E-tailing and the demise of the bricks and mortar store

Are the days of the traditional bricks and mortar store numbered?

Probably not.

What we do know is that the internet and online shopping has meant that consumers have access to more information, which is a good thing. At least for the near future (probably until we get flying cars and jetpacks), there will be people who will go to the bricks and mortar shops.

One way to look at it is to look at the banks, who introduced online banking about 25 years ago. Initially, everyone thought it would be the demise of bank branches, and for a while there, the banks withdrew their services at the branch. But as time has gone on, people have realised that the online bank provides some services, while the branch provides other services.

It’s also a matter of customer segments. Different segments shop in different ways. But there will always people who like the social aspect of shopping – whether they’re shopping with their friends, or whether they like the interaction with attractive people in clothing shops who tell them how great they look in that pirate shirt.

So, what retailers have to do is adjust their business model. There’s no turning back. The online shopping world is here to stay.

Retailers have to decide whether they want to simply resist, shrivel, and die, or whether they come up with innovative ways to use the online world. The big brands need to stop whingeing and get with the program. They have to recognise that they need to have both an online, and bricks and mortar presence, and use the different service environments to their advantage.

The big issue is that rather than asking the government to protect them, they should be innovating.

At the moment, only about 3 – 5 per cent of retail purchases are being made online. Access Economics figures showed Australians spent $19-24 billion buying goods online in 2009, representing about three per cent of total retail sales. The report also suggested that between 50 and 80 per cent of that amount was spent with Australian online retail outlets.

According to research conducted by the Australian Communications and Media Authority, the most popular online purchases in the past six months were travel tickets, accommodation, theatre and movie tickets, and some household goods. Twenty six per cent of those in the survey (n= 922) said that they had bought digital music online in the past six months.

So, we’re a long way off the entire population doing all their purchasing online, at least for the moment. The online retail world is growing much faster than the bricks and mortar world, but it is coming from a low base.

What we are seeing is that the small and flexible organisations are the ones who are best placed to be online. The reality is that consumers simply have access to more information, so are demanding more from their retailers. And the retailers are struggling with this new environment.

As I said before, this is just the way it is, so the big stores have to adapt. For a long time there, the big music companies resisted online digital downloads. But now, it is just commonplace. Once something becomes the norm, the market for it just grows, and we will see this in retail and in grocery shopping.

I think that any retailer that says to the government, “Please help us” is not approaching the issue with the right attitude. It’s pretty much their fault that they are not competing. As Amanda Gome says in her column on SmartCompany, “About a year ago [sic.] retail billionaire Gerry Harvey told SmartCompany that online retail sales were a dead end, prompting a huge number of our readers to write in telling Gerry that his website was so bad, they purchase their electronic equipment elsewhere.”

In this very revealing interview, Harvey went further and said that, ““If you’ve got a store you don’t think you’re making money in, but have good people, you’ve got to bite the bullet and just close it and move. It’s the same old story. You look at your people, you look at your advertising, buying prices, look at your stock. Good retailers are the ones who reassess everything.”

Good advice, Mr Harvey.

What we can see is that much of that online purchasing is cannabilising in-store purchasing AND that in general, retail purchasing is lower than in the past couple of years. The reality is that retail sales are down across the board since September. This is what is bothering Gerry, Solly and the big brands.

Probably a major contributor is the realisation amongst many consumers that (for the time being) they probably have enough “stuff”. The other variable in the mix, is the amount of credit in the economy, which has not dropped off significantly since the GFC. The reasons are varied, and online purchasing is part of it, but only a small part.

I am sure that the big stores are working away coming up with online business models, but what we might see in the short term is that the smaller retailers will do better for a time. The thing is that most consumers are, what consumer psychologists refer to as risk-averse, we actually would prefer to shop with the big brands, it is just that at the moment many are stuck in an old-fashioned retail model.

And I don’t think that a GST on products bought overseas less than $1000 is the solution. As I said, the numbers at the moment are small. A 10 per cent GST is unlikely to change consumer behaviour much, particularly on amounts below $1000. The savings from international online retailers, even with postage, tend to be more than 10 per cent.

Cameras, for example, can be between 15  and 50 per cent cheaper when bought via US site, B & H, when compared to Australian prices. Obviously, you are trading off “peace of mind” in relation to warranties, etc., and also the broader issue of Australian jobs, but when we are constantly being told to find the lowest price, I am not sure what Australian retailers expect us to do.

To put it another way, “They (the retailers) started it”, by constantly telling us we could “save, save, save” by shopping at their stores. So, we have been conditioned not to support the idea of buying locally, but to save where we can. As a teenager might say, “It’s your fault (retailers).”

And we are in a weird situation. When a US online store sells the same computer, jeans, or books for significantly less than an Australian retailer, even taking into account shipping costs, then I am not sure why the retailers want us to become advocates for them. We are simply responding to the environment that we live in. So, I think the bureaucracy involved in charging GST on goods below $1000 is likely to cancel out the income to the government.

So, I think that this is unlikely… in the short term.

Who knows, though. The Productivity Commission has a history of siding with the big brands, and those big retailers have friends in high places. It’s not always the most sensible outcomes that governments end up with.

This entry was posted in Branding, Consumer Behavior, Marketing Strategy, Social Psychology and tagged , . Bookmark the permalink.

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