To kick off the New Year, Retailbiz spoke to Paul Greenberg, executive director of NORA, Russell Zimmerman, executive director of the Australian Retailers Association, and Jethro Marks, founder of The Nile and recently retired NORA board member about what we can expect in 2017.
What do you think will be the biggest challenges for retailers this year?
Paul Greenberg: Consumers are looking for difference. It’s clear that if we don’t differentiate customers will just buy online from Amazon and get everything shipped to their front door.
Retailers really need to find a unique selling point and a sustainable point of difference they can defend—that’s going to be a challenge. Customers really need to know what a retailer stands for. If this isn’t clear—both internally and outside the business—retailers will struggle.
Keeping up with the connected shopper will also require agility and a nimbleness that a lot of businesses are struggling with.
Russell Zimmerman: Probably the single biggest issue on retailers’ minds is the fact that Amazon has said they will come. Every retailer in Australia realises they are a big conglomerate and will make a difference, they will be a disruptor.
This is an opportunity for retailers that have their own brand business as they have the option to sell on Amazon. For retailers dealing with wholesalers who don’t have their own brand, Amazon may eat into their business. It’s a double-edged sword.
Jethro Marks: At a broad macro level the biggest challenge will be a softening economy. There will be a bigger fight for a smaller amount of dollars.
If the introduction of GST on imports comes in it will have an impact that I don’t think has been considered. Everyone thinks it will just impose a 10 per cent tax on foreign products but everyone that imports will face challenges.
Also, a lot of overseas traders will either start to open operations or find a way to increase their presence here. In the short-term prices will be higher because companies are paying GST, but the long-term challenge will be that foreign retailers come in with better processes.
What about the biggest opportunities?
Greenberg: Brand is king. Customers are prepared to spend more to get more. Retailers often complain that it can be a race to bottom, but all anecdotal evidence is showing that customers will spend more for a brand. Companies like Apple, Pandora, Gucci and Louis Vuitton show that luxury is back in a big way. There is a flight to quality.
Retailers that offer quality and value will do well. Cheap and cheerful will not do as well in 2017.
Zimmerman: One of other things we’re very conscious of is a reduction in penalty rates for Sunday. Hopefully there will be a decision handed down on those rates. This will be a good thing for retailers as it is an opportunity to employ more staff at times when they are lacking in high quality staff on their floor… If a reduction happens it will be an opportunity to employ more staff that will give a boost in sales.
Another thing retailers are very much aware of is changes in the area of payments. The Reserve Bank has announced changes around interchange rates that will see a drop in the cost of accepting credit cards for retailers. This is something retailers will be waiting for with baited breath. The changes will take place on 1 July 2017.
The government has also said the low value threshold on goods coming from overseas will drop from $1000 to $0. Retailers are very appreciative of the government doing that.
Marks: When online retail started the initial attraction was selection, and then came price with deal sites that emerged during the GFC. We’ve now seen the demise or reduction of deal sites and the next wave is the convenience buyer.
The most important thing to them is getting what they want when they want it. The first iteration of this in Australia is the on demand food services like Deliveroo and Uber Eats.
In the US and UK we’ve seen this start to play out with other products. There’s an assumption on the part of consumer that if they order today they’ll get it tomorrow. I don’t think Australian consumers have this yet; it’s not supported by retailers. As retailers become able to provide much faster delivery this will grow.
There’s also definitely a rise in mobile. If retailers don’t pay attention to it they’ll fall behind. The opportunity comes from being able to present customers with an experience as good if not better than on a desktop—this ties into the convenience factor as consumers want to be able to shop on the move.
What are your thoughts on Amazon’s possible arrival in the Australian market?
Greenberg: Amazon has certainly been changing the way things are done, but retail is not a zero sum game where one retailer will own the whole pie. It is definitely raising the bar in terms of customer service and delivery. Amazon’s arrival will challenge retailers who don’t have a defendable proposition.
Marks: I’m dubious about a lot that has been written in the press about Amazon’s arrival…I’ve been watching Amazon for about 13 years and they’re a very secretive company, they don’t say much about what they’re doing. I have a feeling that there’s a general sentiment that they will come into the Asia Pacific market.
If they did turn up it would be a challenge and an opportunity. The challenge would be the price pressure on other retailers but it would also be a huge opportunity as eBay is a sizeable chunk of the online space and if Amazon arrived a big part of its offering would be the marketplace. This would be a really big opportunity…Amazon would grow the pie and give retailers access to another channel.
What are the retail trends to look for?
Greenberg: The hottest trend that will build in 2017 are businesses like zipMoney and Afterpay. Fashion retailers are jumping on these new business models that are reinventing the way layby is done…I think this has been a wonderful boost for retail because it provides customers a no cost way to defer payment. They seem to be growing the retail pie.
Retail is certainly looking for those ‘kickers’ that will give a nice lift. We owe a bit of gratitude to these retail tech companies and I think we’ll see more of them coming through, and not just in payments. We should really be incubating these businesses—the sooner we get these young entrepreneurs to retailers and shoppers the better. Bring it on.
Zimmerman: Retailing is definitely a multi-channel business. Retailers that don’t engage on all channels are going to be left behind. About 7 per cent of retail turnover is online and I expect this to rise over next few years to about 12 per cent. This is an opportunity for retailers to go beyond their borders to trade nationally and internationally, especially where they have a unique product or offering.
There are also more international players looking at our shores, and they will continue to look. Some of them will come. Retailers need to be prepared and realise that it doesn’t matter what part of the market you’re in. Originally we talked about retailers in the clothing industry coming from overseas, like Zara and H&M, but others will come that aren’t in clothing and footwear.
I also think people underestimate the Australian retailers that are out there. Retailers like Smiggle and Cotton On have moved themselves offshore and continue to develop good business overseas.
What are your final thoughts on retail in 2017?
Greenberg: I’m optimistic about 2017. A lot of big retailers have done a lot of work to catch up with the connected shopper. Myer and JB Hi-Fi had a good Christmas and they deserve it, they’ve worked hard. Brands like Mon Purse with personalisation are also doing well.
We saw a really solid end to the year which heralds well for a good 2017. The fundamentals are strong—retailers just need to polish the diamond.
Zimmerman: It has been very interesting watching economists talk over last few months about a lack of consumer confidence. I think we could easily be doom and gloom as we’ve seen some retailers with difficulties like Payless, Pumpkin Patch and Howards Storage, but they have had inherent problems with some of their models.
There is still a great opportunity for retailers in Australia…retailing in Australia is in pretty good shape. I have a lot of confidence in the retail sector.
Marks: I think this year we will hear a lot more about online fraud perpetrated against retailers… I’ve been surprised how many times it keeps coming up and there’s no collective response yet. When it affects one it affects all…Retailers need to come together and we need a policing response at the national level.
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