Michael Baker
February 1, 2012
The Age
ANALYSIS
Here are 10 questions to answer before committing to an online-only future.
Australia’s major retailers have been in the firing line for more than a year, partly because they have failed to respond to the threat posed by online shopping.
The subtext of much of the criticism would have you believe that the icons of Australian retail are a bunch of lazy, whining bludgers.
Whether or not that’s true, you need to look on the bright side: if there is a “last mover” advantage to be had on technology then the big end of town has an enviable stranglehold on it. Sometimes it’s the last to be converted who exhibit the most missionary zeal.
The ironic part about it is that many independent retailers, all with much smaller balance sheets than the large chains, have been throwing themselves into e-commerce like there’s no tomorrow.
There is hardly a small retailer I’ve spoken to who isn’t moving toward an online-only or online-biased model. It’s remarkable how many ask me what the point is of having a bricks-and-mortar presence at all.
It is true that numerous independent retailers are operating right on the edge of viability and the focus on reducing operating costs is understandable. Yet the question of whether or not there is any use for a store shows a remarkable disregard for their benefits, even in the middle of the online revolution.
The fact remains that almost $9.50 of every 10 retail dollars spent in Australia is still spent in stores.
Almost every retailer has a mix of physical real estate and e-commerce and it is rare for that to involve no stores at all. The online and store channels are not alternatives but extensions of each other.
If you are a small retailer re-weighting toward e-commerce, here are 10 questions to answer before you decide to keep one or more physical stores. You may even come down in favour of expanding your store portfolio.
1. How commoditised is your merchandise? The more differentiated you are the more difficult it is to do justice to your products or services without a physical store. On the other hand, if you are just selling the same commoditised widgets as the next guy, the store may not matter and may simply put you at a cost disadvantage.
2. How important are visual merchandising and entertainment to the showcasing of your products? For categories like fashion apparel, if the answer is “not very” then you may not need the store. You may not be in business very long either.
3. To what extent is your product mix oriented toward instant gratification? The more tilted your merchandise is towards needs that require rapid satisfaction, the more necessary is the store.
4. Most consumers prefer the flexibility of shopping both channels. Is your business the kind for which a single online touchpoint serve its customers adequately?
5. Can one or more physical stores serve your online customers better by providing a location for online returns?
6. Can you serve your customers better by fitting out physical stores with the technology to make online purchases (store-to-site selling)?
7. Can a physical store help you by removing the expensive “last mile” of online selling – i.e. by providing a convenient physical location to pick up items ordered online (site-to-store selling)?
8. Shoppers who select products online and then buy in the store spend more than those who simply buy online. Can you train your pick-up staff to cross-sell and thus get more from your store asset?
9. To what extent does your product lend itself to demonstration and/or expert advice? For example, performance apparel is very difficult for a consumer to evaluate online even if he or she can get the fit right.
10. Is cost (labour, rent) the major reason you are exiting physical real estate? If so, the cart is probably leading the horse and you could find that your low-cost selling paradise is also a low-revenue one.
Bottom line is, evaluate the merchandise mix, customer motivations service requirements and the potential for synergies when deciding on the optimal real estate/e-commerce investment mix.
Paradoxically, stores might well be more valuable to you when the online channel is set up than they were before.
Michael Baker is principal of Baker Consulting and can be reached at michael@mbaker-retail.com and www.mbaker-retail.com.
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