No silver bullet for Australian retail

The trend toward extreme or “toxic discounting” is not going to save the Australian retailer. What's needed is a smart blending of cutting-edge technologies and new ways of thinking about the customer.

The arrival of another Christmas shopping season has ushered in the latest round of handwringing as Australian retailers and the media that covers this sector go through the motions of chronicling its woes, diagnosing problems and prescribing solutions.

There’s good reason for this urgency and concern. 2012 has amplified a range of problems that have long characterised retail in this country. Retailers are genuinely struggling and the Australian consumer stands to lose, even while he or she seems to gain in the short term through cut-price overseas online offers.

While some problems are of the retailers own making, most are the unavoidable consequence of an exceptionally strong currency and operating in a relatively small market with fewer economies of scale. A fundamental issue is that Australian wholesalers and distributors don’t have the buying power to source products at globally competitive prices. From there the problem flows down the supply chain through the retailer to the local consumer. 

For a long time, however, the so-called “tyranny of distance” protected our domestic market from real-time comparison to markets abroad. But that has all changed in recent years and almost every Australian consumer now knows that there are better deals offshore.

The rise of the "global shopper"

Leading analysts have labelled this the rise of the “global shopper”, someone defined by the pursuit of “knowledge-centric shopping” – an approach that puts product knowledge and price transparency at the forefront and fundamentally threatens traditional retailer economic models.

The global shopper strides a world-wide retail marketplace, browsing a store in New York while standing in a shop on Oxford Street, Sydney. The internet made these shoppers savvy and now the smartphone has made them mobile, letting them test and try products in a bricks-and-mortar storefront and place their orders in a virtual one, free from the overheads and macro disadvantages of the Australian-based store.

But it’s wrong to think that all is lost for Australian retail. In fact, what lies ahead is the possibility of a renaissance, a re-building and re-imagining of retail in this country powered by innovation and an appetite to try new things with a bold combination of strategies and technologies.

Some retailers seem to be pointing at single issues like closing the GST loophole or getting Click Frenzy right. The GST threshold is certainly a good thing to look at and although somewhat criticised, Click Frenzy was at least an attempt to fire up the consumer to buy locally (it was its popularity which caused the system to crash, after all).

No silver bullet 

The point is that there isn’t one single thing to blame for retail’s problems in Australia today and there won’t be a single solution. The biggest threat to retail is the retailers doing nothing and expecting the same old approach to produce better results in a more competitive market. When Australian retailers innovate, we should applaud not condemn. If we adopt this approach, we will probably be doing a lot more applauding in 2013.

A range of innovations are poised to reshape the retail environment for all of us, but there’s a long battle ahead and unfortunately there's no silver bullet.

Despite its first-world status as a wide-spread adopter of consumer technology, Australia is actually a very immature online retail market. In fact, it is estimated that 10 of the 30 top retail sites used by Australians aren’t based in this country and only 53 per cent of Australian retailers have an online channel. Even more amazing, only 20 per cent have had an online channel for more than two years. 

Simply being online isn’t enough. Nor is the trend toward extreme or “toxic discounting” going to save the Australian retailer. In fact, the use of discounting beyond traditional seasonal and end-of-financial-year periods have made many consumers reluctant to ever pay full price for anything, a behaviour which has meant even some Australian retailers who have managed to increase revenue, have experienced reduced profitability.

If Australian retail is to be saved, the rescue is going to happen by a smart blending of cutting-edge technologies and new ways of thinking about the customer. This will be driven by decision makers who recognise that only technologies which foster consumer engagement and build brand commitment are truly useful to turn things around.

The digital difference

What that means is that retailers, both online and bricks-and-mortar, will need to find ways to incentivise consumer purchasing through technology without risking margins to excessive discounting. Gartner’s Mark McDonald recently wrote of the “digital edge” in this space, citing the need for retailers to create “a unique and differentiated digital solution.” McDonald’s observation is that “the goal is to apply digital technologies in ways that create a digital difference.”

This digital difference is going to have to come from ideas like the virtual dressing room to mobile point of sale units where consumers can check out anywhere in the store, to ideas that will find truly novel, even transformative, ways for the consumer to shop and make purchases.

Some of these innovations will be imported from abroad like Square which allows customers to simply speak their name at the register to pay and the proliferation of apps that serve as customer cards and coupons to encourage loyalty. Others like StreetHawk will make physical streets come alive with retail possibility by alerting users to the deals in their immediate vicinity through their mobile devices. Australian retailers like The Iconic have distinguished themselves not so much with technology as much as with extremely flexible and responsive customer trading terms that emphasise generous 100 day return policies and next day delivery, with same-day delivery on offer. These customer service initiatives have been adopted from overseas retail models, but they’ve show that this kind of innovation works here too.

Another emerging strategy is gamification. While gamification typically refers to the use of game mechanics and entertainment in the building of customer loyalty and employee efficiency, it has not traditionally been applied to the retail checkout process.

Gamification to the rescue?

We at Wynbox have developed a retail gamification engine, offering customers the ability to purchase products online with the chance to win their money back. This concept is currently only available to Australian retailers and presents an opportunity for local online stores to differentiate from their overseas competitors. The model is based on the principle that if a sufficient number of products are sold at the normal price, the retailer can afford to give away an item for free.  

The absence of a consumer-fronting discount is intended to preserve brand equity, while the integration of game mechanics drives purchases at the normal price. In Australia, the gamification approach resonates with a consumer base that has an appetite for chance-based games.

Gamification and other such innovations alone will not be enough on their own, but a culmination of innovations spanning technological and customer service advancements will allow Australian retailers to begin clawing back the Aussie shopper.

And while the relative immaturity of our market might seem to be a drawback now, it could also prove an advantage as many Australian retailers are unencumbered by legacy systems or dated ecommerce approaches. As a result, they are well-positioned to take advantage of better technologies, coalescing consumer habits and emerging ways of engaging consumers which will likely prove far more effective than first and second generation solutions which are entrenched in other, more mature markets.

It's a shame that the domestic market doesn't celebrate innovation, when it is great ideas and new ways of thinking that present the most viable means for Australian retailers to compete on a global scale. New approaches shouldn't be feared, instead we must embrace innovation as a competitive advantage to keep retail spend from spilling off shore. With this in mind, Australian retail not only stands ready to weather the storm, it may even start leapfrogging its overseas competitors, making next year’s headline a turnaround story.

Damien Cantelo is the CEO of Wynbox, an innovative ecommerce company looking to add excitement to the retail experience.  

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