A perfect storm is changing retail forever
26Mar12

by [me]

We are experiencing a permanent shift in shopping habits from which many brick and mortar retailers will never recover.

After the initial hysteria and over-hyped promise of online shopping in the late ’90s dot-com boom, most retailers shrugged off the threat of online and continued with their traditional business models. The prosperity of the new millennium in Australia meant that retailers were profitable and the apparent need for change was unnecessary.

But as the decade continued online was becoming much more sophisticated. Social networks sprang up to increase connectivity and word-of-mouth, and e-commerce became an easier function to execute. Online giants like Amazon, e-Bay and Apple introduced millions of consumers to simple electronic transactions, steadily decreasing the fear of credit card fraud.

The storm clouds for retailers were on the horizon but only a few paid them any attention.

Then the GFC hit in 2008 and consumer confidence shrank. Traditional retailers braced themselves for the inevitable pain, expecting it to be short-lived. After all, these things just go in cycles, don’t they?

However, this time things were different. After almost 2 decades of spending, Australians decided it was time to save money, to become a little more frugal. Our shopping habits began to change.

Consumers, steadily growing comfortable with shopping online found that there were significant savings to be made on many purchases. Apparently many of our famous retailers were charging us more for items than our friends overseas were paying.

Books, cameras and many clothes were cheaper online, often from overseas. Suddenly, stores that stocked these items were beginning to feel the pinch. Borders and Angus & Robertson collapsed.

Some of the Australian retail giants began to complain about the unfairness of it all but the truth is they hadn’t prepared for the looming storm. They felt that things would return to normal as the economy rebounded.

Four years after the GFC consumer confidence is still low. We’re saving more and spending more carefully. Increasingly we’re shopping online for bargains and convenience. Less and less of us see the any point in visiting the local mega-mall to buy items we can buy in minutes online.

Daily deals sites have exploded in popularity online in the last two years, training us to hunt down or wait for heavily discounted prices on many items.

The perfect storm has arrived and its changing retail forever.

We’re loyal to some brands that produce quality items but not to retailers who are merely clearing houses for a range of brands.

The future seems to belong to specialist bricks and mortar retailers (we still enjoy the shopping experience) and online retailers who can offer savings and / or convenience we’re time poor and want to maximise our leisure).

Peter Alexander and Smiggle are in; they continue to trade well with their own fun products.

David Jones is out; why pay more for the same items we can buy elsewhere?

The retailers who moved early into online retailing and the new online only retailers are the winners in this new environment.  Those who ignored the early warning signs, who stubbornly stuck to their bricks and mortar model are losing and losing big.

Who’s losing?

David Jones, Myer, Harvey Norman – only now starting to belatedly  address online seriously. The problem is they sell products we can also buy elsewhere. The department store concept is an old one past its time.

Anyone who sells items in traditional stores that we can easily buy online for less – like electronics, clothes, books and travel.

Who’s winning?

Domino’s Pizza - mixing stores with advanced online ordering and now mobile phone ordering systems. Online sales are now 40% of total sales.

Webjet and Wotif – making travel cheaper, easier and faster to book.

Deals Direct – online clearing house full of bargains. Have also opened BedBuys.com.au

Kogan – the online only electronics retailer is causing a world of pain for JB Hi-Fi and Harvey Norman, not just in sales but by confirming the idea that we can pay less by avoiding the traditional retailers.

Lorna Jane – strong brand selling its own products through its own website.

Oroton – a famous brand that moved early to online. Their sales grew 180% last year and www.oroton.com.au is now its largest store.

Smiggle – fun and fashionable stationary stores that prove people are still willing to enter shops for unique products and experiences.

Peter Alexander – strong brand, fun products sold many stores complimented by a strong online presence.

The fastest growing products categories online are a strong predictor of which bricks and mortar retailers will shrink or disappear in the next few years:  travel, books (including magazines and newspapers), DVDs, clothing & shoes, CD’s, alcohol, supermarket shopping.

It took longer than breathlessly predicted in the dot-com boom, but a combination of easier online transactions, considerably lower prices and increased frugality has led to a shift that will see the retail landscape change forever.

The question now is which industry is next?

Posted under marketing, Online

Written by Craig Wilson