This year we began writing a regular column on branding for The Melbourne Review. This third of our articles presents an insight into the new world of retail and the struggle of traditional retailers to adapt.
Twenty five year old student Jessica Waters was recently quoted as saying “I don’t buy more than I used to, but I buy differently…” and in those simple words she eloquently summed up the quandary facing Australia’s retailers.
Traditional retailers such as department stores, bulk electronics, whitegoods and homeware stores can today be typically identified as undifferentiated generalists. In their time they had a relevant role in the retail landscape, but as the world of shopping and shoppers changed over the last two decades towards niche specialist retail, they have not evolved with it.
Meanwhile a new generation of retail brands have emerged, defined by their appetite to be truly exceptional in one or more defining dimension of their business. This new breed of retail brands move quickly, adopting new technologies, sensing new consumer movements and building brand fans as naturally as they draw breath.
Australia’s retailers have enjoyed a ‘Goldilocks economy’ over the decade or more leading up to the global financial crisis. Whilst the good times meant year after year growth for retailers without the need for real innovation, the current climate has revealed the flip side of prosperity – complacent businesses who find themselves in a constricting market, unprepared for the changes demanded by this tough new world.
It is undeniable Australian consumers are spending less money with our retailers. David Jones, Myer, JB Hi Fi, Harvey Norman and Billabong are amongst the big-name retailers to have predicted lower profit expectations for this year. David Jones recently announced their full year profit would be down 40% with fellow department store Myer reporting a 19.8% drop in profit.
As the new reality bites, one major retailer after another has announced strategic plans to transform themselves into omni-channel businesses. It’s clear today’s customers expect retail brands to fit seamlessly with their lives in a manner unimaginable ten years ago, and the omni-channel strategy is designed to bridge that gap. The challenge for traditional retailers is to raise their aim above the tactical to understand the extent of transformation this strategy demands.
Whilst much of the discourse driven by big retail has focused on the impact of internet shopping and the threat to our local industry from overseas e-tailers, National Australia Bank’s Online Retail Sales Index reveals that online still represents just 4.9% of Australia’s $216 billion retailing industry, with less than half of those sales from overseas sites. These figures provide a clear perspective that if there is a single demon facing retail in Australia, it simply isn’t off-shore eCommerce. Deborah Sharkey, eBay Managing Director (Australia and New Zealand) agrees, commenting that “the consumer is giving us a clear message – their needs have evolved and the retail industry needs to evolve to meet the changing needs.” Choice’s Christopher Zinn also believes that “the big chains should recognise that it’s their high prices, limited range and poor customer service that increasingly encourages people to use the internet.” The reality is there’s no single, simple answer. Searching for a silver bullet to meet the challenges facing retailers in Australia will be fruitless, but at least the way forward is clear.
Many traditional retailers in Australia have lost touch with the ‘value’ dimension of their value proposition. Retailer Harvey Norman was this year named the third most valuable retail brand in the Asia Pacific region in an annual survey by Interbrand. This matched their ranking from 2011, but the brand was valued at almost US$25 million less than twelve months ago, with the report recommending that Harvey Norman ‘needs to develop a stronger, more unique brand positioning in 2012’ to maintain its position.
Today more than ever, time-poor and choice-rich consumers demand real clarity on why and how brands add value to their lives. And, here’s the kicker, that value must go way beyond the functional stakes of price and practicality. Brands need to clearly articulate the emotional benefits they offer – from beautiful design to extraordinary customer service, from ease and friendliness of transaction to brag appeal. Too many of our retailers are simply masters of assortment, bundling a diverse range of products under one roof and believing that is all that is required of them.
One retail brand who stands out from the pack is Apple. Apple stores deliver the highest sales per square metre of any retailer (in the US Apple stores deliver sales of US$65,000 per m2, that’s 25% higher than the next best performing retailer Lululemon Athletica) and there’s much to learn for many retailers from the way they’ve gone about it.
Apple has long had absolute clarity around their brand which layers intuitive technology with beautiful design aesthetic and soul. Over time Apple has built a huge community of passionate loyalists, the envy of brands across the spectrum. Apple retail stores provide a place beyond the functional where these fans go to connect with the brand. Customers continue to flock to Apple stores where they’re willing to pay a premium for the Apple experience, even when the same products are available in the US at Wal-Mart, Best Buy, Target and on Amazon at lower prices.
Beyond their brand clarity, service bar concept, and product range playground, the defining dimension of Apple stores is their retail staff. Staff are carefully trained to be experts in the forgotten art of ‘making customers happy’. Apple retail staff don’t earn sales commissions, it makes no difference to them whether they sell a customer the latest Mac Book, or get their old one running smoothly again. The role of Apple’s store staff is to deepen customer relationships and build loyalty by discovering what they need and helping them get there – no cross-selling, no up-selling.
Former Senior VP for retail at Apple, Ron Johnson believes retailers shouldn’t be asking, “How do we create a store that’s going to do $15 million a year?” but rather “How do we reinvent the store to enrich our customers’ lives?” In the current landscape, this represents perhaps the most defining challenge facing the old guard of retail.
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