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Amazon arrives in Australia: Channel rocked by retail revolution

What happens when a technology behemoth lands on Australian shores? The channel has an endless list of questions, but remains short on answers

There’s a race underway in the technology industry, with Amazon, Apple, Facebook and Google all vying to become the world’s first $1 trillion company.

Collectively, they are the most influential companies on the planet, with such a conversation becoming a favourite past-time among investors and business executives.

According to Scott Galloway — a New York Times bestselling author — the four icons of the industry have captured the imagination of the world because they each uniquely provide a connection to God (Google), love (Facebook), consumption (Amazon) and sex (Apple).

As outlined in his book — The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google — each organisation is comparable to a part of the human body.

Therefore, Google is the brain, or the replacement for God. Facebook is the heart, or the source of love. Amazon is consumption, or the gut. Apple is sex.

“Going into the gut is Amazon,” said Galloway, when speaking to Forbes. “The company that is worth the most in the world is usually the company that masters the art of ‘more for less’.

“Currently, Amazon gives consumers the best deal in the world. They get back all 100 cents on the dollar in terms of products and services.”

As a result, Galloway predicts Amazon will become the first company reach the trillion-mark. But closer to home, in Australia, why should such global dominance matter?

Because for those living under Uluru, Amazon has arrived Down Under, going for the gut with a brand of service centred around the very notion of ‘more for less’, an approach that threatens to redefine the local retail market.

In 2018, the pace of change in the retail sector is expected to reach new heights, as newer and flashier concepts and brands take hold in the Australian market.

Amazon’s Australian launch, timed just before the busy Christmas period, signals a major shake-up for the retail sector, shining a spotlight on traditional retail models, with questions arising as to whether such methods will be able to retain customer mindshare.

The Australian Retailers Association (ARA) teamed with Roy Morgan Research to reveal its annual pre-Christmas sales predictions, which show that consumers will spend more than $50 billion in retail stores during the Christmas period, ranging from 15 November to 24 December 2017.

As a result, consumers will spend 2.8 per cent more on Christmas in 2017, compared to 2016.

According to ARA executive director Russell Zimmerman however, the estimate falls considerably below the four to five per cent growth that retailers would like to see during this period.

“As online retailing continues to grow, we predict online gift purchases to increase by 3.96 per cent,” Zimmerman said.

Delving deeper, smart retailers recognise that success in the market is achieved through placing a strong emphasis on their customers, service and experience.

A recent SAP 2017 Australian Digital Experience Report revealed a clear demand from Australian consumers for high- quality, seamless and personalised experiences across online and physical stores.

Whether a global giant such as Amazon, or a family-run shop on a suburban street, customers will flock to the retailers who deliver this expectation.

Specifically, the report hammered in on the fact that retailers need to provide a consistent experience across all customer channels — in-store, mobile or online.

“Technology continuously shapes the environment in which brands of all industries interact with their customer,” the report stated.

“To excel digitally, brands must align their people and processes — not just their marketing or digital teams, but across all lines of business onto a single platform architected with the customer in mind.

“To engage your customer digitally, you must engage your workforce and your suppliers on their terms, and you have to marshal all of your assets to enable a consistent digital experience.”

Buying into customer experience

Retailers that have already heavily invested in technologies such as augmented reality and data analytics, are poised to seize the upper edge on completion, while stepping up customer service capabilities in the process.

These retailers are considering what customer spending habits are, who their customer is, where they’ve come from and crucially, how to keep them coming back.

Casting back to 2012, the retail sector looks a lot different from five years ago from a technology perspective, with the market expected to morph in different ways in the year ahead.

But it’s important for retailers to recognise what have they learnt from their market and customer behaviour in 2017 and how they can continue to stay relevant?

“We have a large culture of embracing change, which is a natural part of the business, and are constantly innovating to ensure that we remain current and relevant to our customers,” JB Hi-Fi chairman Greg Richards recently stated.

Since its acquisition of The Good Guys in November 2016, JB Hi-Fi has laid claim to offering the largest ranges of home entertainment, consumer electronics and home appliances.

The 2017 financial year was a record year for the retailer, which saw sales rise 42.3 per cent to $5.6 billion on the prior year.

Specifically, Australian sales grew 10.9 per cent to $4.15 billion and online sales grew 38.4 per cent to $158.9 million, representing 3.8 per cent of total sales.

Richards placed the retailer’s highly trained staff members, as its most important asset, but also highlighted that an integral part of its strategy was to encourage innovation and diversification with new products, technology, merchandising formats, advertising and property locations in a controlled and responsible manner.

Meanwhile, JB Hi-Fi CEO Richard Murray, further cemented the company’s unwavering focus on the customer, on display throughout 303 stores across Australia and New Zealand.

Interestingly, the retailer noted its investment in service and technology to support its strategy through whatever channel a customer wishes to engage with the retailer, whether that is online or in-store.

“We have consistently referenced our low cost of doing business as a competitive advantage and a key enabler of maintaining our price leadership,” Murray recently said in his address to shareholders.

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“This, coupled with our high sales per square metre, drives productivity that is critical to operating our sustainable retail business model.

“We have deep relationships with our suppliers, both locally and globally. We have engaged and researched internationally and have challenged our current and future strategies, particularly as they relate to new competitors.

“From price intelligence and benchmarking, delivery and fulfilment capability, digital infrastructure to customer experience, we have undertaken detailed analysis and planning and are confident in our go- to-market plans.”

Consequently, customer service and experience will count even more now than ever before.

And it will come down to how well a retailer knows and understands what a customer wants and the types of technologies that retailers adopt to gage this. It will also be what will separate them from the rest of the pack as augmented reality and data analytics play a key role in helping retailers get to the core of what a customer really wants and needs.

Amazon and the arrival of its marketplace has certainly raised the ire among retailers, but is there still room for traditional bricks and mortar sellers?

Rise and fall of retail

Since confirming plans to open in Australia in April 2017, Amazon has signed up more than 500 local businesses to sell their products through its marketplace, which will help open the floodgates to millions of customers.

“The internet and technology have the power to level the playing field between big and small businesses, empowering Australian companies, large and small, to grow their sales and their business online,” Amazon Australia country manager, Rocco Braeuniger, recently said.

“We look forward to enabling local businesses to make their products available to a wide audience, not only in Australia, but also worldwide.”

According to Zimmerman, Amazon’s arrival will bring new possibilities to Australian retailers, small and large.

Furthermore, SMEA board member, Mark Flack, said the reality is that there’s a lot of education that needs to happen among the small business community when it comes to being digitally savvy and using the right tools to take their business to the next level.

Gartner managing vice president of the retail industry advisory services team, Miriam Burt, pointed out that e-commerce was not the primary cause of store failures however.

Burt highlighted key factors such as economic conditions, poor leadership, not reading the changes correctly; lack of clarity on customer proposition; bad timing on execution of strategy; running before walking and not optimising significant assets.

Some of these pointers can truly be applied to Dick Smith’s spectacular demise in January 2016, which saw 363 stores close and impacted thousands of employees.

Aggressive store expansion, buying too much inventory, strained supplier relationships and not generating enough sustainable profit, were some of the triggers.

The retailer’s issues with obtaining favourable credit terms impacted stock levels, product mix and store presentation.

On top of this, it admitted to purchasing stock based on supplier rebates rather than what customers wanted to buy, that left them with a $60 million write down.

But there was one winner out of this saga; Ruslan Kogan, who purchased the Dick Smith online store.

During the 2017 financial year, the pure-play online retailer reported a statutory net profit of $3.7 million, up $2.9 million from the $0.8 million it recorded the same time last year.

Revenue from ordinary activities was recorded at $289.5 million, an increase of 37 per cent — boasting more than one million active customers.

The online-only retailer mainly attributed its success with launching new verticals, brand growth, its e-commerce infrastructure and its strong operating momentum.

Kogan said data driven decision making was in its DNA.

“On top of our IT platforms, we’re able to generate sustainable growth because we make the right decisions driven by customer insights and analytics,” he said.

“Understanding and serving our customer needs is central to what we do. Our customers have high expectations and we strive to exceed them.

“We saw real benefits and efficiency gains from our investment in proprietary platforms and automation. The hard work undertaken by the team to implement proprietary software solutions has delivered efficiencies in time and cost via automation, timelier reporting and improved business insights.”

To help continue to diversify itself in the market, Kogan has managed to generate sufficient cash flow to self-fund the investments required for its higher-margin exclusive brands on an ongoing basis.

A part of Kogan’s business strategy is also focused on assessing new business verticals, and as such, it expanded its partnership with Vodafone as it prepares to launch Kogan Internet in 2018.

This further adds to its portfolio that is currently made up of Kogan Retail, Kogan Marketplace, Kogan Mobile, Kogan Travel and Kogan Insurance.

Kogan has previously dismissed concerns that Amazon’s arrival might harm his business, previously saying that it will no doubt hurt some retailers that sell the same thing as everyone else at fat margins.

“While Amazon is a major force in Australia, the launch of a local presence will undoubtedly bring more shoppers online,” he said. “With traditional channels facing continued consolidation, the path to market in Australia is begging for diversification.

“We expect the evolution of the local retail market to drive some significant behavioural shifts — causing customers to rethink how they buy and suppliers to rethink how they distribute their inventory.”

Kogan said online retail was still under-represented in Australia compared to other developed economies.

Online retail presents about 7.5 per cent of the total Australian retail market, but economies with large players such as Amazon and Alibaba, their online retail penetration is closer to 20 per cent.

Kogan.com director of buying — partner brands, Adam Jackson, said good retailers, who place their customers first and are on top of product trends, are thriving.

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“Kogan.com is continuing to show exceptionally strong year-on-year growth, and just recently smashed our sales record for a single day on Black Friday (24 November),” he said. “We’re focussed on giving customers the very best online shopping experience in Australia.

“Customers don’t just shop online because of price any more, though it’s still important, they’re time poor and don’t want to spend their weekends at the shops.

“We have been heavily investing in our systems and automation to offer very fast dispatch on all items that are warehoused by us and a user experience that’s second to none for shopping anytime, anywhere, on any device.”

Jackson said the business had more than 900 brands housed on Kogan.com, placed in front of eight million active subscribers.

“We are focussed on making in- demand products and services more affordable and accessible for our customers,” he said. “Customers are more informed than ever, so they know what services and products they want, and how much they should be paying.

“The retailers that do the best with this change are those that give customers what they want. Therefore, we ensure that our range is broad, our shipping is quick and our prices are competitive.

“We also use technology to build a relationship with our huge customer base, ensuring we’re showing the right person, the right product at the right time with our algorithmic recommendation engine now accounts for well over five per cent of our sales.”

Jackson hinted that the business also had a large pipeline of brands lining up to get access to the Kogan platform and customer base, which it will continue to add to in the coming months.

Still life in the traditional retail space

During the past five years, retailers have been ramping up investment into the online space, while boosting in-store customer experience in the process.

It’s not uncommon to see staff from certain manufacturers pacing the shop floor, parting product knowledge onto customers and in turn, helping the retailer close-in on a sale.

Even Harvey Norman itself saw its net profit after tax rise 28 per cent to $448.98 million during the 2017 financial year and the retailer will continue to enhance its omni- channel operating model for its franchisees and customers.

Some of the features that the retail giant has embarked on include Live Chat capabilities, near real-time inventory, a Click and Collect customer app, same day delivery options, and the ability to recommend and connect customers with installation providers.

“The customer-first mind-set has been enhanced by the launch of Harvey Norman Voice this past year, improving engagement of customers of each franchisee to bring them further into the conversation,” the retailer said.

“The omni channel strategy sets the Harvey Norman brand apart from other online and digital competitors as the digital, physical complex and distribution channels are fully integrated, providing customers of franchisees with a multitude of engagement options to meet their needs.”

This year, the retailer launched virtual reality demonstrations with a complete in-store set up, which Harvey Norman claims, has given it a competitive advantage in the market.

“The anticipated demand and future product releases are anticipated to yield sales growth in the virtual reality segment, along with the complementary products that are required to drive the devices like high-end gaming PCs with powerful graphics,” the retailer said.

Adding to this is the retailer’s launch of The Modern PC, which is a new line of notebooks that are thinner, lighter and faster, featuring all day battery, touch screen and modern designs.

“Consumers have seen the significant advancement in notebooks and are upgrading their devices quicker than previously, giving Harvey Norman franchisees strong sales growth within the whole notebook category during 2017,” Harvey Norman said.

Meanwhile, Officeworks head of merchandise, marketing and supply chain, Phil Bishop, said its market position has been built on a strategy of delivering three core pillars to its customers being price, range and of course, service.

The retailer introduced new and expanded product ranges and services in-store. Examples of this in the technology category include products like Google Home; helping develop the coding skills of children with Sphero; or providing customers with access to drones and 3D printing services.

According to Bishop, the retailer’s online sales were on track to approaching 20 per cent of its total sales. Last year, it made 2.3 million deliveries.

Some of the recent initiatives the retailer has embarked on include a free two-hour click and collect service, which Bishop said, receives more than 1,000 click and collect orders on an average daily basis.

This is on top of providing free next-business day delivery on orders of more than $55, and free express same-day metro delivery for orders placed before 11.30am on weekdays.

“Investing in customer experience, knowing your customer and being disciplined in your execution are fundamental to the success of any retailer,” Bishop said.

In the coming months, Bishop said Officeworks will be focusing on the Christmas and ‘back to school’ trading periods, which are both important times for the retailer.

“Our technology category plays a key role in both periods,” he added. “We know choosing the right device for a child’s school needs can be confusing, so we also offer a tech selector on our website which helps parents get their kids the right device, that meets the minimum requirements by schools to get ‘Tech Ready’ for school.”

Staying ahead of the game

Finding, managing and retaining talented employees is one of the single biggest challenges faced by business owners, workforce management provider, Deputy CEO, Ashik Ahmed, said.

“A team of high performing and reliable employees that excel in customer service can be the best asset a retail business can acquire,” Ahmed said. “Customer service will become the key differentiator in retail.

“Through ensuring that employees are comprehensively trained in their designated roles and rostered on in the right volume at the right times, the increased efficiency together with the added customer service benefits will ensure that retail stores will continue to remain competitive in a changing environment.

“While Amazon can offer a sometimes more convenient and perhaps cheaper alternative to traditional retail, there’s no replacement for excellent customer service and customer experience that comes from an in-store experience.

“Traditional and online retailers in Australia have already come up against the likes of international players like eBay, and a number of other giant online retailers that have posed a threat to their business — and Amazon will be no different.”

Ahmed said the retail industry has always been the embodiment of one thing: rapid change.

“Technology has always been a key driver of change in the retail space, and the introduction of Amazon to the marketplace is no exception,” he said.

“When online shopping was first introduced, it greatly changed the way that traditional retail businesses needed to position themselves in the market, and those that adapted were able to grow quickly and flourish. Those that didn’t struggled and many disappeared.”