Traditional retailers embracing the internet

Retailers are increasingly trying to find a balance between having an online presence and getting shoppers through the door of traditional stores.

When Western Australian fashion icon Liz Davenport decided earlier this year to shut her Nedlands boutique, which had been operating for 28 years, it wasn’t a decision she took lightly.

Ms Davenport had been operating in an environment of increasing costs, which, combined with Australian consumers’ propensity to increasingly look online in search of bargains, made running a traditional bricks and mortar store a bad business strategy.

The state government’s decision to allow Sunday trading, while seen by most as a boon for retailers, only increased the cost of doing business, partly because of WA’s penalty rates system.

On Sundays, even the least experienced retail worker over the age of 20 is entitled to an hourly rate of $37.05.

“The cost of doing business outstrips the return on investment at this point in retail in Australia,” Ms Davenport told Business News.

“The customer is extremely cautious, the desire to overspend on clothing has waned and the conspicuous consumption of the past is not here anymore.

“Everything is done very carefully and people invest very cautiously and wisely in the very best value that they can find.”

Increasingly, that value is being found on the internet.

Online retail spending in Australia grew to $15.6 billion for the year to the end of July, an annual growth rate of 8.6 per cent, according to National Australia Bank research.

The NAB report found 12.1 per cent, or $18.8 million, of those sales in the year to July were by WA consumers.

While the growth rate is down from the recent years, when it hit as high as 30 per cent, traditional retailers are accepting that internet shopping has forever changed the industry.

NAB chief economist Alan Oster said all indications were that online sales would continue to grow at a faster pace than traditional retail, meaning retailers needed to continually work to understand customer-buying behaviour.

Ms Davenport said she, and other retailers, should embrace the internet as being complementary to bricks and mortar retail, rather than combative.

“If you take a walk down Chapel Street in Melbourne, Toorak Road in Melbourne, Oxford Street in Sydney, any of these major retail centres, you will see people downsizing and getting out of retail strips and out of shopping centres,” she said.

“The cost of doing business is just too high.

“It might correct, as we progress down this path, landlords of shopping centres and landlords in shopping strips will have to come to terms with the fact that there’s a balance that has to be met so therefore they have to bring their prices down.

“They haven’t come down to the cross point of profitability just yet.”

While the Nedlands store was shut in June, Ms Davenport still operates a boutique in Applecross, and another in Brisbane.

However, her growth strategy is now focused squarely on alternative retail channels.

Over the next two years, Ms Davenport is aiming to supply up to 20 airlines, 30 cruise ships and 40 duty free boutiques with her designs, targeting 4,000 garments sold every week.

The Liz Davenport website also gives consumers the opportunity to shop online, while also learning about the history of the brand, as well as her new retail concept – Boutiques in the Sky.

The strategy involves the designer inviting a limited number of shoppers to a luxury hotel penthouse suite, where they can not only try on Ms Davenport’s designs but also receive advice on how to build a wardrobe, what to wear, and how to wear it.

“It is a very pleasant method of doing business,” Ms Davenport said.

“Whereas being in a shopping centre, it’s not only the rent you are paying, but it’s the wages and the overheads relating to wages, and then on top of that is advertising.

“You never know where the bottom line is going to be, whereas with Boutiques in the Sky you know exactly what you’re doing.

“I also do not have to carry a massive inventory and my customers can enjoy much greater exclusivity and they are loving that.

“I must add, every shopping centre that I’ve stepped away from has since called me and said ‘would you please consider coming back?’

“There are less people, less traders, and there is just less happening in the business world.”

Embracing tech

In the banking space, NAB chief executive Andrew Thorburn said the financial institution found it needed both branches and an online presence to keep up with consumer demand.

Mr Thorburn said more than 50 per cent of the bank’s online transactions were being done through a mobile device, and he only expected that to increase in the future.

But he said he did not expect to cut back on the number of NAB branches anytime soon.

“The mix will change, the nature will change, but you need both for the foreseeable future,” Mr Thorburn, a 40under40 winner, told Business News on a visit to Perth last week.

“For financial services banking, it’s a high impact, high stakes big decisions environment.

“Being humans, you want to meet people and see people and get their credentials and capabilities, and see that you have confidence in them.

“Branches will always be important for that reason; maybe they will get smaller and there will be fewer of them, but I think they will remain as a core part of the bank’s distribution.”

Social media

Other retailers are finding social media, in particular Facebook and Instagram, is becoming increasingly important for customer retention.

Topshop Topman Australia managing director Sonia Bettega told a recent retail forum organised by shopping centre developer Hawaiian that consistency across social media was an increasingly important factor for bricks and mortar retailers.

“You need to understand what your business is, what you brand is, how you define it and that the experience that you have in store is the same as how the brand is perceived in social media,” Ms Bettega said.

“It isn’t just about posting great shots of your product or pretty pictures.

“It’s about establishing your brand in a very cohesive way.” 

For the opening of the Perth store, expected next month, Topshop is creating a tailored online portal, which is a first for the group.

Ms Bettega said the other piece to the puzzle was having a comprehensive customer relationship management strategy.

“It’s about being able to understand who is shopping in your store, how often they are shopping and what they are buying so you can communicate with them,” she said.

“That’s the other platform really worth investing in because we’re all on our computers and we’re all on our iPhones, constantly looking at our emails or our Facebook or our Instagram.”

But Ms Bettega said she believed nothing could replace good customer service, which can only be provided in a traditional retail setting.

“Online is really important, but I do believe this – nothing replaces the experience that a customer has in a store,” Ms Bettega said.

“Nothing is ever going to stop girls and guys from hitting the streets, going to grab lunch or having a coffee and going shopping.

“They can’t do that online. Online has a place but it doesn’t replace the bricks and mortar of retail.

“Although it will if your business doesn’t offer a customer an experience.”

Hawaiian managing director Russell Gibbs agreed, saying traditional retailing fulfilled people’s social needs.

“If you’re simply buying and shopping online you’re not getting that social interaction,” Mr Gibbs said.

“You’re not getting that service, you’re not getting a chance to share an experience with your friends, try things on, sit down and have a coffee and then go back to do your shopping.”

Logistics

The bright news from the move to online shopping for Australian retailers is consumers are increasingly spending their money within our shores.

NAB found that in the year to the end of July, 75 per cent of Australia’s online spend was at domestic stores.

While some of that could be attributed to the falling value of the Australian dollar, it’s a surprising statistic that challenges the assumption that Australian shoppers are finding cheaper prices from overseas retailers.

However, the increased demand online is creating a sticky situation for retail distribution networks, according to Small Business Development Corporation commissioner David Eaton.

Mr Eaton, who was also at the Hawaiian forum, said it was a real challenge for the nation’s transport networks, Australia Post in particular, to achieve the sort of delivery times expected by consumers.

“Australia is very unique to have a landmass of our size and a population as small as it is,” Mr Eaton said.

“There are issues in WA for national firms in terms of the logistics and supply chain, and it’s a real challenge for any transport network to do the sort of delivery times that you can do in Europe.

“Therefore when you’re looking at any business, but retail in particular, online isn’t cannibalising, it’s complementary.”