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