The Australian Small Business Blog

Monday, November 19, 2012

The Online Threat to Retail– How to fix it?

by Dr Greg Chapman

Australian retailers are regularly bemoaning the problems for their business created by online competition, both from here and overseas. This has driven a number of retail stores to create online channels, but their model seems to be broken. It’s like the old joke about someone being lost in the country looking for directions from a local, who replies helpfully, “If I was you, I wouldn’t be starting from here.”

Michael Pascoe provides an excellent analysis of what is wrong about the Australian online retail model. Firstly, The Australian retailers have too many stores, with all their high overheads. For example Neiman Marcus operates 43 stores in a country of similar size to Australia but with a 13 times larger population compared with Myer’s 69 here. In the UK John Lewis operates 43 stores in a country of 60 million. Pascoe states that reaching these department stores is difficult for most consumers in these countries. I can vouch for that. I once queued half an hour to get into a John Lewis car park. Would you do that for Myer? Needless to say, my subsequent purchases were online.

Secondly, in the US, which has a similar geographic issues (compared with the UK), there is much more a catalogue culture, Sears and Roebuck being the most famous, where it didn’t matter how remote your location in the 19th century, you still had access to capital city retail. This has seamlessly transferred to internet shopping in the US.

For Neiman and Marcus and John Lewis, online sales are more than 15% and growing, compared with Myer at less than 1%.

So what could Australian department stores do? First they need to start closing low sales stores and encouraging people online. Perhaps with a discount such as 15% off from all purchases in the first 90 days. People could be signed up when they make a purchase in store. When living in the US we were regularly given incentives to sign up with their online programs.

As retailers start to take such action, this will put a lot of pressure on commercial rents which are excessive in Australia, with a correction long overdue. This will in turn benefit their remaining stores.

However, to make online an attractive alternative, there needs to be excellent customer service, with support by advisors who can help with purchase decisions, in they way they do (sometimes) in stores today. For many retailers, a website means never speaking with your customers. In reducing their overheads, they can invest in more support staff online making for up the decline of in-store service we are seeing today.

This does not mean the end of bricks and mortar retail, as these stores become more like showrooms where the online relationship is started and supported.

May Your Business this Year be - As You Plan It.

Over to You. What do You Think? Post Your Comments Below. [Note to those seeking a free ride on our google ranking, blog spam will be deleted, but genuine contributions will be happily approved.]

Dr Greg Chapman is the Director of Empower Business Solutions and The Australian Business Coaching Club and is Australia's Leading Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success and Price: How You Can Charge More Without Losing Sales.

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Unknown said...

Great article and while I have to agree with the increasing catologue shopping and online culture I can see so much more that the brick and mortar business retail residents of Australia and indeed the world can be doing to make the retail shop inviornment work better for them.

I like the blog and I look forward to reading many more of them.

Ciaran Keegan
Australian Business Development Centre

davidschneider said...

Thanks for this great article. I agree with Ciaran. Something that's really helped give our business a boost was social media marketing. There are some great SMM agencies out there but it's hard to find one you can trust and that doesn't over charge you. We have been using Likematic for some time now. Worth checking out. - Social Media Marketing


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