Harvey should look at a Myer model

Despite Gerry Harvey's claims that he does indeed 'get' online retail, Myer's Bernie Brookes looks comparatively much more likely to develop a reasonable presence as the online market grows.

Bernie Brooke’s enthusiasm and optimism about the online potential of Myer today signals that he is a retailer who does ‘get it’.

Mind you, he has to be enthusiastic because Myer has invested, and is still investing, considerable amounts of money and effort in the platforms and processes that will enable it to offer its customers seamlessly merged physical and virtual shopping experiences and the fulfilment options of their choice.

Brookes says, thanks to the relatively recent completion of a new IT platform, a new web platform and the point of sale systems necessary to manage inventory and execution, Myer is ‘ahead of the pack’ of established retailers in developing an online channel. Myer also, of course, has the 4.1-million-member Myer One loyalty program that it can leverage into an online environment.

The Myer push into online retailing is in its infancy, but Brookes said today that online sales were "accelerating at a rapid rate" and that they were growing at "200, 300, 400 per cent each week". He sees potential for them to grow to seven or eight per cent of group sales, currently running around $3 billion a year.

That may be conservative. For a lot of reasons online retailing in Australia was slow to take off, but it is growing rapidly and represents a little more than five per cent of total retail sales.

In the UK more than half the retail sales of music and film are now online; more than a third of sales of electrical goods and whitegoods and close to 10 per cent of apparel sales. Online sales in the UK have more than doubled in the past five years, to about $40 billion.

John Lewis’ website grew its sales by more than 26 per cent last year – to about $1 billion. Marks & Spencer reported a 22.4 per cent increase in online sales, Debenhams – which had a close relationship with Myer during its period of private equity ownership – grew its online sales 35 per cent in the 18 months to January.

In the US, Macy’s and Bloomingdales grew their overall sales 5.3 per cent in their most recent quarter and, while they didn’t break out the online component, they did say it added 1.5 percentage points to the growth in their sales through their physical store network. Nordstrom’s online sales were up 35 per cent in the December quarter.

The experience offshore says that while it takes some time – and some effort by retailers – before online sales develop momentum, once they do they accelerate very quickly.

Pure online retailers in this market like Ruslan Kogan, or Catch of the Day, or Deals Direct, or Brands Exclusive, are experiencing explosive growth. Deals Direct has a sales run rate of about $200 million and has consistently grown at between 30 per cent and 50 per cent a year while Catch of the Day’s Gabby Leibovich, writing in Technology Spectator, says his business is turning over $5 million a week.

The daily deals and buying club spaces might be crowded, and there will ultimately need to be some rationalisation of them, but they are driving considerable sales volumes and growth and impacting traditional retailers – Commonwealth Bank says they have already shaved about 1.3 percentage points off brick and mortar sales.

There are, of course, sceptics. In responding to an earlier column on this subject, Gerry Harvey – who said he did ‘’get’’ online retailing (after I said he didn’t) – says he has continually found that the internet only accounts for a fraction of Harvey Norman’s sales.

He believes people look at products on Harvey Norman’s website but shop in-store, which he described as a "well-established fact" in his business. He referred to falling open rates for group buying sites and "fading interest" among the public.

Instead of trying to make online sales "bigger than they actually are" Harvey Norman was working on an omni channel strategy to "seamlessly integrate our customer experience across all channels".

Gerry Harvey is a great traditional retailer – but, sorry Gerry, I still think you don’t get it.

Harvey Norman does have some disadvantages in an online environment, given its property-intensive strategy, its franchise model and its heavy exposure to electrical goods and whitegoods and other products that have been commoditised by the internet and the strength of the Australian dollar. The offshore experience – and the experience of other retailers focused on the segments Harvey Norman occupies – suggests his business is peculiarly exposed to the growth in online buying.

The $50,000 a week of online sales that Harvey says his group does – and which he appears to believe is their natural level – is still, however, shockingly low when one considers the numbers already being driven by the new breed of aggressive and innovative online start-ups.

There may, of course, be plenty of customers who window shop online and buy in-store, but there are an increasing number who do just the opposite and as broadband penetration and speeds increase, and the smartphone and tablet revolutions continue, online purchases will soar.

The experiences of offshore retailers like Macy’s and John Lewis says that traditional retailers that are prepared to adapt to the new environment and be very flexible and dynamic in responding to the new forms of competition and competitors – both in terms of their online offerings and their physical networks – can compete very effectively.

There is a lot to be said for a ‘bricks and clicks’ model that leverages the sourcing, supply chain and IT capabilities of major retailers as well as their distribution networks – their stores. An online presence also offers an enhanced ability to manage their inventory as well as extending their geographical reach – an increasing number of the big US and UK retailers are offering international delivery.

It isn’t, of course, sufficient to commit to creating a significant online channel. Myer will have to execute well and be patient as it builds scale. It will also have to do things differently with a bricks and clicks model – and is already doing so.

Brookes has been smart enough to understand that, both in his stores and online, there are some categories where Myer cannot compete with pure online players and others where it has, if not advantages, then protection. He’s withdrawing – offline as well as online – from the categories that are being commoditised by the internet and expanding the range of brands exclusive to, or owned by Myer.

He may have ‘got it’ relatively late in the day but is now accelerating Myer’s push into the online space and, given the immaturity of online retailing in this economy, has a reasonable prospect of developing a meaningful presence as the online market continues to grow.

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