Looking ahead to 2018

business strategy01Retailers worldwide will remember 2017 as a challenging year.

With technology developing at an unprecedented pace and customers’ habits constantly changing, most businesses have had a hard time catching, and keeping, up.

No business was immune in 2017 from the rapid changes in technology that altered the way consumers and businesses interact with each other and businesses’ survival had depended on their understanding of the changing landscape.

Retailers have either had to adapt or disappear. The world witnessed the demise of high profile casualties, and the not-so-high-profile ones who couldn’t find a way to keep up.

It is clear – the year 2017 was a year driven by technology, speed and continuous change.

Armed with the knowledge that today’s customer’s purchasing habits and expectations are ever-changing and won’t even know where they will shop tomorrow, or even the next hour, retailers need to take advantage of new digital channels, social media and new platforms for businesses to stay visible.

So what can retailers look forward to in 2018?

Technology

With customers’ expectations for immediacy and convenience increasing by the day, retailers need to embrace online shopping and create a seamless omnichannel shopping experience for consumers.

“Growth in online spending is expected to continue being one of the biggest trends in retailing,” industry analyst James Thomson told Inside Retail.

Many international retailers have embraced online sales platforms as an extension of their existing businesses, which enables them to reach more customers. Following their example, domestic companies have increasingly migrated online over the past five years by developing multiple sales platforms.

“Particularly with Amazon’s entry into the Australian market, we expect to see traditional brick-and-mortar retailers increasingly embrace online shopping to create an omnichannel shopping experience for consumers,” Thomson said.

Not all retailers are too concerned with their online presence, though. Gerry Harvey of Harvey Norman told Inside Retail in an interview last January 2017 that he doesn’t really find Amazon a threat at all.

“There’s a market for online, and we try very hard in that area, but not everyone wants to buy online,” Harvey said. “Three, four or five per cent might want to buy online and 90-95 per cent want to buy in a shop. Some buy in both. There’s a very small number of people buying exclusively online for everything they purchase.

“So Amazon is a threat, but is it a big threat? Is it going to take Harvey Norman to the wall? No, I can live with them,” he added.

While Harvey was mainly talking about Amazon, regarding their online presence as a whole, was it right for him not to be too worried about that?

JB HI-FI Electrical appliances shop AustraliaHarvey Norman’s biggest rival, JB Hi-Fi, has reported its online sales now account for close to four per cent of its total revenues.

In the online retail space, JB Hi-Fi has developed one of the best platforms and increased online sales by 38.4 per cent to $158.9 million in FY17.

JB Hi-Fi chairman Greg Richards noted, has a culture of embracing change, regarding change as a natural part of the business.

Richards said last year that they are constantly focusing on innovating to ensure that it remains current and relevant to customers.

“Retailers are expected to utilise online sales platforms to complement their physical store locations, offering a range of ways for consumers to experience and interact with their brand, and purchase their products,” said Thomson, adding that local retailers have struggled to successfully transition to, and embrace, online channels.

“Online sales contribute a smaller share of Australia’s total retail sales (between 6-7 per cent),” he said. “This compares with the 15.5 per cent in the UK, 14.5 per cent in China and 8.4 per cent in the US. In addition, international online retailers are expected to account for almost 50 per cent of total online spending in Australia.”

According to Alibaba’s research arm, Alisearch, by 2020, the majority of commerce will be conducted on digital platforms, with transaction volumes exceeding US$1 trillion.

Alibaba Group CEO Daniel Zhang has said those who cling to the old ways of retailing will be disrupted, and added that brick-and-mortar businesses will be able to create value for consumers if they are integrated with the power of mobile reach, real-time consumer insights, and technology capability to improve operating efficiency.

To address immediacy, many retailers in 2017 have trialled or launched drone delivery service. There was a touch of apprehension when drone delivery was introduced by some retailers in 2016, but 2017 was the time when awareness set in and was eventually accepted after heightened exposure within society. The use of drones in retail and wholesale distribution is still, at the moment, minimal, but expect this to increase rapidly by next year.

With Google’s launch in Australia of Google Assistant on Google Home in July, and Amazon’s announcement it will launch Amazon Alexa in 2018, just a few months after opening up their larger inventory online to Australian consumers, voice technology, or an in-home voice assistant used to interact with and shop from retailers, could potentially take off in the coming year.

Sustainability

Many retailers are expected to concentrate more on, and put, sustainability at the heart of its operations to meet consumer expectations in 2018.

Surveys have shown sustainable initiatives are increasingly influencing consumers’ purchasing decisions and retailers have jumped on the challenge of better understanding what potential customers are looking for.

Richard Goyder, Wesfarmers managing director, had said it is part of their company’s operations to continuously improve their sustainability measures and reporting.

Coles Supermarket AustraliaRetail landlord, Mirvac, and Australian conglormerate, Wesfarmers, have scored highly in the 2017 Dow Jones Sustainability Index (DJSI).

Wesfarmers scored 78 out of 100, the only Australian food and staples retailer in the index and two points off the global leader, Metro AG of Germany.

The conglomerate was ranked among the top five companies in the world in the food and staples retailing sector which form part of the DJSI World Index. It also took out the single place that is available in the DJSI Australia index for a food and staples retailer.

Mirvac has been named the world’s most sustainable real estate company, according to the DJSI assessment. Mirvac’s overall score of 83 per cent was nine points higher than Australia’s real estate average and ten points higher than the global real estate average.

Launched in 1999, the DJSI is a respected benchmark for corporate sustainability. It is the first global index to track the leading sustainability-driven companies based on analysis of financially relevant environmental, social, and governance factors. Each year over 3,400 publicly listed companies are invited to take part in the assessment.

Angus McNaughton, former CEO and managing director of retail landlord Vicinity Centres, last year said as significant local hubs, their shopping centres have an important role to play in shaping better communities both economically and socially.

Vicinity was ranked as a regional leader in sustainability by Global Real Estate Sustainability Benchmark in the 2017 Real Estate Assessment. The retail landlord was also ranked number one in the Asia Pacific Retail sector, second for listed entities within Australia and fourth for retail funds globally by GRESB.

GRESB assesses the sustainability performance of real estate portfolios and assets in public, private and direct sectors worldwide. Its 2017 assessment was completed by 850 property companies, REITs, funds and developers, across 62 countries and with US$3.7 trillion in assets under management.

In August, Officeworks has partnered with non-for-profit Greening Australia and launched the initiative that will see 200,000 native plants established each year across the country. The stationery retailer will spend $3.6 million over three years for this two-for-one tree planting initiative.

Swedish fast fashion retailer, H&M, which entered the Australian market in 2014 and now has 23 stores nationwide, will be continuing its garment collecting initiative.

“We launched our garment collecting initiative in 2013 and every year we work on engaging ways to speak to our customers about this effort,” said Elizabeth Cave, H&M communications manager for ANZ.

“Every year is a little different, previously we have activities such as World Recycle Week and the Bring It campaign,” she added.

For 2017, H&M launched in January its annual garment collecting campaign along with a brand new film directed by Chrystal Moselle.

H&M’s Garment Collecting campaign allows customers to bring unwanted garments and textiles, from any brand and in any condition, to any H&M store. The retailer’s goal is to increase the amount of garments collected, every year, so that they reach a total collected volume of 25,000 tonnes per year by 2020. The campaign raises awareness on the importance of garment recycling.

H&M said it wants to “close the loop” on fashion by giving customers an easy solution to hand in unwanted garments so they can be reused or recycled through H&M’s garment collecting initiative. By doing so, less garments would go to landfill.

Cave said H&M Australia still can’t officially confirm in which way the retailer will activate the initiative in 2018, but it will definitely be launched in some new way.

Stockland-solar-panelIn September this year, retail landlord Stockland announced it will roll out the largest property solar project in the country in 10 of its shopping centres. With this $23.5 million investment, the diversified property player will cover the rooftops of 10 of its shopping centres with 6.4 hectares of solar panels which will generate 17.2GWh of energy every year.

The project will see Stockland install over 39,000 Photo-Voltaic (PV) panels, comparable in size to more than nine rugby fields, across roof space on retail centres in areas including Merrylands, Burleigh Heads, Point Cook and Wendouree.

Stockland has solar projects already installed across Stockland Shellharbour, Stockland Wetherill Park and Stockland Nowra shopping centres in NSW, as well as an existing installation at Stockland Green Hills, which will be expanded as part of this project. These projects have, so far, generated over 2.3 million kwh of energy.

The rise of the pop-ups

The pop-up industry has seen a rise in sales to approximately $10 billion, according to Popup Republic.

Yes, pop-ups are not new in Australia. Their popularity in the country started more than 10 years ago. But the pop-up boom has shown no sign of slowing down any time soon.

Pop-ups are a global phenomenon and quite popular in the US and Europe. So what exactly are they?

Pop ups are retailers using short-term leases. It could be for a couple of days or up to a few months. They set up trade for a low upfront cost. Retailers have the option of choosing either short-term leases or a one-off opportunity like during a festival or special occasions.

Consumers will be seeing more emphasis on new modes of retailing, like the pop-up stores and kiosks, as this has become a go-to marketing strategy for retailers who want to introduce their products that could provide both low rent and flexible options.

Landlord giant Westfield, to appeal to a new bunch of retailers and shoppers, has even changed the name of its casual leasing division to “pop-up department”.

Eight months after suiting and shirting brand Rhodes & Beckett collapsed into liquidation in February, it was relaunched but it was announced the brand will go from a 25-store footprint including all concessions, to just six. Four key boutiques and two pop-up stores will be located across the country, some of which have undergone a refurbishment including the stores on Bourke Street, Collins Street and Grenfell Street in Adelaide. The pop-ups will appear on Collins Street and Martin Place in Sydney for most of 2018.

Lifestyle fashion retailer, Country Road, has opened the first menswear pop-up store at Sydney Airport’s T2 Domestic terminal in August. The retailer houses a curated range of apparel, including shirts, accessories and a denim collection and also includes a selection of workwear which targets business travellers.

Reinventing shopping centres

Shopping centres have suffered from the advent of e-commerce and Credit Suisse has even estimated that 25 per cent of malls in the United States would close by 2022.

But, closer to home, retail landlords and property developers have embraced the challenge and reinvented the mall concept, integrating different property types in hopes of achieving higher occupancy rates and higher rents.

There was talk of Chadstone Shopping Centre likely to add residential or office spaces as part of its mix over the next decade and Scentre and Cbus Property have teamed up to develop a new luxury retail space with a luxury residential tower. They have purchased the David Jones Market Street building in Sydney’s CBD for $360 million, so construction for the site won’t likely commence until David Jones’ lease will expire in 2019.

Industry analyst William McGregor had said redeveloping malls is now a trend that shows no signs of slowing down.

The new workforce

In a world where employing humans is relatively expensive, retailers have looked into artificial intelligence and robots to cut cost.

KFC-robotIn May 2016, the KFC store in Shanghai introduced Dumi, a robot sophisticated enough to take orders from customers and handle changes and substitutions in orders.

At the end of 2016, Stockland had introduced Chip, a 1.7m tall, 100kg social humanoid robot, which interacted with customers and retailers from food sampling to centre way-finding, assisting the elderly customer by carrying their groceries to their car and welcoming customers to the centre.

The property firm had said it aimed to develop further sophisticated applications which will transform and enhance the in-centre experiences of its shoppers.

In May this year, 7-Eleven has introduced the 7-Eleven Signature, the world’s first unmanned convenience store, dubbed as the “c-store of the future.”

Shoppers can pay with the swipe of their hand, thanks to a biometric verification system that scans vein patterns in their palm.

An Alibaba Cafe without a cashier was introduced in July where it attracted shoppers for its opening in Hangzhou.

Entry into Tao Cafe is via smartphone scan through ticket gates similar to those at subway stations.

Offering drinks, fast food and snacks, the 200sqm store can accommodate 50 customers. To enter and make a purchase, shoppers need only a smartphone with Alibaba’s Taobao e-commerce app.

The rise of artificial intelligence, which makes it possible to automate numerous tasks, both manual and cognitive, has taken on the job of human bank tellers, customer service representatives and sales people, to name a few.

Robots taking orders, greeting guests, drones delivering orders… Inside Retail believes research and development of artificial intelligence will be part of the retailers’ to-do list in 2018. And this change in the business world will put humans in direct competition with robots.

Some retailers may not have the budget for research in technology or artificial intelligence, however, as Inside Retail predicts 2018 will be a challenging year and retailers are expected to struggle during this period as consumer sentiment drops and households cut back on discretionary spending due to uncertain economic conditions.

Thomson said spending in the Consumer Goods Retailing industry will decline by 1.0 per cent in 2017-18, to $168.7 billion. Retail sector revenue is expected to be specifically affected by declines in demand for domestic appliance and houseware retailing.

“Consumer Goods Retailers in Australia have struggled with tough retail conditions over the past five years,” he said. “Weak discretionary income growth, along with negative consumer sentiment has led households to become cautious with their discretionary spending.”

Thomson said a growing trend towards bargain hunting has developed as technology increasingly allows consumers to become more informed about purchases and the value of the products they buy.

“Price has become an important basis of competition in many retail industries as value-conscious consumers have adopted more prudent spending habits,” he said.

To thrive in a tough retail environment, retailers will need to implement innovative strategies to differentiate themselves from competitors and attract customers.

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