JB Hi-Fi's recent results provided the latest example of how traditional retailers are coming to grips with their changing landscape. The tough retail environment has been further magnified by a steady customer migration into the online space. As consumers chase cheaper prices the challenge for traditional retail is to adapt to the online space while making sure that bricks and mortar operations don't fall by the wayside.
JB's online sales in the year to June 30 were up 77 per cent from the previous year but still only make up 1.6 per cent of the retailer's total sales. Yet, the retailer is still very much focused on its bricks and mortar strategy, planning to add another 16 stores to its network of 168 outlets in the next year.
Traditional retailers are waking up to the online opportunity but as far as Australia’s online retail incumbents are concerned, they are not losing any sleep over the trend.
The likes of Kogan.com and CatchOfTheDay still don’t expect any competition from these traditional retailer’s online activities. So what's the secret to their confidence?
How do online and traditional retailers compare?
Three of Australia’s online retailers, Milan Direct, CatchOfTheDay and Kogan.com were more than keen to share why they believe they are still leagues ahead of their retail counterparts.
One point that they were most eager to drive home is that they go above and beyond when it comes to customer service in the online space. Anyone who has tried to sell anything on eBay knows that customer service is just as paramount in online retail as it is with traditional retail. You can’t just slap a product on a website with a favourable price and hope for the best. You need to talk to your customers, reassure them of your product’s authenticity and at times close the sale.
It’s for this reason that both furniture retailer Milan Direct and CatchOfTheDay pour resources into customer service specialists for their websites. Dean Ramler, co-found of Milan Direct says he rosters customer service staff around the clock, to answer queries about his products whenever they arise. He qualifies his policy by saying that if customer’s queries go unanswered; they will simply click onto another site.
CatchOfTheDay.com chief executive Paul Reining say that around a quarter of the staff he employs for the site are in customer service roles. He adds that around another quarter are in positions that work towards selling the product to consumers through both the written product description and through how looks on the site.
The online juggernauts also believe that they understand their customers better than their retail counterparts. They all attributed social media as a key tool to understanding their customers and building a community around their brand.
"It’s a live feed of your consumer sentiment,” Kogan says. He adds that his senior managers refresh the company’s Facebook page at least 100 times a day.
All three retailers are highly active on Facebook, posting offers, deals or even just engaging their community with mind games or puzzles. Ramler says that Milan Direct has been known post pictures of furniture on their page, and use its followers feedback to decide whether to stock the product on the website.
Yet, Australia’s major traditional retailers also appear to be all over social media. Harvey Norman – who is frequently slammed by the media as being majorly behind in online retail – has an impressive 130,000 fans on Facebook.
However, Kogan argues that just because Australia traditional retailers are on Facebook, it doesn’t mean that they know how to use it. He says that they use their pages to "spam” their followers with promotional offers and discounts and shy away from online criticism – opting to delete it rather than engage with it.
Why mimicry won’t work
Any retailer could easily adopt these online strategies, but Kogan, Reining and Ramler all agree that it’s their focus not their tactics that underlines their success. They are all fully committed to the online space. None of them look set to open a storefront any time soon.
As a result, they’re constantly adapting their business strategies to fully harness all the tools the online world provides. Unlike Australia’s major retailers, they’re specialising, not generalising.
They’re not scared of a boost in traditional retailers online sales, because they know that they will always be two steps ahead of them.
So, while there isn’t cause for fear among the ranks of online retailers, there is cause for jealousy. Kogan says there’s one advantage that traditional retailers have that the online space will never be able to replicate: the social spectacle of retail.
The buzz of entering a busy store and that ability physically hold and try out a product before you buy it - such experiences just can’t be replicated in the online space.
Yet, somehow – whether it’s through reduced staffing or cost cutting – Kogan says that our retailers have managed to rob themselves of this advantage.
Predictably, he says that Apple is now the only retailer that generates the buzz that truly typifies traditional retail. The fact that its stores are seemingly always booming with customers is just a testament to this point.
Kogan has tried to emulate that social element of traditional retail, by having a pop-up on his website which provides a real-time representation of what customers are buying on his site.
But even Australia’s king of online retail concedes that there are weaknesses in just being an online entity. He says that you’ll never be able to generate the same amount of buzz online as you can in a bricks and mortar store.