behaviours and actions. Customers, particularly retail customers,  speak with their feet (or fingers in a digital world) so listening to your customers behaviours is one of the most powerful tools you can use.  

2.     Define the problems and Create the opportunities

Work with your customer on solutions, and trial and test concepts as quickly as you can. Set up an innovation hub, a centre of learning so that you can collaborate, learn and develop.

Scan the globe for clues in how other retailers have solved for the same problem, or in fact how other industries have solved for like type products. By all means be original but do not invent the wheel. A great deal of energy can be expended trying to be too clever. Keep it simple and relevant.

It all starts with identifying and defining the problem well. This will help you move with speed when you test and trial solutions with your customers. Having your customer provide the insight and engagement in the problem definition will almost certainly ensure that they are engaged with you on the solution

3.     Design an adaptable, and commercial,  Business Model

Design a business model that supports the future and delivers on the value proposition and build in a way that allows the business model to adapt to changes in the environment. It is also critical that you create a business model that is commercial.

Many great retailers have fallen foul of moving their business into the digital world only to realise that the cost to service and fulfil orders in e-commerce can be expensive and slow. It is important to design your business model that  is customer centric and which can actually fulfil the promises you make to your customers and people.

4.     Effect the change

You need to be able to effect the change. To effect change you need to be able to lead the vision, build confidence, empower your people, communicate effectively and build really solid teams.

This will be your internal ability to adapt, transform and execute to deliver sustained business performance. Ideas are only ideas until they are executed. Even the best laid plans amount to nothing unless they are done. For ideas to be done you need people to engage with and embrace change as opposed to fighting it. You will need to be change ready.

Being change ready will enable your organisation  to act with speed and agility. It means you can do more with less and importantly ensure that you are not only a retail leader, but a profitable one

5.     Do the right thing

We highlighted that Trust is an important attribute for the design of future retail models, and with good reason. As you transform you need to ensure that you transform in a way that makes customer and commercial sense, but also in a way that ensures you do the right thing by the people and communities that you operate in from Source to Customer. 

This could be how you (or your manufacturers)  treat the workers in a factory in Bangladesh, through to creating safe work environments for the people fulfilling your orders or transitioning your labour force from bricks and mortar retail to a digital one. It may even be how you use and safely store data.

There are short cuts that can be taken in any transformation, quite often at the expense of people that are most vulnerable. 

Your customers in the new world expect you to do the right thing from source to customer. You as a retail leader should expect nothing less. 

There are significant opportunities for Retailers to reinvent themselves, build relevance and create significant advantage by following some very basic principles. The future is able to be created and reimagined.

The cost of inaction is just too high.

It just requires a rethink.

LOOKING TO rethink retail? Adjust your approach and G2M strategy? REACH OUT.

Our leadership team at Whiteark  have decades of experience in leading Retail Transformations from Factory through to Customer, developing Market and Customer strategies that ensure relevance and desirability . We design the business model to deliver commercial feasibility and  to ensure that your Retail business is ready to not only deal with disruption, but to thrive in it. From strategy to design and execution. Contact us on whiteark@whiteark.com.au or explore our retail transformation services here.

Article written by Matthew Webber

Household Consumption

Covid Impact Report

Household Consumption

Covid-19 has caused household saving ratios to hit heights not seen since the early 1970s.

---

OVERVIEW

Household Consumption Spending:

50% of households expect to have less income available after meeting commitments.

Disposable income expectations in a year from now:

• Increase: 17%

• Decrease: 50%

• Remain the Same: 25%

• Unsure: 8%

Household disposable income outlook…

• Employment is increasing as pandemic restrictions ease

• Population growth has slowed from 1.5% to 0.5% - less people receiving income than previously expected

• Wages growth has slowed from a low 2.2% to 1.8% and may decline further given the weak labour market

• Federal income support will be progressively reduced over the next six months

• Interest payments on savings have declined and so have share market dividends
  

Household Consumption Expenditure Outlook

• Household consumption expenditure growth will improve slowly as more spending options

  become available

• Weak income growth will constrain the rate of growth, although a build up of savings is likely

  to reduce slowly and support spending to some degree

• In annual growth terms, spending will likely still be in decline over the September, December,

  and March 2021 quarters

• Underlying growth will then settle at around 3.5% to 4%, which is similar to the growth rate

  before the pandemic

• Pessimistic estimate of underlying growth in consumer spending is 1.5% to 2% and optimistic

  estimate is 5% to 6%. The optimistic estimate is still below the pre-GFC growth rate of 5% to 9%

*Data Source: Foreseechange, Charlie Nelson

Online Shopping in Australia

Industry Report

Online Shopping in Australia

Online retailers are forecast to increasingly expand into other sales channels over the next five years.

---

OVERVIEW

Online retailing has flourished due to changing consumer attitudes over the past five years. Declining discretionary incomes has resulted in consumers fostering a bargain hunting trend, increasing the demand for online shopping.

Improvements and increases in internet connectivity has helped drive industry growth. Online retailers have attracted greater demand as consumers have become more tech savvy and computer literate. Improvements in the security and reliability of online payment systems have changed perceptions of ecommerce, transforming it into a credible shopping medium.

Online retailers allow consumers to search, compare and evaluate options from a variety of providers. Trust, reputation, warranties and add-on services increasingly influence consumers. Furthermore, offering a high standard of customer service on shopping websites is a key issue for the industry. Consumers are demanding greater transparency regarding delivery charges and enhanced information about products.

Industry operators face intense competition from traditional bricks-and-mortar retailers, department stores and international online operators.

Consumers can only undertake online shopping through devices connected to the internet, which means that digital technology is an essential aspect of the industry. The rapidly increasing use of smartphones and tablets has prompted the development of mobile-optimised websites and applications. Mobile commerce enables retailers to connect and interact with customers through social media, messaging and marketplace platforms.

OUTLOOK 2020 - 2025

Consumers seeking convenience and competitive prices are expected to drive demand for online goods and services. Industry firms are anticipated to reach broader audiences due to faster broadband speeds, rising internet penetration and increased transaction security.

The industry is projected to benefit from further technological change. Operators are anticipated to use advancements in computer programs and website design to allow consumers to virtually try on clothing, footwear and accessories. These advancements may include using cameras to take precise body measurements.

New payment platforms such as Afterpay have gained significant momentum and are forecast to continue driving sales. These new payment platforms have gained popularity among younger consumers.

Online retailers are anticipated to increasingly expand into other sales channels. Pure-play online retailers are increasingly using multiple channels to engage and connect with customers, and some are opening flagship bricks-and-mortar stores that typically act as showrooms for their products. Hybrid retail models are projected to grow in popularity, increasingly blurring the line between traditional and online retail.

Industry players are expected to continue facing external competition from department stores, traditional retailers and foreign websites.

Industry profit margins are forecast to rise as operators focus on reducing overhead costs, improving supply chain processes and inventory management, and upgrading warehouse and fulfilment distribution.

Online retailers are likely to increase their operational efficiency as they become more established in their respective markets. The nature of online retail typically allows firms to boost sales volumes as online traffic increases, without an equivalent increase in staff. However, the industry is projected to rely on highly skilled labour to retain market share in an increasingly competitive environment, increasing wage costs over the next five years.

Online enterprise numbers are projected to grow slightly over the next five years as companies increase their online operations and bricks-and-mortar retailers develop online platforms. However, firms are likely to increasingly outsource their IT operations, limiting growth in employment over the period.

Source: IBIS World | Online Shopping  in Australia, May 2020
Note: The industry does not include the sale of goods or services by agents that do not take ownership of the goods and services, or the sale of goods by individuals.

Consumer patterns and implications for brands & retail

Covid Impact Report

Consumer Patterns & Implications for Brand & Retail

Covid-19 has created several new consumer segments as a result of varying attitudes and spending habits are changing.

---

OVERVIEW

Consumer concerns are centred around health, the economy (including income and unemployment), and climate change which is still a prominent issue.

80% are not willing to return to life as it was.

Driven by ongoing concerns about health and finances but also as a result of rethinking and resetting priorities.

50% expect to have less disposable income.

Driven by high unemployment and the imminent reduction of government income assistance.

A high priority to build savings.

As a precaution, to buy residential property to live in, or to invest.

Only 9% feel they have discretionary funds and want to spend on discretionary items.

Consumers have adapted their shopping behaviour.

As a result of the pandemic and lockdown restrictions; consumers have adapted to online channels at the speed of lightning.

With more consumers adopting new ways of doing things, the online grocery channel has increased market share.

Convenience customers are going to drive a surge in e-commerce

Retail entrepreneur Ruslan Kogan, says the next wave of e-commerce growth in Australia will be driven by consumers interested in convenience as much as price.

Kogan predicts  e-commerce will surge from 8% to 30%.

If Kogan’s prediction is accurate, that still leaves 70% for physical shops (which may also sell online)for shoppers who prefer local, personal customer service, unique merchandise, instant gratification, or other attributes satisfied best by physical shopping.

Keeping it local…

Independent and specialty stores are benefiting from consumers shopping closer to their location and wanting to support local businesses.

Key reasons consumers are shopping locally:

• I’m supporting local businesses

• I’m shopping more at stores that are closer to my location

• I was looking for better quality products

• I was looking for products that I couldn’t find at larger retailers

• I was looking for better prices

• I always shop at this store

Shopping locally is more important for Insulated spenders.

Constrained or insulated?

As published in Nielsen’s “Reboot or Rebound – The New Normal For Australia” communication, the polarisation of consumer spending habits continues…

Insulated spenders prioritise convenience whilst Constrained spenders prioritise value. Constrained households do not necessarily correlate to lower income.

In this report we unpack how brands and retail can cater for the two types of spenders: constrained and insulated and what trends we can expect to see as the retail landscape continues to evolve and change.

*Data Source: Foreseechange, Charlie Nelson

Retail Industry in Australia

Industry Report

Retail Industry in Australia

Consumer Goods Retailing in Australia: Revenues are forecast to grow marginally over the next five years by 1.4%, as consumer goods retailers will continue to face strong competition from pure-play online stores that stock similar items at low prices.

Department Stores in Australia: Revenues are forecast to decline over the next five years by 2.1%, as department store retailers will continue to face strong competition from online stores and the expansion of international retailers.

---

CONSUMER GOODS RETAIL Overview

Subdivision revenue is forecast to grow 1.4% over the next five years to $161.2B. Increasing disposable incomes and improvement in the retail trading landscape are projected to support greater demand over the next two years as the economy recovers from COVID-19. Continued advances in technology will also drive demand for a range of technology-based goods. However, big-box retailers, international retail chains and department stores are anticipated to increase competition for specialised retailers.

While this trend is forecast to encourage greater demand from bargain hunters, increasing price-based competition will put pressure on profit margins. The popularity of online shopping is forecast to continue increasing, negatively affecting traditional retailers. The number of subdivision establishments per enterprise is anticipated to rise, as smaller players exit the industry and major players expand strong brands. Industry employment numbers are projected to rise, with firms anticipated to offer improved customer service to better compete with online stores.

Online shopping and auction websites will continue to influence sales across individual product categories. Although price competitiveness is important, choice and convenience are also projected to drive consumers to shop online. In addition, the popularity of smartphones is expected to fuel demand for mobile ecommerce. Growth in the number of consumers opting to use mobile devices for transactions and payments is anticipated to boost online sales. Consumer demand for cosmetics and toiletries, computers and software, and pharmacy goods is projected to grow. Consumer electronics will likely benefit from new products entering the market as a result of constant technological advances.

Cosmetic and toiletry retailers benefit from consumers' ability to inspect and test products in-store, making them better able to compete against online-only retailers. Pharmacies are also projected to perform well. Giant one-stop shops will likely cater to diverse range of consumers, and niche operators will focus on servicing smaller markets. Businesses are anticipated to roll out new formats and concept stores over the period. Operators will focus on lowering the cost of doing business, driven by productivity improvements; enhanced technologies; improved distribution strategies; and more efficient product sourcing. In addition, wage costs are forecast to decline as firms increasingly employ part-time and casual workers.

Department Store RETAIL Overview

Due to rising competition, industry revenue is forecast to decline 2.1% over the five years through 2024-25, to $16.2B. intensifying competition from specialist retailers, online stores and international retailers is projected to constrain revenue growth. Aggressive store expansion strategies of major international clothing labels is also anticipated to present increasing competition.

Existing players are forecast to continue re-evaluating their store footprint and close underperforming stores. This decision will allow players to better reinforce their brand image and grow market share. High competition is anticipated to continue forcing operators to lower prices to attract customers. However, a strong focus on refining supply-chain efficiencies and inventory management is forecast to minimise profit declines.

Department stores are predicted to bypass wholesalers and source products directly from manufacturers in countries with lower manufacturing costs, allowing operators to streamline supply-chain processes and eliminate intermediary costs.

Retailers are forecast to continue investing in staff to differentiate themselves from online competitors, as companies focus on enhancing their customer experience, and making the stores an interactive and unique environment. This is anticipated to place upward pressure on average wages, however, the number of employees per store is forecast to decline, as technological developments reduce the industry's reliance on staff to complete manual tasks.

The increasing popularity of online shopping, especially on overseas websites, is forecast to intensify the competitive pressures. Ongoing cautious consumerism, which is driving the preference for online bargain hunting, is projected to support demand for the goods that foreign retailers sell.

The rapid store expansion of several international players is forecast to significantly change the clothing retail market. Industry operators are projected to face fierce competition from these companies as they have access to significantly larger supply chains that can give them higher quality brand positioning and allow them to offer lower prices.