Traditional vs online retailers: Who will win the race for growth?
Last week, Myer CEO Bernie Brookes was quoted as saying that over the coming couple of years the pure online retailers would be successively overtaken by the traditional mainstream retailers.
This would be done because the traditional retailers have strong, trusted brands with significant heritage. They also have a wider choice of products and brands, and a broader range of supporting services, including credit and warranty solutions. They also have consistent supply chain models allowing them to make the next sale.
Retailers have a tradition of being "merchants", a term rightfully used with pride by anybody who has been in any form of buying role. Buyers are people who are gifted "pickers" and "traders". They have the ability and confidence to see a single sample and make a call on buying a 53-foot supercube container of cotton leopard skin pyjamas because they can buy them at $12 and know that the shopper will see the value in paying $36 at shelf. That's a gift.
Bernie predicts that, as with the US and Europe, online retailers' businesses will decline in their share of total online retailing dollars spent because their model has been based on limited ranges at low prices: a clearance or short supply model.
It allows shoppers to impulsively buy something they need now or had thought about that wasn't perfect. By that I mean that an online shopper may have wanted a blue one, but at 40% off they'll take the red one. And if they want to come back and buy another one, at any price, it's unlikely to be there.
We also need to remember that many of these pure online offerings were made possible by the high price that international brands were charging Australian shoppers. This created a value differential that could be met by parallel importing well-known brands at lower prices. That differential has now closed up in most categories, and will continue to do so.
And I agree with Bernie, but with two caveats. The big international online retail players have now built trustworthy brands, strong supply chains and a range of retail support services. A good example is Amazon; it will take 20% share of any category it focuses on. Secondly, some of the smaller online players will further develop their merchant and brand competencies.
Who? Well I know Ruslan Kogan well enough to catch up with him each time we are at an event. I first met him when we both appeared on SBS Insight. I caught up with him a few weeks ago in Melbourne, and he and his business have matured considerably. He admitted that he no longer needed to poke every retailer in the eye when they met. He has now built a brand and I see Kogan branded electronics not just in friends' homes, but in meeting rooms and reception areas in many places of business.
Myer's online sales will grow significantly over the next 18 months, but the Kogan brand will also have a place in Australia over the coming years. Managed right, online retailers that build brand equity, as well as traditional retailers, will experience growth in the months and year/s to come.
As CROSSMARK CEO, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia and across the world. His international career in sales and marketing has seen him responsible for businesses in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands.
CROSSMARK Asia Pacific is Australasia's largest provider of retail marketing services, consulting to and servicing some of Australasia's biggest retailers and manufacturers.