“And while the law of competition may be sometimes hard for the individual, it is best for the race, because it ensures the survival of the fittest in every department.” – Andrew Carnegie
Being physically isolated has had its advantages for Australian retailers over the past decades. With, little choice but to spend with onshore retailers, Australian consumers have had to contend with our own DVD region codes, our own clothing sizes, our own seasons and our own internal distribution complexities due to the sheer size of our nation.
It’s no wonder then, that many Australian retailers priced their offerings higher than their global counterparts and innovation was rarely seen as a necessity, as consumer product offerings were catered and priced to capture this captive market.
Today, the landscape couldn’t be more different. Fed on a diet of internationalism from fast-moving disposable fashion to incredible retail experience exposure, Australian consumers are demanding more due to their increasing access to global offerings via online retailing.
Consequently, we’re experiencing a shortening of supply channels, a decreased relevancy in ‘seasons’ and the concept of inventory is becoming passé, being replaced by short ranges and collections. In this new world where scarcity and exclusivity are anchoring the brand attraction, consumers are drawn into the community of ‘wanting it now’.
Top global brands such as Hollister, Top Shop, Costco, Williams Sonoma, Uniglo, River Island and Zara are entering our physical retail space, having dipped a toe in the water through their online sales offerings and consequently are aggressively embarking on global expansion strategies. These new entrants are often producing incredible returns in their early days in a market that confesses to caution in expenditure. Both Zara and Costco, for example, experienced opening sales comfortably within their top 10 of global openings. So just what can we learn from these ‘fit’ global retail entrants?
1. They invest in innovation and long-term strategies
Retailers who set their capital planning to just supporting short-term sales and margin results simply won’t last the distance and much of this short-term strategy focus lies in the not uncommon way Australian retail executives – pivotal to laying down the strategy – are remunerated. Overseas, remuneration occurs over three to five-year tenures as the strategy unfolds, whereas here, it tends to be more short-term and within one to two-year tenures.
And herein lies one of the issues that confounds our ability to grow globally-robust business channels. Executive boards increasingly put pressure on their CEOs to deliver short-run profit returns over longer term horizon KPIs, such as the capital expenditure return on funds employed. This dictates the march of the near-sighted when what is required is the long-sighted to put us on a more competitive footing with these global warlords.
2. Long-term brand equity, differentiated branded merchandise and smart operations
These new global entrants have spent considerable time and money in building long-term brand equity. Each of these entrants has a clear vision and brand strategy and can articulate their differentiation. They are to all intents and purposes ‘brands’ as opposed to ‘retailers’ and they are masters at serving up their brand experience at every consumer touchpoint.
3. They are masters at the branded customer experience
Brand experience is everything and, recognising that online will only take the brand experience so far, our new global brand entrants want to provide a real physical experience. Customers entering their stores see great products, new products and value created over and above price. Indeed, these global entrants have established world’s best practice in compelling ‘destination shopping’.
Australian retailers are not without response, however, and some of our domestic retailers are already winning in this game of globalisation. Sportsgirl with its digital plays and Target Australia, which recognises the power of international and domestic fashion collaboration and ‘scarcity’, are just two examples. We must also remember that while we’ve been focusing on outside-in, globalisation works both ways and some Australian retailers, such as Cotton On, are successfully taking their offer overseas.
Heaven forbid we’ve inadvertently been a little too expensive and possibly even over-profited in some categories over the years, or is it just the landlords who have been the big winners in Aussie retail over the years? Is the margin debate somewhat symptomatic of a broader global un-competitiveness, relative to scale in the short term?
Perhaps we can read the winds of change and invest in a strategy of globalisation ourselves, learning from these new entrants to become fitter retailers ourselves and recognising that Australia is no longer a retail island.
Happy ‘fit’ retailing.
Brian Walker is the managing director of Australasia’s leading retail consultancy, Retail Doctor Group.