There is nothing cyclical about the current downturn in bricks and mortar retail
There is a war going on between online and offline retail sales. The ever popular Charles Darwin found that is ‘not the strongest that survives but those that can adapt successfully to change’. Some traditional bricks and mortar retailers are still growing in the current climate. This says much more about their ability to adapt and change rather than their financial strength or the existing strength of their brands. The rule book about ecommerce is being re-written every day and to survive you need to adapt.
Since the onset of the GFC most traditional retailers and the media have been lamenting about poor consumer sentiment. To some extent they are correct however insufficient attention has been given to the structural change which is occurring in our economy. The march towards online shopping is now well and truly upon us in Australia. The opportunities for existing and new entrants to ecommerce shopping sites in Australia is enormous when you consider that online retail sales are still only accounting for 5% to 7% of total retail sales in Australia. The figure in the US and Europe is closer to 15%. However, the astute operators need to ‘drill down’ in order to prevent getting caught out. For example, there are now over 60 Group Buying sites in Australia but only a handful of them are making money and some are starting to experience declining sales – so even in online ecommerce not everything keeps going up!
The most successful online retailers are those operating with a ‘negative cash conversion cycle’, something very few bricks and mortar businesses can ever achieve. Companies such as amazon.com, overstock.com and bigshop.com.au are in the enviable position of receiving their cash before they actually purchase and ship the product. This allows these companies to have the use of your cash before they have even had to pay for the stock. The total reverse of most bricks and mortar stores that have to purchase the stock upfront for their shelves, hope it does not go out of date and hope it does not get stolen or damaged before someone actually walks into the store to buy it.
For shoppers there are a whole range of reasons why online is better than off line but consider the following:
1. Open 24/7.
2. There is more information available on a company’s products or services by the click of a button.
3. You are easily able to compare prices with comparison shopping sites.
4. Items are cheaper in online shopping carts.
5. There is 100% transparency around pricing.
6. You can easily read reviews and suggestions from other online shoppers.
7. Store staff do not hassle you.
8. There is no waiting to be served by store staff.
9. Augmented Reality allows you to try before you buy.
10. You save time.
For online retailers there are a whole range of reasons why online is better than off line:
1. You are not up for horrendous leases in shopping centres.
2. Set up costs are significantly less than with a traditional retail business.
3. Your customers can shop in your store 24/7 – you make money why you sleep.
4. You open your business up to over 9 Billion consumers worldwide, better than the 22 million in Australia.
5. It is often possible to achieve a ‘negative cash conversion cycle’.
6. You can run a multi-million dollar business with one staff member – yourself.
7. There is no shop lifting.
8. There is no issue with armed hold ups.
9. You can capture an immense amount of data about your customer’s want, which you can use to enhance and tailor your marketing efforts and thus improve your return on investment.
Some of the most successful online retailers are those who have both an online and an off line presence, however failing to embrace online retailing is setting your business up for certain failure or lower returns in the future. As we have outlined in previous Neto blogs, when entering the online world you need to do your research. At Neto we have developed a series of ecommerce white papers and we recommend both new and existing online retailers to read them. Each week the team at Neto brings on new Clients to our ecommerce shopping cart software from a wide range of other ecommerce shopping carts (mostly overseas providers) and many of these have experienced significant problems with their previous shopping cart provider, such as:
1. Lack of ability to fully integrate their online ecommerce shopping store with the various Australian freight companies, accounting packages and warehouse picking and labelling systems.
2. Poor transparency over pricing models.
3. In ability to speak with a real person and obtain assistance with technical problems.
4. Poor SEO ranking due to a number of factors including location and speed of website.
We are in the middle of a revolution with retail. We have not experienced anything like this since the industrial revolution. It is indeed exciting times for those retailers who are prepared to do some research, embrace change and enter the online retail world. Those who have never sold anything online or those who are currently selling online but are considering changing their online shopping cart provider can experience a test site by going www.neto.com.au/shop/
