Downsizing, resizing, vertically integrating or whatever term you wish to use in describing the recent market place retail “adjustments” are the buzz of retail today.
Is all this activity simply down to the growth of online retail? Do we believe that this is the only reason and it is as binary or linear as just that?
Yes, online is growing at double-digit growth and over 80 per cent of pre-research activity is online and averaging 8-9 per cent of total retail sales (yet only converting at 2-5 per cent of enquiry) and clearly Amazon is well on the way to building an unrivalled American and probably global “buying platform community”.
And is that the entire reason why physical retail is sub 3 per cent growth on average (2017/2016 calendar year) for Australian retail?
Yes, company resizing is related to these well-documented factors however there are others – are the following facts all merging to create the storm for many retailers?
Firstly we have the third highest density of retail shops per capita in the world. Spaces built for retailers have far exceeded the consumers who will shop at them in sheer growth terms. So the starting position is that we are over-shopped and that we are going through an adjustment – bringing us to some form of equilibrium.
Recently we did due diligence for a retailer looking for 10 per cent physical comp store growth and the obvious question is to look at where this growth will come from.
Yes, a m-commerce and digital strategy will draw attention and bring some customers to the point of purchase however may not convert enough into buyers at this point.
Add the other factors in and add static wage growth for consumers, with increased utilities and increasing property values (consumers paying off mortgages faster, soaking up disposable income etc) and the predicament for shop retailers of increasing penalty rates and rental costs and we find an equilibrium that looks like the following.
Overall the physical retail sector is just not growing at a trajectory that means growth for all – online is circa $27 billion at this moment.
I recall that physical retail sales were said to be at $300 billion three years ago, now circa $320bn (tops) – and so we see decline in gross sales coming from physical retail shops, or at the very best – static growth over last three to five years.
Yet increasingly more space for retailers was created in this window, so average revenue per shop retailer is declining.
Now that’s at an average aggregate level and clearly there are many retailers doing well above this level and clearly there are some who are not.
So at an aggregate level:
Growth is 2 – 3 percent in physical retail – so transactional (average sale/item, per sale etc) isn’t driving,on average, the way it should.
Flooding of cheaper substitutes especially in the fashion/accessories sectors, deflation in many categories, and discounting. Value retailing is certainly playing a large part with pressure on sales and the resultant margin, effectively selling more inventory at lower prices.
What we are seeing over the last 3-5 years is the growing insidious effect of cannibalisation between physical retailers, all eating from the same or declining size pie.
So our question on the diligence project was to understand in the clients mind where this growth of 10 per cent plus was going to come from and at whose expense?
And the broader question is who gets “business fit” and grows in this space and who doesn’t?
Once I overheard a speaker describe being in business as “gaining your unfair advantage“ and so, if in fact, all the factors described above mean largely growth will come from within our sector or category, then what are our strategies to gain our unfair advantage?
Let’s start with our uniqueness – our underlying advantage that we build and deliver at every opportunity.
Our go to market offer – from our brand expression, product development through to our post sale community build.
Focus on in store transactional growth – clear effective people leadership
Our performance, supply logistics and front end customer experience.
Certainly all activity is in cycles, focusing your business on transactional growth, maximising every customer’s ‘moment of truth” in the physical shops, and lifting online conversion is a key focus of our fittest retailers
If I walked into one of your shops and ask the manager for the sales target (or percentage to achieving), would they know?
Are they following you to an unfair advantage?
Brian Walker is founder and CEO of Retail Doctor Group, retail and consumer experts and the Australian elected member of the global retail expert’s alliance Ebeltoft Group. Brian can be contacted on (02) 9460 2882 or firstname.lastname@example.org