|The new order
Posted Date: 21/01/2013
By Brian Walker
As little as a decade ago, Australian retailers had a captive market.
Physically isolated from the rest of the world, Australian consumers have had little choice but to spend with our onshore retailers.
As a result, many Australian retailers priced their offerings higher than their global counterparts and innovation was rarely seen as a necessity.
Being physically isolated has had its advantages. With, for example, our own DVD region codes, clothing sizes, unique power supply outlets, seasons, and internal distribution complexities due to the sheer size of our nation – consumer product offerings have been catered and priced to capture this captive market.
Fast forward to 2012 and the landscape couldn’t be more different. Globalisation of retail per se, is as inevitable as night follows day.
The world is getting smaller by the minute and new technologies are changing the core of our existence, challenging the very pretext of who we are and what our communities even look like.
With greater access to global media and more affordable overseas travel, Australian consumers have been able to covet international fast moving, disposable fashion, global innovations and incredible overseas retail experiences.
Fed on this diet of internationalism, and with the increasing ability to access all these global offerings via online retailing, Australian consumers are demanding more.
As a result, we are seeing the shortening of supply channels, a decreased relevancy of seasons and the concept of inventory is becoming passé, being replaced by short ranges and collections.
Scarcity and exclusivity are anchoring the brand attraction and consumers are magnetically drawn to the community of wanting it now, cleverly drawn to this new order of retail.
With all these changes, it’s no surprise we’re seeing an increasing number of global retailers physically entering our shores and their emerging presence is forcing a ‘do or die’ scenario for some Australian retailers.
As an Australian consumer, I applaud the globalisation and choice. As a global retail consultant, I’m more concerned with what Australian retailers can do so they don’t die.
Early success for global retailers
Today, we’re seeing top global brands such as Hollister, Topshop, Costco, Williams Sonoma, Uniqlo, River Island, and Zara entering our physical retail space.
All of these new entrants share one common characteristic. They are fit retail brands, aggressively embarking on global expansion strategies.
So just why are these new entrants so successful, so early in a market that confesses to caution in expenditure revealed so tellingly in our own retail sales across the categories and business types?
Why are these new entrants so startlingly successful to date, producing greater returns than the incumbents from their commencement? Both Zara and Costco, for example, experienced opening sales comfortably within their top 10 of global openings.
There’s much to learn from these global entrants, so let’s take a look at why they’re experiencing so much success.
The courage to invest in innovation and long term strategies
Retail has moved past the days of stock in, stock out and sell through.
Nowadays, it’s a complex mashup of technologies, changing consumers, new lifecycles and retailers who set their capital planning to just supporting short term sales and margin results simply won’t last the distance.
Much of this short term strategy focus lies in the not uncommon way our retail executives - pivotal to laying down the strategy - are remunerated.
Overseas, remuneration occurs over three to five year tenures as the strategy unfolds, whereas here, it tends to be more short term and within one to two year tenures.
And herein lies one of the issues that confounds our ability to grow globally-robust business channels.
Executive boards increasingly put pressure on their CEOs to deliver short run profit returns over longer term horizon KPIs, such as the capital expenditure return on funds employed. This dictates the march of the near sighted when what is required is the long sighted.
By comparison, global retail leaders are investing in long term strategies to position themselves for the future.
Take, for example, Nordstrom department stores. Its latest annual report recently cited an allocation of $1.24 billion investment in new technologies, online, channel development, innovation and emerging growth strategies.
In comparison, our department store reports indicate investment of $100 million. Now compare that to their Australian counterparts (even allowing for scale) and you see some startling differences.
Australian department stores have not been immune to their critics, who feast over the lack of customer service and the decline of the branded experience.
Watch as these global brands, some of whom could have had concessions within these department stores five years ago, strive to take market share away from our battle-fatigued incumbents.
Another example is Apple retail. Did you know that its average store sales are over ten times that of the average Dick Smith retail store?
With Apple’s sales in Australia and New Zealand currently turning over $4.8 billion, there’s no lack of appetite for these global brands with our own domestic offer not even in the same league.
So, to sound a little blunt, a lack of capital investment, executives motivated to deliver short run returns, and an extreme focus on trading rather than funding results, seems to exacerbate a generally uncompetitive footing with our global warlords.
Long term brand equity, differentiated branded merchandise, and smart operations
These new entrants have spent considerable time and money in building long term brand equity.
Although they are known to be affordable, they are not known to be discount brands so they haven’t bought in to the spiral of degrading their offer through constant discounting.
Each of these entrants has a clear vision, brand strategy and can articulate their differentiation. They are to all intents and purposes ‘brands’ as opposed to ‘retailers’ and they are masters at serving up their brand experience at every consumer touchpoint.
Take Zara for example - turning the fashion system on its head, instead of starting with the designer, Zara puts the customer at the centre of its unique business model, differentiating itself by bringing fashion from international catwalk to cutting room to store at the extraordinary speed of approximately two weeks.
What’s more, the fashion doesn’t hang around. Blink and you miss the latest look, because Zara’s team of around 200 designers are constantly assessing what consumers want, updating the range to almost 18,000 pieces every year.
It’s why shopping in Zara is always in the company of huge numbers of fashion-savvy consumers, desperate not miss the scarcity of an item.
Topshop has also differentiated itself by backing emerging London fashion designers and creating a cult status with its street-savvy ‘London look’, that’s clearly articulated at every consumer touchpoint.
The brand has also created a following through its smart collaboration with some of the world’s greatest designers, bringing limited edition ranges at affordable high street prices and the list reads like a who’s who of fashion: Versace, Marni, Alexander McQueen, and Christopher Kane to name a few.
However, Topshop also cleverly recognises local needs and styles and last year its Chapel St store created a whole range tagged Limited Edition Melbourne. It was exclusively designed recognising the street style and needs of Melbournians.
Recognising customers want the products of today, and not yesterday, both Zara and Topshop have the most streamlined operations to ensure nimbleness and extreme flexibility.
Both can react to the latest fashion trends whether it’s on the red carpet or royalty. The advantages are the ability to monitor inventory very closely, avoiding quantities of unnecessary stock on the floor.
Moreover, they can adjust stock levels to bring consumer fashion in ‘real-time’.
Successful global entrants have pre-researched our market and fuelled desire and demand through previous online offerings, test pop up stores, consumer research, and superb marketing and public relations strategies.
Take Next for example. This major UK fashion chain has had a catalogue/online offering for years, however, we are now seeing its online UK site, tailored to Australians with relevant products for our seasons, free direct to the door postage with a five day DHL delivery (how many Australian fashion retailers offer this?), an Australian customer care line and the ability to return goods to an Australian address.
After testing the Australian response and growing their customer base, how long do we have to wait before we see the first Next store open in Australia?
The branded and customer experience
Brand experience is everything and recognising that online will only take the brand experience so far, our new global brand entrants want to provide a real physical experience.
Customers entering their stores see great products, new products, and value created over and above price. Indeed, these global entrants have established world’s best practice in compelling destination shopping.
Topshop’s flagship store in Oxford Circus has more than a quarter of million shoppers enjoying the buzzy atmosphere every week.
Personal shoppers with an encyclopedic knowledge of its enormous range are available to guide customers, solving every fashion, gift and make up problem.
But these personal shoppers are not just glorified shop assistants. They are highly trained to understand personal styling, enabling them to solve outfit hunts for certain events and even contacting customers when something hits the store they know would interest them.
This is a very personal service, which when you consider the sheer numbers of Topshop consumers, brings customer service to a new level, creating one on one relationships.
Why should Australian retailers be worried? Because the same model is being replicated here in Australia.
But the brand experience for Topshop doesn’t just begin inside the store. Recently, London’s Topshop window became the centre stage for pop singer Delilah, as her band belted out hits and attracted phenomenal crowds.
Dressed from head to toe in Topshop style, it was street-savvy retail marketing at its best. Here in Australia, these leading global retailers can flex their financial muscle and consumer crowd-pulling appeal to secure top anchor tenancies, enabling them to replicate new and exciting experiences here.
What does this mean for Australia?
Or perhaps the question should be to consider what Australian retail needs to do to win in this landscape both domestically and globally.
Why are some of our long-established brands such as Ojay and Brown Sugar collapsing while other brands seem to be lingering waiting for that magic Christmas window of sales and margins to turn it all around?
Have we had it easy for too many years in our relative global isolation where shopping centres dominated our retail offer?
We are not without response, however, and some of our domestic retailers are already winning in this game of globalisation.
Sportsgirl with its digital plays and Target Australia who recognises the power of collaboration and scarcity are just two examples. Following the latter’s successful collaboration with Stella McCartney in 2007; Target is releasing its Roberto Cavalli collaboration on October 31, fuelling Australian’s desire for affordable international fashion products.
Target says its collaboration initiatives will increase in frequency to between four and five collections every year, using designers from both Australia and overseas, with a weighting towards international designers.
We must also remember that while we’ve been focussing on outside-in, globalisation works both ways and some Australian retailers, such as Cotton On, are successfully taking their offer overseas.
So when it comes to do or die, Australian retailers can do.
Heaven forbid we’ve inadvertently been a little too expensive and possibly even over-profited in some categories over the years, or is it just the landlords who have been the big winners in Aussie retail over the years?
Is the margin debate somewhat symptomatic of a broader global un-competitiveness, relative to scale in the short term?
Perhaps we can read the winds of change and invest in a strategy of globalisation ourselves, learning from these new entrants to become fitter retailers ourselves and embracing this new order of global retail.
* Brian Walker is MD of The Retail Doctor Group. He can be contacted on (02) 9460 2882 and by email here, or visit www.retaildoctor.com.au.
* This feature first appeared in the October/November 2012 edition of Inside Retail Magazine. For more stories like this, subscribe to Inside Retail Magazine's bi-monthly print edition here.
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