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So far, Australian department stores appear to have weathered the pandemic better than their global counterparts, with most having only had moderate store closures and delivering relatively strong half-yearly results, with retail sales rising at twice the predicted rate from March 2021 to April 2021.
This picture may not be as rosy as it first appears. Prior to the pandemic, Australian department stores were already struggling for market share in the face of competition from international brands launching in Australia and low cost online pure plays. And with global predictions of a shift in spending towards tourism once borders open, there is reason for retailers to be nervous about the long-term outlook.
Off the back of strong results and with borders likely to remain closed until 2022, what can Australian department stores do now to avoid the fate of their international peers and secure a profitable long-term future?
Create differentiated in-store experiences
Australian department stores typically hold a competitive advantage in terms of their prime locations and large store footprints, yet few choose to leverage these advantages to build truly differentiated destinations that will both attract and engage shoppers.
Consumer brands have historically been leaders in this space, offering in-store services complementary to their products to keep shoppers engaged at point of purchase. Australian beauty giant Mecca offers a plethora of services including blowdries and makeup application, Lush’s flagship on Oxford Street in London offers a constantly changing suite of services, including spas and an in-store florist while sportswear brand Lululemon runs yoga classes in its stores.
In the department store space, innovators in in-store brand experience are looking even more broadly to create truly unique and engaging experiences tied more closely to brand than to product. Le Bon Marché in France and The Galleria in South Korea dedicate floor space to showcase the arts and host cultural events, while Showfields in New York has reimagined the showroom experience entirely to create a shopping experience that borders more on an art gallery crossed with a theme park.
Many department stores have also turned to curating exclusive or limited-edition product ranges only available in-store to drive foot traffic and create a halo effect for their primary ranges. US retailer Bloomingdales is a leader in this space, while Neighbourhood Goods has aligned its product curation around consumer trends in hyper-local and sustainable shopping.
Remove silos and build digital agility
Australian digital sales reached record levels during Covid-19, with lockdowns driving consumers online in greater volumes than ever before. While growth has slowed with the shift to ‘Covid-normal’, the long-term trend points to a continued shift from pre-pandemic buying patterns. In this increasingly digital-first world, it will be the retailers who are best placed to respond rapidly to changing consumer expectations and market forces who will succeed.
For department stores, the shift to digital channels has removed many of their typical competitive advantages, forcing them to compete both with the brands they stock and digital pureplays that have often built businesses engineered to rapidly respond to consumer and market forces. While many Australian retailers have shown a level of agility in the face of the pandemic, they are often still restricted by large-scale IT infrastructure and organisation structures siloed across business, online and IT.
One large scale retailer that has successfully addressed this challenge is French hypermarket Carrefour, as covered in a recent IDC case study. Carrefour took a top-down approach to their digital transformation and focused on organisational simplification, operating model changes and flattening hierarchies, resulting in greater cross-functional collaboration and coordination, and a revitalised work culture.
By driving greater levels of digital agility across the organisation, Carrefour was able to launch its initial e-commerce MVP in under six months. By leveraging this platform, it has been able to respond quickly during the Covid through the introduction of click-and-collect and fully automated robotic stations to dispense goods to customers.
Optimise supply chain for BOPIS
According to Digital Life Index, 70 per cent of Australian consumers now prefer to buy online and pick up in store (BOPIS). With delivery infrastructure limiting Australia’s ability to meet international benchmarks, they can leverage this to their advantage against their digital-only competitors.
That said, while most Australian department stores have rolled out successful BOPIS offerings during the pandemic, many are still struggling with real-time inventory visibility across stores, leaving customers with lengthy wait periods to collect purchases or incomplete orders. As stores reopen, previously robust curb side and instore pickup infrastructure is now an afterthought in the face of traditional checkout methods. The cost of BOPIS transactions remains high, with lagging supply chain infrastructure and digital tools.
Australian department stores need only look to their US counterparts who are leading the way in BOPIS where consumer demand patterns mirror our own. Retailers including Kroger, Walmart and Target all have built sophisticated and profitable BOPIS offerings across most of their locations, including both instore and curb side pickup with fulfilment usually same-day or better.
Australian department stores should feel optimistic about the future. As stores re-open and consumers return to malls and high streets, the inherent competitive advantages of these retailers will come to the fore. But with digital channels continuing to grow, uncertainty around the future of consumer spending and increased competition from more nimble global market entrants, it’s more important than ever for department stores to amplify these strengths and create true differentiation for their customers if they are to survive – and thrive – for years to come.