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Australian RetailOutlook 2018

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| 32018 AUSTRALIAN RETAIL OUTLOOKwww.insideretail.com.au

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CONTENTSFOREWORD2018 AUSTRALIAN RETAIL OUTLOOK SURVEY RESULTS

WINNERS AND LOSERS by Azurium & Ferrier Hodgson

SFG ENTERS THE TRENCHESDEPARTMENT STORES LOSING GROUNDTOPSHOP OR TOPSTOP?CATCHING ONTO AUSTRALIAN RETAILINTERNATIONAL BECOMES LOCALFRANCHISES FUMBLELOVISA: SHINE BRIGHT LIKE A DIAMOND

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2021222324

RETAIL TRENDS by Azurium & Ferrier Hodgson

AMAZON: WHAT YOU NEED TO KNOWWHY MILLENNIALS MATTERVR/AR: EXPLORING NEW WORLDSCHANGE THE WAY YOU PAYNEW INSOLVENCY LAWS SET TO CHANGE

2629303132

RETAIL PROFILES

T2: WHY THE WORLD LOVES A GOOD CUPPASPAR: BUILDING ON THE FOUNDATIONSOPORTO: RETELLING THE STORYGPT: GLOBAL OUTLOOK, LOCAL CONNECTIONFLORA & FAUNASUPER RETAIL GROUP: DRIVING TECHNOLOGICAL GROWTHGELATISSIMO: HOW SWEET LIFE ISHARROLDS: LAP OF LUXURYSYDNEY AIRPORT: FLYING HIGH

343638404244464850

EXPERT FORECASTS

AZURIUM: CHANGE IS A-COMIN’AZURIUM: DISRUPTION IS REALAZURIUM: BIG DATA, BIG DEAL?CRITEO: 3 MARKETING TRENDS TO WATCHNETSUITE: 6 RETAIL PREDICTIONSSENDLE: DELIVERING SUCCESS FOR RETAILERS

535455565758

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www.insideretail.com.au

FOREWORD

2017 in reviewWERE I TO GIVE SOME SIMPLE ADVICE TO AUSTRALIAN RETAILERS OVER THE NEXT 12 months, it would be to focus on putting the customer first, innovating, investing and being patient – similar concepts to Amazon’s underlying philosophy.

Now, 18 years down the track from the ecommerce giant’s launch, these ideas are more relevant than ever.

Amazon’s landfall in Australia late last year lacked the fanfare most were expecting. But be patient, no doubt the company will reshape the local market considerably over the next three years. That will be good news for some, but bad news for others.

Millennials and marketplaces were the flavour of the year when Amazon arrived. Local online player Catch Group shored up its offering by launching its own marketplace equivalent, and has seen sales boom. Retailers also spent the year trying to unlock the minds of millennials, soon to be the largest age demographic in Australia, and increasingly becoming the biggest spenders in the nation.

UNDER PRESSUREDepartment stores, international players and franchise business models all came under pressure last year. Topshop succumbed to the competitive pressures of its international rivals and Myer continued to underwhelm investors with its inability to deliver better customer experiences.

There is no doubt this year will bring fresh challenges and opportunities for retailers. New law reforms present a significant opportunity, putting Australian retailers in prime position to respond to the government’s innovation agenda by experimenting with new technologies such as virtual reality and cashless payments to deliver better customer experiences.

At Azurium and Ferrier Hodgson, we believe Australia’s future successful retailers will be customer centric, innovative and invest in their long-term future through offering digital and physical experiences.

Here’s to an exciting year ahead for Australian retail.

JAMES STEWART, Partner, Head of Retail – Azurium, Ferrier Hodgson

Law reforms present a significant opportunity, putting Australian retailers in prime position to respond to the government’s innovation agenda by experimenting with new technologies.”

“

AUSTRALIAN RETAIL OUTLOOK 2018 4 |


SURVEY: AUSTRALIAN RETAIL OUTLOOK 2018


AUSTRALIAN RETAIL OUTLOOK SURVEY 2018

The results are inFrom retailers’ concerns around the entry of Amazon to their areas of investment and greatest challenges for the year ahead, here are

the findings from the Australian Retail Outlook Survey for 2018.

The 2018 Australian Retail Outlook Survey reached 266 local retailers and 90 related industry members.

Thirty-one per cent of retail respondents identified as c-suite executives, owners or Board members and 37 per cent worked at businesses with more than 400 people.

33.9 per cent trade in the apparel and accessories, category, while 33 per cent work in general consumer goods, 19.4 per cent work in food/grocery/quick service restaurants and 13.5 per cent work in household goods.

All data is in percentages.

Here, respondents paint a telling picture of deteriorating retail conditions. The proportion of retailers who classified trading conditions as ordinary increased to 44 per cent in 2017 from 25.5 per cent in 2016. However, the proportion of traders either characterising conditions

as the best or worst that they have experienced decreased, illustrating a move on the middle when it comes to sentiment.

Interestingly, when comparing executive responses to non-executive ones, a sizable gap emerges in

sentiment. 17.3 per cent of executives classified trading conditions as poor, while only 11 per cent of non-executives did. Meanwhile, 43 per cent classified trading conditions as ordinary compared to only 31 per cent of executives.

Q.1 How would you describe trading conditions in the past 12 months?

EXECS NON EXEC TOTAL

4.4 40.6 31.9 17.4 5.83.8 38.5 43 11.5 3.1Best I have

experiencedGood Ordinary Poor Worst I have

experienced

6 | AUSTRALIAN RETAIL OUTLOOK 2018

2.5

37.2

44.1

12

4


Forty-two per cent of retailers said 2017 trading was better than the prior year, down from the 47.5 per cent of respondents who indicated better trading over the last 12 months in the 2017 survey. Just over a quarter (27 per cent) said conditions had worsened, which is more or less the same as last

year. Thirty per cent said conditions have remained about the same over the last year.

There is a significant gap between how small and large traders have fared, though. Respondents from companies with 401+ employees were more likely to signal an improvement in trading

than businesses with 1-25 employees.Just over 42 per cent of large

retailers reported improved conditions, compared to 34 per cent of small retailers. Twice as many smaller traders also reported significantly worse conditions, as opposed to just slightly worse.

Respondents were asked to choose the three most significant challenges the retail sector is facing in 2018. Nearly half (49.4 per cent) selected both discounting and consumer confidence as the primary issues, followed by rental overheads (36.8 per cent), international entrants (40.7 per cent) and offshore online retailers (37.7 per cent).

Other comments included identifying and attracting talent, meeting escalating product delivery expectations, import costs and declining foot traffic in shopping centres.

The top concerns in 2017 echoed those from last year. However, the level of concern about government regulation, taxation and private label declined significantly from the 2016 survey. ►

Q.3 What are the most

significant challenges facing the retail industry in 2018?

401+ EMPLOYEES

9 33.6 32.8 23 1.611.8 23.6 34.6 21.8 8.1

Significant improvement

Slight improvement

Remained about the same

Slightly worse Significantly worse

1-25 EMPLOYEES TOTAL

Q.2 How did 2017 compare to 2016?

Discounting

Consumer confidence

International entrants

Offshore online retailers

Rentaloverheads

Labour costs

Global economic

factors

Value of AUD

Private label

Government regulation

17.5

16.5

13.913

12.6

10.1

5.5

3.43 1.9

10.9

31.130.2

22.3

3.91


Ecommerce and omnichannel emerged as the two biggest priorities for retailers in this year’s survey, with over 60 per cent of total respondents outlining those areas as points of focus for 2018.

Interestingly, entering new markets was a close third, with more than 50 per cent of respondents indicating this would be something they plan to do in 2018. Optimism in this area was highest among larger businesses, with most small businesses outlining product range expansion as a priority for the year ahead.

All retailers surveyed this year overwhelmingly said they were planning to invest more in digital and online in 2018 (76 per cent). Last year, 42.9 per cent of respondents said they don’t sell online – a sentiment that has clearly changed over the last 12 months, with the majority of small retailers also saying they will be investing more in online this year.

Q.4 What will be the top priorities for your business be in 2018?

Q.5 Describe your

businesses’ level of focus on digital and online in 2018.

79

.98

M

OR

E I

NV

ES

TM

EN

T

AB

OU

T T

HE

SA

ME

LE

VE

L

OF

IN

VE

ST

ME

NT

1.12

LE

SS

IN

VE

ST

ME

NT

22

.91

1-25 employees

26-99 employees

100+ employees

Closing stores

1.5 2.4 2

Ecommerce

22.2 20.8 21.6

Omnichannel initiatives

19 18.4 25.3

Expanding store network

6.2 12 11.2

Entering new markets

18.6 22.4 12.9Expanding product range

21.1 11.2 11.5

Reducing product range

4.1 4.8 5.3

Rebranding

4.1 8 5.6

Other (please specify)

3.1 4.5


Q.6 What’s your

attitude towards international retail entrants in 2018?

Only 35 per cent of retailers said they were not worried about international entrants in 2018, down a staggering 23.7 per cent from last year, when more than half of respondents declared they were not concerned.

However, there is a disparity between concern expressed by retail executives and non-executive staff members. Sixty-three per cent of non-executive staff members said they were more concerned about international entrants in 2018, while only 36 per cent of retail executives shared that concern. Around half of retail executives still believe there is no reason to be concerned.

While 31 per cent of retailers said they don’t view Amazon as a competitor, only 36 per cent who believe the American ecommerce giant will impact their business said they are prepared.

Of those respondents, most intend to

compete with a unique proposition that Amazon is unable to replicate, while only 15.5 per cent said they will compete by price matching.

Respondents were surveyed before Amazon launched locally last year. ►

More concerned Less concerned Not concerned

EXECS NON EXEC TOTAL

Q.7 Do you believe your business is ready for the impact that Amazon will have on the Australian retail market?

YES NO NOT A COMPETITOR

26-99 employees

100+ employees

1-25 employees

21 21 58

40.3 29 30.6

34.9 29.4 30.6

36.2 63.8 13 11.5 50.7 24.6

54.3

12.1

33.7

AUSTRALIAN RETAIL OUTLOOK 2018 10 | www.insideretail.com.au

Without a doubt, one of the most interesting findings from this year’s survey was sentiment towards product discounting. While 62 per cent of respondents said they intend to discount less in 2018, 38 per cent intend to discount more.

What’s interesting is that of those looking to discount more, 14.8 per cent are concerned about the practice – an indication that many retailers feel caught in a downward spiral of constantly compressing margins that they are unable to escape from.

Sixty-four per cent of retailers expressed confidence in the relevance and freshness of their product offering heading into 2018, while 35.5 per cent either signalled room for improvement or complete irrelevance.

However, 38.5 per cent indicated that while they are confident in their product offering there’s room for improvement, compared to the 25.9 per cent who expressed high levels of confidence in their offer.

Q.10 How do you think

consumer expectations will change in 2018?The overwhelming majority of respondents (76.7 per cent) are of the view that consumer expectations will increase in 2018, with only 21.2 per cent expressing a belief that they will stay about the same and two per cent expecting a decrease.

Nearly half of respondents (46.5 per cent) think the scale of that increase will be rather slight over 2017, while 30.17 per cent think expectations will increase significantly.

Q.8 What is your attitude towards

product discounting in 2018?

Concerned – plan to discount more

Concerned – plan to discount less

Not concerned – plan to discount more

14.8

62

23.2

Q.9 What do you think

about the freshness and relevance of your product offer currently?

Very confident that product is relevant and fresh

Confident that product is mostly relevant and fresh

Room for improvement in product

Product is irrelevant and old

26

33.5

38.6

2

30.2

46.6

21.2

2

Increase significantly

Increase slightly

Stay about the same

Decrease


While most respondents believe customer expectations will increase, there’s much less agreement about what areas those expectations will increase in. Asked to select two areas that they anticipate customers to raise

the bar on in the coming year, retailers primarily opted for price and customer service.

However, a significant portion of retailers said online delivery speed and options would be the two areas

consumer expectations will likely increase in. Together, these four factors outstrip expected concern about product quality, variety, freshness and in-store digital functionality significantly.

While the clear majority of retailers believe they are capable of satisfying key consumer expectations, only 36.5 per cent think they are capable of satisfying most expectations.

Interestingly, executives are much more confident in the ability of their businesses to satisfy most consumer expectations (48.5 per cent) than those working below the executive level (38.9 per cent).

A concern is the 8.9 per cent of respondents who say their businesses are unable to satisfy most consumer expectations. ►

Q.11 What areas do you think consumer expectations will increase the most in?

Product freshness/relevance

Product variety

Product quality

In-store digital functionality

Customer service

Price

Online delivery speed

Online delivery options

exec

non exec

0 5 10 15 20 25 30 35 40 45

Q.12 Do you believe your

business is positioned to meet consumer expectations in 2018?

Capable of satisfying most expectations

Capable of satisfying key expectations

Lack of ability to satisfy most expectations

Unable to satisfy key expectations

exec

non exec

21.7

21.3

17.8

17.1

7.7

4.2

7.3

2.8

19.6

19.6

18.2

17.6

7.4

8.8

4.7

4.1

39

51.2

8.9

0.9

48.6

40

8.6

2.9

Facebook and Instagram are the clear favourites among retailers when it comes to social media, attracting 74 per cent and 52 per cent of respondents’ votes respectively.

Tied for third with native content is LinkedOn, (26.5 per cent), which is significantly higher than Twitter (7.2 per cent). This is interesting, primarily because retailers are consumer-facing businesses and LinkedIn is primarily a business-facing social network.

This year’s social media results are broadly in line with last year’s, although the gap between Twitter and Linkedin has widened. Encouragingly, the proportion of retailers who said they are not using social media has declined from 15.2 per cent to five per cent.

Q.13 What social media channels do you believe are most effective for your business?

Pinterest

Twitter

Snapchat

WeChat

Don’t use social media

Blog/native content on

website

LinkedIn

Instagram

Facebook

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ARO SURVEY 2018

2018: A crystal ball look into the futureIt is set to be a fascinating year in Australian retail as one particular US ecommerce giant has finally landed on our shores and local businesses and gearing up for another challenging yet hopefully rewarding 12 months.

AHEAD OF ITS LAUNCH LATE LAST YEAR, ECOMMERCE GIANT Amazon’s message for its Australian partners was “Let’s make history!”, but in many ways in the US juggernaut had already made history Down Under, from the breathless media interest its entry generated to the millions of Australians who have already been customers for years.

Undoubtedly, 2017 was the year of Amazon, and while commentary of its initial impact on the market appears to have been overplayed, if incumbent retailers are not careful 2018 will be as well.

The Amazon flywheel – formed from a bedrock of yet-to-launch services like Fulfilment by Amazon, the Prime loyalty program and voice assistant Alexa – is just getting started. If you believe the stock pickers paid to assess the future of the market, the chickens will eventually come home to roost.

But Amazon chief Jeff Bezos is not the only retail heavyweight with his eye on Australia. Debenhams, Decathlon, Kaufland, Miniso and TK Maxx last year joined a fast-growing group of global

players like Aldi, H&M and Uniqlo in challenging the retail orthodoxies that have prevailed for decades in the Australian market.

Competition is more fierce than ever, and with Bezos rounding out the vanguard of international players it has become clear that not everyone can make the cut. David Lawrence, Howards Storage World, Marcs, Oroton Group, Rhodes & Beckett, Surfstitch, Diana Ferrari and Maggie T are just some of the high-profile retail failures from the last year, following on from a worrying trend that began with the likes of Payless Shoes and Pumpkin Patch in 2016.

SOMETHING IS WRONGTogether, the collapses have rounded out a prevailling consensus among retail watchers that something is wrong. Retailers themselves appear to understand that. Perhaps the most significant finding from this year’s Australian Retail Outlook survey, run by Inside Retail, was a staggering turnaround in concern about international entrants.

More than half of the 350-plus respondents said they are more concerned about international entrants this year than last, compared to the 41 per cent who said they were worried about international players in 2016.

International entrants were also among the top three concerns for retailer executives last year, alongside excessive discounting and dwindling consumer confidence.

BY MATTHEW ELMAS

Amazon chief Jeff Bezos is not the only retail heavyweight with his eye on Australia.”

“


Together, these factors paint a fairly telling picture of what happened in Australian retail last year. When read together with capital expenditure plans outlined by prominent brands, they also show what incumbent retailers will be doing to respond this year.

CLEAR CONCERNIf Amazon was the most consistently addressed topic by retail CEOs in public commentary last year, then the well-cited “subdued trading environment”, also known as “difficult trading conditions”, is a close second.

Consumer confidence was a clear concern among retailers surveyed, with 49 per cent outlining it as one of the top three problems facing the sector this year. While 44 per cent described trading conditions as ordinary over the past 12 months, 16 per cent said conditions were negative. Fewer than 40 per cent were positive about the current trading environment.

That sentiment is borne out in official data, with the Australian Bureau of Statistics (ABS) pegging year-on-year retail turnover growth at 1.8 per cent as of October – 73 per cent below the pre-GFC 10-year average of 6.8 per cent, and 56 per cent below the post-GFC eight-year average of 4.18 per cent.

Plenty of macro-economic factors underpin the lacklustre discretionary spending, from low wage growth to growing utility prices and stretched household savings.

MIXED PREDICTIONSWill there be an improvement this year? Federal Treasury is forecasting a relatively strong 3 per cent increase in household consumption for 2018-19, which it claims will be driven by household savings and a predicted upturn in the labour market, with wage growth expected to pick up as a result.

However, Treasury has been wrong before, particularly about wage growth. Others are predicting a tightening of labour markets, including Deloitte Access Economics, which notes that full-time jobs rose 1.9 per cent between December 2016 and July last year.

Underemployment still sits around 9 per cent, which is historically high, and two forecasted rate increases by the RBA next year could dampen any resurgence in household consumption.

The Westpac-Melbourne Institute consumer confidence measure is sitting just above the neutral point at 0.44 per cent. It is a fragile figure, as Westpac’s chief economist Bill Evans has noted, but it could be worse.

Nevertheless, among large retailers that have provided trading guidance

for the next 12 months, most anticipate difficult conditions to continue.

DISCOUNTING CONCERNAs consumers keep a tighter hold on their wallets, retailers are working harder to get people through the door and to the checkout.

Enter discounting, an age-old retail tradition that has become the topic of much discussion among retailers. There is growing sentiment the current level of promotional activity in the market, particularly in apparel, is unsustainable. A staggering 76 per cent of retailers surveyed said they are concerned about discounting, and while 62 per cent plan to discount less, 14.6 per cent said they will discount more this year despite being worried.

This shows the difficulty being faced by many retailers. In this real-world example of game theory at work, it is a question of who blinks first. Those who opt to discount less to protect margin will likely see volume fall as a result, as Specialty Fashion Group CEO Gary Perlstein experienced last year.

But too many customers have become accustomed to deep, and ultimately unsustainable, markdowns, either holding off buying items at full price or no longer becoming enticed by 20 to 30 per cent discounts.

The increasingly crowded retail calendar has not helped. A chain of shopping events stretches from end-of-financial-year to Click Frenzy, Singles Day, Black Friday, Cyber Monday and, ultimately, Boxing Day. This says nothing of all the mid-season and end-of-season sales that have seemingly made the phrase “limited time offer” meaningless.

NOT ALONEThis point has been at the heart of Premier investments chairman Solomon Lew’s criticisms of Myer and its clearance floors in the past six months, but the department store is not alone in finding itself between a rock and a hard place.

Freedom Furniture has put its foot down on the practice, announcing it will not run any more sales, clearance or otherwise, and will live with whatever consequences the market brings its way.

But there are other ways to evolve the traditional “push” retail philosophy to succeed in the increasingly “pull”-focused landscape.

The use of data to drive personalised retail experiences, investment in non-transactional brand engagement and improvement in digital integration more generally have emerged as key factors ahead among survey respondents.

In fact, 77 per cent of respondents believe customer expectations will grow this year, with delivery and speed, customer service and price emerging as the most prominent areas. ►

International entrants were also among the top three concerns for retail repondents last year.”

“


the three most significant challenges facing the retail sector – more so than labour costs (43 per cent) and even international entrants (27 per cent).

Encouragingly, the growing influence of ecommerce has provided a degree of flexibility for executives who have held on to underperforming stores in a bid to guard market share.

BENEFIT FOR ALLAccording to UBS, total online penetration sits at slightly more than five per cent, but as ecommerce eclipses 10, 20 and even possibly 30 per cent of total sales for many large brands, the same amount of in-store activity will not be necessary to achieve consistent earnings growth.

Importantly, Amazon’s entry into the market is expected to drive faster growth in online penetration in the coming years, which will benefit the entire market. As scale builds, delivery

will become cheaper, and the adage that Australia is an impossible logistical hurdle may begin to be challenged.

Last year, Harvey Norman and JB Hi-Fi moved to improve their delivery offers ahead of Amazon’s arrival, moving to next-day and same-day delivery on certain orders, as more established ecommerce players began looking at making next-day standard.

When viewed in combination, the challenges that weak discretionary spending, systemic discounting and increasing competition pose for the sector this year seem daunting. But aside from just identifying the problems, the survey has also unquestionably found that traders are actively working to try and overcome them.

That in itself is reason for optimism, even if the trading environment continues to claim scalps over the next 12 months.

However, there was less confidence among retailers about their ability to meet these expectations. Only 36 per cent believe their businesses will be capable of satisfying most of their customers’ expectations this year, with 53 per cent saying they believe key expectations can be met.

MORE DIGITALIf last year was about rethinking how retailers can modernise their business models to take advantage of consumer demand for digital, then this will be the year it is implemented. A definitive 99 per cent of our survey respondents said their businesses will at least maintain their investment in online this year, while more than two-thirds said they plan to increase their investment.

Leading the push are the largest players in the market, from Woolworths’ new on-demand delivery and in-store pickup services to Super Retail Group’s $100 million-plus digital investment and Myer’s new online marketplace offer.

The increasing focus on digital is coinciding with a growing understanding among large retailers, particularly in the apparel and department-store categories, that there is simply too much retail space.

ONLINE SALES GROWTH1. Premier Investments – 43.3 per cent2. Myer – 41per cent3. JB Hi-Fi Group – 38 per cent4. Woolworths (AU Food) –

15.8 per cent5. Specialty Fashion Group –

15 per cent

Australian Retail Outlook Survey 2017. All figures full year FY17.

While Australia is far less exposed to excessive retail space than the US, which has been hit by the so-called “ghost mall” phenomenon in recent years, consensus has built that generating sales productivity in the future may mean cutting down on square metres rather than just driving more sales through stores.

Australian Pharmaceutical Industries, Billabong International, Myer, Premier Investments and Specialty Fashion Group, plus discount department stores Big W and Target, are all looking to wind back leasing commitments this year with an eye to reducing floor space. Much of the sentiment hinges on how landlords respond to criticism from retailers that rental terms are out of step with the reality of retail trading conditions.

Of retail executives surveyed, 47 per cent cited rental overheads as one of


WINNERS AND LOSERS

AUTHORS

James Stewart, Partner, Head of Retail – Ferrier Hodgson, Azurium

Ian Renwood, Partner, Head of Digital – Azurium

Dr Ian Tho, Executive Director, Head of Analytics – Azurium

Neeraj Sharma, Partner, Head of Performance Improvement – Azurium

| 172018 AUSTRALIAN RETAIL OUTLOOK

SFG enters the trenchesNow that CEO Gary Perlstein has stepped down and store closures are ahead,

can the troubled apparel group weather the rocky waters that lie ahead?

WINNERS AND LOSERS

IT HAS BEEN A CASE OF BOOM-THEN-GLOOM FOR SPECIALITY Fashion Group (SFG), the conglomerate behind Katies, Millers, and Rivers. The group reported 6.6 per cent EBITDA growth in FY17 and 38 per cent reduction in net debt.

Its biggest delight was the turnaround of the iconic yet troubled Rivers brand, acquired in 2013 for a bargain basement price of $5 million (against annual revenues of $180 million), and achieving its first profitable year under SFG’s ownership.

However, there were signs late last year that it was not all blue skies for SFG.

Management instability began to show in March with the departure of brands general manager Tony Brown, followed by the appointment of a new CFO in June – the third in less than three years.

Then in November, after 14 years at the helm, Gary Perlstein announced he was stepping down as CEO. This came less than a month after SFG announced a profit downgrade, anticipating FY18 EBITDA to be between $12.6 million and $15.6 million, less than the previous year because of “increased competition and subdued consumer confidence” coming into this year.

Clearly disgruntled, shareholders sent SFG’s stocks tumbling and at the November AGM, shareholders voted against the board’s renumeration,

representing a “first strike” against the board.

CLOSING STORESSFG has responded dramatically, announcing an accelerated store rationalisation project with plans to close 300 stores by 2020. The program is to be significantly front-ended, with 100 store closures slated for this year alone. The Australian Financial Review reported that most of SFG’s loss-making stores are under Autograph and Crossroads which, along with Katies and Millers, have had falling sales and heavy promotional activity.

While SFG has not said how many employees will be affected by the closures, a 30 per cent reduction of its store footprint, combined with an

emphasis on cutting business costs, could place as many as 1,000 jobs at risk.

These developments throw up plenty of red flags for SFG at a time when the likes of Amazon is set to cause upheaval among even the largest Australian retailers.

But the shining light in the group’s performance is its City Chic plus-size womenswear brand, which has seen success in its international expansion, wholesaling to department stores like Macy’s and Nordstrom, and launching a US website.

There are clearly battles ahead for SFG, which is banking on an enhanced digital omnichannel offering and rationalised store network to find favour with its shareholders and Australian customers this year.

SFG has responded dramatically, announcing an accelerated store rationalisation project with plans to close 300 stores by 2020.”

“

BY JAMES STEWART, Partner, Head of Retail – Ferrier Hodgson, Azurium and NEERAJ SHARMA, Partner, Head of Performance Improvement – Azurium


Department stores losing ground

Solomon Lew may be breathing down Myer’s neck, but David Jones has also had a massive drop in sales lately.

WINNERS AND LOSERS

MYER HAS APPEARED ON Australian Retail Outlook’s winners and losers scorecard for the past three years – once as a winner and now twice as a loser. As the department store chain reaches the midway point of its $600 million, five-year transformation strategy, it is yet to show signs of a sustained turnaround.

EBITDA has fallen from $350 million in FY11 to $195 million last year, while revenue has slipped backward for the past two years. There has also been negative like-for-like growth of 2.1 per cent for its September quarter. One of its major investors and suppliers, Solomon Lew, is on the warpath, demanding board seats and a whole new strategy.

TPG sold its controlling stake in Myer (around 80 per cent) via a public float in 2009 at $4.10 a share. Since then, the company has consistently failed to meet investor expectations (at the time of writing, the share price sat at 72 cents).

Acknowledging tough retail conditions, Myer has closed three stores. In a November strategy update, it has acknowledged a serious need to restructure, downsize or shut a further 19 stores. It also took abnormal write downs of about $46 million on its investment in the failed Sass & Bide and Topshop franchises.

MASSIVE DROPCompetitor David Jones also appears to be succumbing to the tough retail conditions, reporting a meagre one per cent year-on-year revenue increase, according to parent Woolworth’s Holdings which, in the face of rising costs, has had a 26 per cent drop in net income. Disturbingly for David Jones, in its September quarter it was hit by a massive 5.2 per cent drop in like-for-like sales, which in relative terms makes Myer look good.

However, David Jones may have some mitigating factors working for it,

Declining department store sales in the US are even below levels seen during the 2008-2009 GFC.

US apparel retail sales – Performance by channel (2016 CAGR)

Department store sales growth

Source: Fung Global, Euromonitor, 2017

Source: BAC Interntal Data

DEPARTMMENT STORES

MASS MERCHANDISERS

GROCERY RETAILERS

OVERALL

SPECIALTY STORES

ONLINE

-7%-3%

1%1%

3%15%

5%

0%

-5%

-10%

-15%

-20%2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017



including major refurbishments at key Bondi and Elizabeth Street locations in Sydney, as well as an upgraded inventory management system.

For comparison, Woolworth’s sister retailer Country Road had a five per cent revenue increase despite flat net income and 0.4 per cent like-for-like sales growth.

For department stores, the elephant in the room is Amazon’s arrival. Stores in the US have already felt the impact of the online giant’s continued growth. Macy’s and Sears, for example, have closed hundreds of stores and reported results well below analyst expectations.

LESS FOOT TRAFFICSince the introduction of ecommerce and resale websites like Ebay, foot traffic has fallen for many physical retail categories. Department stores have tried to regain market share through discounting, improving omnichannel offerings and selling bargain luxury items from off-price subsidiary brands.

Myer has followed a similar path, announcing in September it would open off-price departments in pilot stores around Australia. But its continued performance suggests this strategy is not working as it struggles to move its customers away from

waiting for seasonal clearance sales.Adding to Myer’s woes is the

disruption from major investor Solomon Lew and Premier Investments. While the Lew camp has said publicly it does not intend to pursue a takeover, its constant criticism of the Myer board’s competence only detracts from the department store’s public image.

We believe the headwinds facing the department-store model in Australia and internationally are as strong as they have ever been. Lessons from the US show that the mainstream model is seriously exposed to threat from online competitors and low-price and off-price retail models.

Constant criticism of the Myer board’s competence only detracts from the department store’s public image.”“

Topshop or Topstop?

WINNERS AND LOSERS

TOPSHOP BECAME “TOPSTOP” LAST YEAR WITH ITS AUSTRALIAN and New Zealand businesses being placed into external administration. This followed the failure of its UK parent to provide extra financial help for the struggling local franchises.

Established in 1964, Topshop has more than 300 stores in the UK, and although successful in its homeland with reported sales exceeding £2 billion ($3.4 billion) in 2016, its international pursuits have been significantly less successful.

Its five franchised stores in Japan were shuttered in 2015 after reported profits of ¥3.5 billion ($A40.7 million) the previous year. When the stores were abruptly closed overnight, the news spread across social media that the stores were never to re-open. Topshop’s products are now

available in Japan, but only through online retailer Zozotown.

Since the Australian franchise opened its initial store in 2011, its rollout has grown steadily with total revenue passing $84 million in 2016. However, the high cost of sales, poor inventory mix (driven by a product-push business model) and unfavourable franchise terms pushed out net losses to $2.8 million.

Topshop Australia also opened 17 concession stores in Myer’s department stores after Myer bought a 25 per cent stake in 2015 for about $10 million. These have all closed, along with five of the nine standalone stores. The remaining four stores were bought back by the UK parent in hopes of reviving the brand in Australia, while the New Zealand stores closed after the receivers and managers could not find a buyer.

Offshore brands often need significant product curation and brand story to achieve the right levels of customer engagement.”

“The stores in Australia, New Zealand

and Japan were all run under a franchise licence agreement with the parent entity in the UK, owned by Sir Philip Green. He has had more than his share of controversy in recent years, including his disastrous investment in British Home Stores which collapsed in 2016. It reportedly cost him £360 million last year to settle associated litigation with the business’s employee pension fund.

FATE SEALEDWith a sub-optimal product mix, combined with onerous franchise fees, it was difficult for local Topshop franchisees to offer competitive prices against the likes of H&M and Zara (both parent-owned businesses in Australia). This led to unhappy customers and slow sales growth, ultimately sealing the brand’s fate.

This tale raises the question of what constitutes an optimal working structure for an international retailer entering Australia.

UNDERSTANDING DOWN UNDERInternational brands that adopt a licence or franchise model for the Australian market often struggle to adjust product mix and price architecture correctly – think Gap, G-Star Raw, Abercrombie & Fitch and Hollister. All domestic markets have their nuances, and offshore brands accordingly often need significant product curation and brand story to achieve the right levels of customer engagement.

This is often not recognised by international parent brands, and their failure to do so can only make success in Australia elusive.




Catching on to Australian retailAn Aussie business success story in the making, ecommerce retailer Catch is

one of the few retailers who are well-armed in a battle against Amazon.

WINNERS AND LOSERS

JUST 12 YEARS AGO, CATCH GROUP (THEN KNOWN as Catch of the Day) offered just one product on its website that consistently sold out, thanks to careful buying and attractive pricing.

Then, the company’s co-founders, brothers Gabby and Hezi Leibovich, decided to apply the same model on a larger scale. This saw the duo transform the group into one of Australia’s largest online retailers, offering tens of thousands of brand name products across broad market segments. And despite recent threats to the retailing industry, sales continue to rise.

Amazon’s arrival in Australia poses the largest threat to Catch’s business model, but the brothers have sought to stake their claim on the local market, launching a preemptive strike on the American retailer by announcing a new Marketplace offering in June making even more products and vendors accessible to their three million customers.

Some time ago, the Catch Group came to the realisation that alone they could not be everything to everyone. However, launching Marketplace gives Catch the ability to offer its customers a far greater product range without investing further capital in physical expansion. Five months down the track, Catch Marketplace had teamed up with 653 vendors, spoiling customers for choice with access to an extra 273,000 SKUs and plans to increase this to one million.

Much like Amazon’s Marketplace, the Catch Marketplace represents an exciting opportunity for brands, particularly smaller vendors that do not have the necessary resources and advertising spend to reach a larger customer base.

POSITIVE RESPONSESo far, the response to the move has been overwhelmingly positive from both vendors and customers. Weekly sales of $1.3 million have contributed more than 18 per cent of Catch’s product revenue. Marketplace is well on its way to achieving a first-year revenue contribution of $100 million, 30 to 40 per cent of Catch’s total annual revenue.

Catch has also made solid inroads in addressing the issue of a warehouse at a full capacity. Almost $20 million has been invested to commission its AutoStore robotic system from SwissLabs, which has greatly enhanced its storage and outbound logistics capability. The warehouse can now hold 40,000 SKUs, up from 8,000 before the system’s installation, while dispatch times have been cut from seven to 1.6 days. Greater breadth and depth of the product range has in turn driven significant sales growth of 30 per cent year on year (excluding Marketplace contributions).

Catch Group expects to continue to innovate and improve its customer offering, with plans to launch a service like Fulfillment by Amazon for Marketplace. Though still in the conceptual stage, the platform will allow Marketplace vendors to store their products with Catch with its team picking, packing and shipping their items.

As it continues to push forward with innovative technology adoption and product range development, Catch is set to become a pure-play trailblazer in Australia. It is great to see a local business taking on the international heavyweights.

The Catch Marketplace represents an exciting opportunity for brands, particularly smaller vendors that do not have the necessary resources and advertising spend to reach a larger customer base.”

“



International becomes local

Last year saw the entry of several overseas brands in Australia, each offering something new to shoppers. How do local retailers stack up by comparison?

WINNERS AND LOSERS

INTERNATIONAL BRANDS CONTINUE TO SWEEP into Australia and take a grip on the market. Among them, Debenhams, JD Sports, Decathlon and Kaufland each offer a special value proposition for Australian customers. French retailer Decathlon opened its first store in NSW late last year. With global revenues of $15 billion and 1,200 stores in 30 countries, the ‘Bunnings of sporting goods’ has plans to open around five stores per year Down Under, eventually aiming for a 100-store network. Decathlon is not likely to upset major sporting labels like Nike and Adidas, as it sells mainly private label products. But the likes of Rebel Sport, Foot Locker and BCF should be shaking in their hiking boots.

JD Sports arrived in April with an extensive range focused on athleisure. Unfortuntely, local brand Rebel Sport does not stock the width of range nor the exclusive apparel that JD offers.

Athleisure is the fashionable t-shirt-and-trackpants combo of the 2010s. The casualwear has led to the rise of brands like 2XU, Lululemon and Under Armour. JD Sports plays heavily to this trend, stocking all the major labels and the latest styles.

Meanwhile, Debenhams has boldly aimed at the ailing department store sector, opening its first store in Melbourne in October. The British retailer is differentiating itself by understanding the needs of its core demographic – the time-

poor, over-35 business person. It provides changerooms at the click-and-collect counter and portable POS systems so purchases can be made anywhere in the store. The app will also allow customers to reserve items and try them on in-store.

Both Debenhams and JD Sports have avoided historical launch discounts and sales, relying on their reputations to lure in customers. Debenhams focuses on minimising stock levels to avoid off-season discounts and to stay on trend with styles.

As the world’s fourth largest grocer, German discount retailer Kaufland has more than 1,230 stores worldwide. Last year, it acquired land outside of the Adelaide CBD to open a flagship store in Forestville. The parent entity has locked down local trademarks and invested $43 million into its local venture, suggesting it is not stopping at one store.

Each of these retailers is quietly confident about growing its market share in Australia. Not only do they have brand history and years of expertise, but they are bringing a new product offering.

That said, the Australian market has its own particular style and nuances which new retailers will need to understand if they are to succeed. Meanwhile, just the arrival of international players means competitive pressure is here to stay.



Franchise fumbleAs more franchises run into trouble, retail rents continue to rise and legislation becomes increasingly strict, it is certainly not an

easy time to run an Australian franchise.

WINNERS AND LOSERS

ROCKING THE FOUNDATIONSOF THE TRADITIONAL FRANCHISE business model of the ‘90s and early 2000s, the “Uberisation” of industries and online retail has made it even easier for people to generate their own income.

Service-based platforms like Airtasker, Foodora and Uber offer would-be entrepreneurs the convenience of being their own boss with no further commitment other than downloading an app.

Meanwhile, a slew of failures lately and an increasingly strict regulatory environment is putting the franchise model at risk, at least in the retail sector, which is home to 27 per cent of total franchises in Australia.

A new survey commissioned by the Franchise Council of Australia confirms two things:

1. The number of franchisors has dropped year-on-year since peaking in 2012.

2. Between 2012 and 2014, the CAGR per franchise unit was -1 per cent, compared to the overall retailing sector which achieved three per cent.

Franchises are still a major contributor to the economy, nationally generating $150 billion annually, equating to 13 per cent of national GDP and positioning Australia second in the world in GDP percentage terms.

While franchises offer the attraction of buying into a proven business with a known brand identity, they entail

upfront capital investment and lack the nimbleness of service-based platforms. Ongoing costs, such as franchisor fees and/or commissions and rents, are expensive overheads that cannot be avoided or quickly scaled down.

UNDER PRESSUREFresh food business Sumo Salad took the radical step last year of placing two leasing entities into voluntary administration to prompt its main retail landlord, Scentre Group, into re-negotiating rents for its franchisees. A profitable group, Sumo Salad had seen its franchisees in large shopping centres increasingly under pressure as the number of food outlets grew at a faster rate than foot traffic.

This is in contrast to Pie Face which, before entering administration in 2014, was aggressively opening outlets, cannibalising store sales rather than growing the share of the pie. Allegations of poor due diligence for leases also saw franchisees paying non-competitive rents. Ultimately, Pie Face’s inefficiencies and high cost structure severely affected its franchisees.

Problems can also arise for franchisees who are forced to source stock exclusively from the franchisor. This

takes away incentive for the franchisor to be cost competitive as it has a “captive” customer base, and restricts the franchisee’s ability to appropriately

merchandise their store to suit their particular catchment.

An expose by the Australian Financial Review last year showed that some Domino’s franchisees struggle from both a financial and efficiency perspective, needing to buy ingredients only through the franchisor, paying royalties on a percentage of sales, sharing marketing costs and having to meet price-deflating promotions like $5 pizzas.

CONTINUED SUCCESSThis is not to say all retail franchises are struggling. Harvey Norman is having continued success with its largely franchised store network. However, the retailer is known for providing some franchisees with significant financial aid to keep the network profitable.

Adding to the risks for retail franchise businesses – and off the back of the 7-Eleven wages scandal where franchisees were allegedly underpaying employees and doctoring timesheets

– amendments were made to the Fair Work legislation, which took effect in October 2017. In short, franchisors can now be held responsible for franchisees contravening workplace laws.

A franchise system is only as strong and healthy as its franchisees.

However, transparency on franchisee performance is often lacking and inadequate to truly benchmark performance success.

Franchises entail upfront capital investment and lack the nimbleness of service-based platforms.”

“



Shine bright like a diamondThe successful fast fashion accessory retailer has gone from strength to

strength since it first launched eight years ago in Queensland.

WINNERS AND LOSERS

ONE OF THE AUSTRALIAN STOCK EXCHANGE’S GREATEST success stories for last year was Lovisa Holdings, with Shane Fallscheer as CEO and backed by billionaire retail investor Brett Blundy of Adairs and Bras ‘n’ Things fame.

Lovisa evolved from another of Blundy’s ventures, fast fashion accessory retailer Diva, which targeted a younger customer base. It has a similar business model but, crucially, appeals to a much broader demographic.

Management attributes this to Lovisa’s vertically integrated supply chain that enables the business to adapt its catalogue to fast-moving fashion trends.

It is a model common with fast fashion powerhouses such as H&M and Zara.

Lovisa introduces a staggering 120 products to its catalogue each week. This pace and product appeal may also be part of the reason the brand has had virtually zero growing pains during its rapid global rollout.

Lovisa opened its first store in Chermside, Queensland, in April 2010, adding one store each week for the ensuing year.

BB Retail Capital floated Lovisa on the ASX in 2015 and promptly snapped up locations of failing sister brand Diva.

Lovisa now runs or franchises more than 300 stores, half of them overseas,

in the Middle East, Asia-Pacific, South Africa and Europe.

Lovisa’s stores are designed to occupy minimal space while maximising traffic. Together with its direct, sustainable sourcing supply chain, Lovisa can maintain low product prices at an extremely profitable mark-up, achieving average gross margins around 80 per cent on average transaction values of $20.

Despite selling low-cost accessories, Lovisa has grown revenue from $106 million in 2014 to more than $170 million last year with EBITDA of $47 million, almost 28 per cent of revenue.

It has the potential to be a great Australian retail success story.



AUTHORS

James Stewart, Partner, Head of Retail – Ferrier Hodgson, Azurium

Ian Renwood, Partner, Head of Digital – Azurium

Dr Ian Tho, Executive Director, Head of Analytics – Azurium

Neeraj Sharma, Partner, Head of Performance Improvement – Azurium

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Amazon:what you need to knowLong before it launched in Australia in November, news of Amazon’s entry had already set the local retail industry alight with fear and trepidation. While the online giant knows how to stay at the top of its game, Australian retailers can compete.

AS A BIG, INNOVATIVE AND DYNAMIC ecommerce giant, Amazon will change Australia’s market dynamics considerably, and some retailers will have their business models challenged. Its acquisition of US grocery retailer Whole Foods has also fuelled speculation of a “doomsday” scenario for retailers.

However, the situation is far from hopeless for Australian retailers. In fact, Amazon’s arrival may not be a “winner-takes-all” scenario after all.

While Amazon is arguably one of the world’s most innovative companies, it has a “customer first” mantra and a “fail fast” modus operandi when it comes to innovation. From its initial launch of 1-Click in 1997, Amazon has steadily expanded its business juggernaut through a range of innovations and product offerings:• 2000 – Amazon Marketplace• 2002 – Amazon Web Services• 2005 – Amazon Prime• 2006 – Fulfilment by Amazon• 2011 – Amazon Fire Tablet• 2014 –Amazon Prime Now and Amazon

Echo

All this has helped Amazon create an ecosystem that aims to effortlessly blend

its online and subscription-based offerings through leading-edge technology and a state-of-the-art supply chain. The company seems to be continually developing initiatives to improve the customer experience and cut delivery times.

Initiatives including Amazon Flex (think Uber-style last-mile delivery), Project Everest (its Indian grocery expansion), Prime Air (drone delivery) and Airborne fulfilment centres might sound outlandish, but with founder/CEO Jeff Bezos, anything is possible.

RAMPED UP ASSAULTAmazon first dabbled in the $800 billion US grocery sector in 2007 with the launch of Amazon Fresh. In 2016, it ramped up its assault on the sector through offerings such as Amazon Go (the checkout-free grocery store) and Amazon Fresh Pick-up (a drive-in kiosk for online grocery purchases).

Perhaps the most telling sign of Amazon’s intention to disrupt the grocery market came in June when it stunned markets by announcing plans to acquire Whole Foods. The deal was completed in August for $13.7 billion, only slightly less than the amount Amazon’s market

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BY JAMES STEWART, Partner, Head of Retail – Ferrier Hodgson, Azurium


Amazon doesn’t aim for profit, it aims to be ‘customer first’ in everything it does.”

“capitalisation increased by when it announced the acquisition.

The buy-out makes sense for Amazon. It is part of a deeper plan to integrate its Fresh and Prime Now offerings, and addresses its lack of physical stores (Wholefoods has 460 locations throughout the US). It also quite literally gets in the faces of its competitors, who can now see a physical manifestation of Amazon.

OWN LABELSAmazon has followed a similar path in the apparel space with the acquisition of women’s online fashion retailer Shopbop in 2006. It subsequently acquired Zappos (online shoe seller) for $1 billion in 2009 and has also launched about 15 private-label fashion brands including Buttoned-Down, Ella Moon and Lark & Ro.

According to Cowen, Amazon is projected to overtake Macy’s and become the biggest apparel retailer in the US with annual apparel sales increasing 30 per cent to $28 billion and estimated to reach $62 billion by 2021. Astonishingly, everyday essentials like men’s socks are the bestsellers.

Additionally, Amazon’s efforts to create a hassle-free shopping experience has seen investment in Amazon Prime Wardrobe, an initiative that lets customers order items without any upfront charge. They can hold the product for seven days without charge, and pay only for what they decide to keep.

Amazon has a clear strategy to be a major player in the apparel sector as it continues to invest in brands and hire fashion executives from major retailers.

MARKET IMPACTAmazon now has websites in 14 countries with more than 300 million user accounts globally, and attracts more than 183 million monthly users to its US website alone.

As the behaviour of US customers has moved toward online sales channels, major brick-and-mortar retailers are being impacted as Amazon’s Prime membership base has reached about half of all households.

So how has Amazon changed the face of retail in the US?

• Amazon now accounts for 43.5 per cent of all online sales, beating out such online retailers as Apple, Best Buy, Macy’s and Walmart

• $4.7 billion of the $9.4 billion (or 37 per cent) spent between Thanksgiving Thursday and Cyber Monday in 2016 was via Amazon

• $1.6 billion of the $3.3 billion (or 49 per cent) of sales on Black Friday alone were online, 73 per cent being via mobile devices.

Traditional US brick-and-mortar retailers such as Kohl’s (which had a 25 per cent drop in share price last year), Macy’s and Sears (which both announced 100 and 150 store closures respectively last January) are reeling from the effects of a bumper year for Amazon. Credit Suisse estimates store closures in the US last year will top 8,500, a record since the GFC.

The Australian retail market can be viewed as something of a hybrid of the US, Canadian and UK markets:

• Ecommerce as a percentage of total retail sales in Australia and Canada is comparable at between 6 to 8 per cent (UK and the US are considerably higher at around 15 to 17 per cent).

• Online sales penetration in Australian and Canada is comparable at around 60 per cent (UK and US are higher at 76 and 67 per cent respectively).

• Shopping-centre density is far higher in the US than in Australia and has been impacted by years of over development.

Amazon entered Canada (June 2002) and the UK (October 1998) years before launching its Prime offering in the US (February 2005). Prime was rolled out in the UK less than three years later.

In other markets, the time from launch to rollout of the Prime offering has steadily decreased to as quickly as one year.

Amazon fails fast and learns quickly. Each new rollout of the Prime service has allowed the company to continue to refine its country-specific strategy, ensuring errors are minimised and profit maximised in the next market it chooses to disrupt.

Amazon will probably offer Australia Prime fairly quickly, or roll it out within one to three years.

STEPS TO DIFFERENTIATEHistory suggests that new international retailers often take time to establish a foothold in Australia and amass a customer base. Aldi opened its first Australian store in ►

Country

US

Canada

UK

Germany

France

Japan

China

Italy

Spain

India

Mexico

Amazon Country launch date

Jul 1994

Jun 2002

Oct 1998

Oct 1998

Aug 2000

Nov 2000

Jun 2005

Nov 2010

Dec 2011

Jun 2013

Jun 2015

Amazon Prime launch date

Feb 2005

Jan 2013

Nov 2007

2007

2008

2007

Oct 2016

2011

2014

Jul 2016

Mar 2017

Time from launch to Prime rollout

10 yrs, 6 mos

10 yrs, 6 mos

9 years

9 years

8 years

7 years

11 yrs, 3 mos

1 year

3 years

3 years

1 year, 8 mos

Source: Company data, Morgan Stanley Research


2001 and flew under the radar of many consumers for years. Even Costco, which has been highly successful in the Australian market, still has a relatively slow store rollout program with only eight stores after eight years, and no presence in the Northern Territory, Tasmania or Western Australia.

Of course, Amazon is different. Australian consumers have been able to buy through Amazon online for more than three years and are already familiar with the retailer. More than 21 per cent of department store searches in Australia go to Amazon.

However, both physical and online retailers can take steps to differentiate themselves from Amazon...

Strategy: Start with “Why?”. Profit is an outcome of the successful execution of a sustainable business model with a clear reason for being.

Amazon does not aim for profit – it aims to be “customer first” in everything it does. It clearly has its own “why”. Cashflow comes next, and profit later, potentially much later. Amazon’s business is designed to grow market share through a simple philosophy of a model always geared to the optimal customer experience.

Australian retailers should challenge and refine their business model by clearly articulating their reason for being or “why”, defining a vision of success then pulling their strategic levers (markets and competitors, channels and customers, and products and services) to align the business with their purpose.

Data analytics: Amazon does data well. Most of its business is driven by data analytics. Algorithms based on sales history and customer data help consumers find the products they want at the best possible price.

For many retailers, adopting an analytics-based approach is often daunting and can be impacted by a lack

of understanding of its real value. A plethora of offerings in the market that appear to be data analytics but are not can also cause confusion.

Best-practice retailers need to implement a data-driven customer approach to level the playing field. This does not necessarily mean a huge investment, but it can be a big help in understanding and predicting customer behaviour.

Store experience: Despite the rise of ecommerce, physical stores still offer the modern consumer value, and drive most retail sales. With Amazon’s focus being (until recently) purely online, this presents an opportunity for Australian retailers to enhance their physical offering where Amazon has not traditionally competed.

PricewaterhouseCooper’s latest Total Retail study highlights that 78 per cent of respondents want “sales associates with a deep knowledge of the product range”. Human talent is the most fundamental success ingredient for any retail business. As customers become increasingly more educated about products, the new norm for in-store experience is being built around a service culture where the customer experience is more important than a sale.

Developing a class-leading and engaging physical retail experience will continue to give Australian retailers a key differentiator, provided they have a clear vision of where they want to be and how they will win in a disrupted market.

Here are some retailers who are at the top of their game right now:

1 Aesop|Each store is architecturally sophisticated and different, echoing

the soul of the brand. Customers are invited to experience the product rather than be sold to, with knowledgeable staff members offering recommendations, free samples and refreshments to entice up-selling.

2 Rebecca Minkoff|This US luxury apparel retailer uses top technology

in its stores to create an immersive, digitally driven customer experience. Each fitting room has smart mirrors which customers can use to browse for complementary products or even order champagne. The brand reports that 30 per cent of customers ask for extra items based on the smart-mirror recommendations.

3 Apple|The technology brand has turned its stores into temples,

where customers come to worship its

products and learn how to get the most from them. Last April Apple launched its “Today at Apple” concept, offering free educational classes in every store where customers could learn topics ranging from taking iPhone photos to managing a productive business.

4 Lululemon|This aspirational athleisure brand takes the store

experience to a new level to build a sense of community. Stores run weekly workshops and events for customers, ranging from yoga classes to running groups and wellness sessions. Its Regent Street UK flagship store has a cafe offering healthy snacks, pre-made meals and protein shakes. There is also a concierge desk to help customers find restaurants and yoga studios in London.

Digital: Amazon’s systems are digitally optimised. According to Fast Company, if Amazon’s site is a mere second slower in processing orders, it will lose about 1 per cent of sales each year, or roughly $1.3 billion.

Embracing digital, mobile and social strategies to go to market are no longer options for Australian retailers. They are simply a “must-do” to at least maintain market relevance.

Best practice means having digital touch-points throughout the customer journey, including driving awareness, pathways to purchase, digitising the in-store experience, mobile-enabled websites and increasing the efficiency of back-of-house and inventory management activities.

LONG GAMEAmazon’s impact in the Australian market may not be immediately apparent, but history shows that the company plays a long game. No single Australian retailer has the clout to go head to head with Amazon.

Amazon will present a great opportunity for small and new retailers who do not already have a significant investment in store and inventory management infrastructure. They will potentially benefit enormously by attaching themselves to Amazon’s ecosystem, albeit at a cost of 10 to 12 per cent of sales.

Established retailers could also piggyback off the surge of online retailing Amazon is likely to generate. Many of their lines of defence against Amazon may not be strong enough. A proven business breaker, Amazon takes no prisoners if it sees competition with weaknesses in its business model. As Bezos famously said, “Your margin is our opportunity”.

No single Australian retailer has the clout to go head to head with Amazon.”

“


Why millennials matterAs the generation with the most buying power in Australia, digitally-

savvy millennials are leading the way in changing consumer behaviour. Here’s how to turn them into loyal customers.

BORN BETWEEN 1981 AND 2000, THE MILLENNIAL generation has grown up with the internet. Many have had a mobile device from an early age, connect with their peers constantly via social media and do not understand the concept of going to a physical store to buy music.

This generation behaves quite differently from older generations, particularly in how it interacts with favourite brands and retailers. For millennials, it is all in the experience. With fresh ideals and aspirations, having personal experiences are more important to them than owning things.

To make the case for experience-based retailing, a study by Harris Group found that 72 per cent of millennials prefer to spend money on experiences rather than items. Conlumino has similarly found that 71 per cent of millennial consumers believe that “owning” items is wasteful and unnecessary.

Millennials prefer instant gratification from experiences that can be shared socially through both word-of-mouth and social media. The Harris poll found that factors such as a craving for recognition (through “likes” and comments), and FOMO (“fear of missing out”) help drive the millennials’ cravings for experiences.

PRIME INFLUENCEData from Invoca shows that 33 per cent of the time millennials spend on their mobile phones they are browsing and updating their social media channels such as Facebook, Instagram and Twitter.

Deloitte reports that social media influences 47 per cent of millennial purchase decisions, compared to 19 per

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cent across other generations. It is the primary source for millennials to discover trends, products and special deals.

However, they are not only influenced by how brands and retailers interact with them directly on social media, but also by their peers. Research by BCG has found that 39 per cent of millennials post reviews of products or brands online, and the generation is more likely to listen to and connect with people like them rather than celebrities.

For retailers, the lesson is that at the very least, they need to integrate digital media with their traditional marketing strategy, if not replace it altogether.

SOCIALLY AWAREMillennials also support companies perceived to do good, preferring to spend their money with brands that are socially responsible.

A 2015 survey by Nielsen found that 83 per cent of millennials would be willing to spend more on a product if it came from a sustainable brand. Arguably the most socially aware generation to date, millennials want brands to be open and honest about their social responsibility initiatives.

Millennials are driving a change in the hierarchy of needs. The must-haves for previous generations are less important for millennials – they are delaying or simply refusing to make major purchases like cars, homes and luxury goods.

Instead, millennials have helped birth the “sharing economy”, a new set of services that provide access to items without the burdens of ownership.

Examples include the growing trend toward Uber over cars, Airbnb instead of hotels, Spotify over CDs, and Netflix rather than DVDs.

INTEGRATED SHOPPINGAccenture has found that 68 per cent of millennials demand an integrated, seamless experience regardless of the shopping channel. This involves transitioning effortlessly from smartphone to computer to physical store while searching for products and services. According to AIMIA, 57 per cent of millennials compare prices via their smartphones in-store.

With access to product information, reviews and price comparisons at their fingertips, millennial customers are turning to brands that can offer them maximum convenience at the lowest cost.

Faced with more market choice than ever before, it might be hard to believe that millennials are a loyal bunch. However, research by Elite Daily and CrowdTwist in 2015 found millennials to be the most loyal generation to their favourite brands, with 50.5 per cent saying they are extremely loyal or quite loyal.

As it becomes more expensive to acquire new customers, it is imperative brands focus on increasing customer lifespans. The key pressure is on marketers to develop exciting and engaging experiences that keep shoppers returning.

Happy and loyal millennial customers not only means more sales, but could be the cheapest form of marketing for retailers.

BY DR IAN THO, Executive Director, Head of Analytics – Azurium


VR/AR:Exploring new worldsFrom the realms of sci-fi to reality, some retailers are upping their game by embracing virtual and augmented reality.

WHILE MANY RETAILERS ARE STILL WORKING ON incorporating and optimising their ecommerce offerings, some are looking ahead to the possibility of a “vcommerce” boom – retail incorporating an element of augmented reality (AR) or virtual reality (VR). Think of that famous scene in the Tom Cruise movie Minority Report, except instead of ads being shown, consumers may be able to scroll through virtual products.

For clarity, VR is an artificial environment created by software with interactive and immersive elements, while AR involves data and graphics being overlaid on an image of the physical world.

The vcommerce industry is expected to grow exponentially in the coming years. Digi-Capital reported in May that $2.3 billion was invested in VR and AR during 2016 (a 300 per cent increase on 2015). It also predicted that by 2021, the VR and AR market could be worth more than $100 billion.

Although VR and AR are still in their infancy, some retailers regard them as a potential way to help bridge the divide between the digital and physical retail experience.

NORTH FACE has rolled out a handful of VR videos, including one featuring a 360° view of rock climbing in the Moab Desert in Utah and Yosemite National Park. North Face president Todd Spaletto says VR is “bringing the wilderness inside”, but these productions come at a cost – up to $500,000.

eBAY and MYER partnered in May 2016 to trial the “world’s first VR

department store”. More than 12,500 products from Myer could be browsed, chosen and added to shopping carts using eBay’s Sight Search technology, which works by simply gazing at the products and various categories (the experience is no longer available).

IKEA launched an AR app last year that lets users place virtual Ikea furniture in their own home to gauge how it might look assembled. The app is said to be about 98 per cent accurate in scale and renders the 3D images to react to various lighting set-ups.

SEPHORA has an AR app that enables customers to experiment with different cosmetic products. Mirror-camera technologies scan the customer’s face to match products to skin tone.

While all this sounds promising, there are practical limitations the technology still needs to overcome.

Firstly, accessibility is not easy. OmniVirt says more than 190 different VR headsets are available on Amazon. The issue is that products such as the HTC Vive ($999), Oculus Rift and Playstation VR (both $549) are expensive, given how little they offer consumers.

In fact, about 96 per cent of the 100 million VR units shipped in 2016 were Google Cardboard, which can be bought for as low as $1 on eBay. There

is consumer interest in this technology, but people are not willing to break the bank to experience it.

SIGNIFICANT INVESTMENT Content is hard to come by. Developing AR and VR content involves a significant investment in filming and editing to create a truly immersive effect that is vivid and realistic. Poorly

designed content can cause dizziness and nausea if the delay in screen refresh rates is greater than one-fiftieth of a second.

Even if these challenges can be overcome, there are concerns the technology will be more of a gimmick and of limited use. Paula Rosenblum of RSR Research prefers that retailers and their employees “focus on actual retailing” to create a better experience.

In the meantime, companies such as Alibaba, Google and JP Morgan are major investors in Magic Leap, an AR company that has raised $1.8 billion without even demonstrating its beta projects yet.

Apple CEO Tim Cook is buoyant on its prospects, saying AR is going to change how people use technology, following Facebook founder Mark Zuckerberg’s 2014 pronouncement that one day “these kinds of immersive technologies will become a part of daily life for billions of people”.

RETAIL TRENDS

The vcommerce industry is expected to grow exponentially in the coming years.”

“BY IAN RENWOOD, Partner, Head of Digital – Azurium


Change the way you payAustralian consumers are now relying less on cash when they shop,

preferring to use debit or credit cards and smartphones. Here are some of the new payment technologies that are starting to make waves.

OUTSIDE OF GAMBLING AND ILLEGAL ACTIVITIES, CASH USE is declining. China and India are among many countries phasing out the use of cash, with Sweden leading the charge as it aims to become a cashless society by 2030. Swedes use cash for only 30 per cent of transactions (1 per cent in value).

While Australians still use cash, a decline is also evident. A 2016 report from the Reserve Bank of Australia revealed that cash was used for only 37 per cent of payments, down from 47 per cent in 2013. Debit and credit cards are the preferred payment method for Australian consumers (52 per cent in 2016).

However, CEO Mike Corbat of Citigroup, the world’s largest issuer of credit cards, acknowledges that “at some point, cards are going to go away”.

As paper and metal fall from favour, as plastic may some day, new payment

RETAIL TRENDS

platforms are pointing the way of the future. Here are some of the main players:

ANDROID, APPLE PAYAndroid Pay and Apple Pay are two of the most popular payment platforms that let consumers buy items in stores, through selected apps and on websites using only their smartphone, and offering quicker processing times than credit/debit cards.

ANZ has just extended Apple Pay to 1.6 million Australian users, meaning shoppers can make Eftpos purchases via their Apple Watch or iPhone.

AFTERPAYEven layby has had a technological makeover. AfterPay, a Sydney-based retail payments startup, lets consumers pay later for purchases through four equal fortnightly instalments. Since

launching in 2014, AfterPay has grown from 1000 customers to more than half a million, and is offered by 3100 retailers around Australia.

AMAZON PAYAmazon’s own version of a payment platform, Amazon Pay, is used in more than 170 countries. It has now taken things one step further with its checkout-free beta store, Amazon Go. Customers simply grab what they want and go – no swiping, plugging or tapping. All that is needed is the app, which helps location-based technology in the store identify which products have been taken. The customer’s credit card is automatically charged.

ALIPAYWhile Alibaba has its own payment platform, it is starting to even regard digital wallets as mundane. It is now trialling the world’s first “smile to pay” concept using facial recognition technology at a KFC in Hangzhou, China. It takes just one to two seconds to identify a face, followed by secondary verification by the customer entering a mobile number.

The common denominator for all this disruption is undoubtedly the smartphone. China’s adoption of mobile payment technology is staggering, with 469 million users (the population of the US is 326 million), the result of “technological leapfrogging”.

Despite the cautious adoption of these technologies in Australia and other developed countries, an adverse effect of the Eftpos infrastructure, new research by PayPal shows an opportunity for local retailers: 72 per cent of Australians now use a mobile device to shop, with 48 per cent making a purchase weekly, up from 12 per cent in 2016.

Despite this uplift in use, 36 per cent of businesses still believe their customers don’t want to buy via their smartphone.

This disconnect highlights a chance for retailers to differentiate themselves by further integrating mobile payment technology in their websites, apps and even physical stores.

36 per cent of businesses still believe their customers don’t want to buy via their smartphone.”

“

BY IAN RENWOOD, Partner, Head of Digital – Azurium


New insolvency lawsset to create change

DESIGNED TO HELP TRANSITION AUSTRALIA’S economy away from mining and toward growth through innovation, the federal government has developed the National Innovation and Science Agenda, a framework encapsulating policies and initiatives to welcome Australia to what it describes as the “ideas boom”.

Many businesses can benefit from these initiatives, particularly retailers, as they serve to align our business laws with the more progressive culture around innovation and entrepreneurship.

Specifically, retailers can benefit from an overhaul of the insolvency laws through the introduction of the “safe harbour” reforms for company directors and the ban of ipso facto contractual clauses.

Australia has long been criticised for its stigma and punishment of business failure, and these reforms will engender an environment in which businesses can innovate and have a realistic opportunity to restructure if they fail, as some inevitably will.

The safe harbour provision potentially relieves directors from personal liability for insolvent trading if a professional restructuring adviser is appointed to

help develop a turnaround plan for a distressed company.

This comes at a time when retailers are facing increased pressure to innovate and think outside the box in the face of growing competition from international players, digital disruption and changing consumer sentiment and behaviour.

CHANCE FOR PROTECTION A retailer can explore new products, services, sales channels and customer experiences, and if they fail, directors will have a chance to be protected from punishment, assuming they have taken the steps defined by the legislation.

The reforms have drawn parallels with the US Chapter 11 insolvency laws, which have seen brands such as American Apparel, Eddie Bauer and General Motors live to fight another day through a successful restructure.

The ban of ipso facto clauses aims to prevent a supplier of services or lessor (such as a landlord) from exercising the right to immediately terminate contracts upon insolvency.

Should a retailer encounter a formal insolvency appointment, banning these clauses effectively throws them a lifeline, bolstering the chances of

continuing to work through the safety of contracts already secured.

The calamitous effect of ipso facto clauses was highlighted in the collapse of telecommunications provider One.Tel in 2001. Access to essential telecommunications infrastructure was revoked by major suppliers under ipso facto clauses in supply contracts, providing no chance to restructure or sell as a going concern.

Barring these clauses means secure lease agreements and supplier contracts for retailers which, under a formal insolvency arrangement, are essential to ensure stability and a realistic opportunity of a successful turnaround.

Because of these critical changes in the law, many more retailers will be likely to use voluntary administrations as a tactic to restructure their business without blowing it up.

RETAIL TRENDS

The new “safe harbour” law reforms could signal a rise in innovation in Australian businesses.

Australia has long been criticised for its stigma and punishment of business failure.”

“

BY JAMES STEWART, Partner, Head of Retail – Ferrier Hodgson, Azurium


RETAIL PROFILES


Why the world loves

Bold expansion mean T2 tea is now served in more than 70 countries, and ambitious plans are underway to grow the qiurky brand even further. We chat with global CEO Nicky

Sparshott about what’s to come for T2 this year.

HOW WOULD YOU DESCRIBE THE PAST YEAR AT T2?It was another jam-packed year. We served T2 to more customers than ever before, across more countries and more channels. Helping our customers re-imagine the world of tea is at the heart of everything we do – people who are experiencing T2 for the first time, or advocates who keep coming back. Our focus has been on best-in-class innovation, and to ensure we are continually investing in our platforms,

systems and – most importantly – our people to build T2 in all our markets.

HOW HAS T2 BEEN FARING IN TERMS OF INTERNATIONAL GROWTH?We have continued to be bold on international expansion, introducing T2 to more people across New Zealand, Singapore, the UK and the US, not to mention the international customers who have experienced our brand via T2tea.com, which now serves more than 70

countries. We are committed to building a T2 generation on every continent.

NOW T2 HAS ENTERED THE ASIAN MARKET THROUGH SINGAPORE, WHAT LESSONS HAVE YOU LEARNT ABOUT THE REGION?Singaporeans love their tea and have a strong appreciation for a good cuppa, whether it be a gorgeous green tea or a strong black breakfast brew, or the more imaginative blends of fruits,

RETAIL PROFILES

a good cuppa


herbs and spices. They love T2’s immersive, sensorial store experience and our invitation into a tea lifestyle like no other.

Not only are we building a solid base of fans in Singapore, but we also have the benefit of it being a hub for tourists from all over the world. Often they are experiencing T2 for the first time in Singapore and go home to other Asian or European markets and treat themselves through our online store. They stay connected via our T2 Tea Society.

WHAT CHALLENGES ARE AUSTRALIAN RETAILERS FACING IN THE FOOD AND BEVERAGE MARKET?The biggest challenge is achieving true differentiation and distinctiveness amid the enormous amount of brand and product proliferation. Of course, there is the ongoing challenge of merging the on- and offline worlds for a seamless customer experience, as well as continual reinvention without losing core identity and focus.

WHICH RETAIL TRENDS INTEREST YOU AT THE MOMENT?The fusion of food and beverage with other services is particularly intriguing. One space offering services and products all under the one roof, for example, is the barber/coffee shop concept.

Customisation and personalisation is interesting of course – the customer’s desire to be part of the creation process and leave their own mark on the brand.

Meanwhile, wellness from within continues to be important for customers...the raw food movement, straight from the source with less process, and the overall desire for more natural, pure, authentic and traceable products.

WHAT PLANS DO YOU HAVE FOR THE BUSINESS, BOTH HERE AND OVERSEAS, THIS YEAR?We still see a lot more growth for the brand in Australia, and our focus is to ensure we continue to build our base

of customers. We have been in the market for 21 years and have fans who have grown up with us, while others are just starting their T2 experience.

We will also continue to build the brand abroad, continually experimenting with formats, products, experiences and business models. We will not grow complacent. There are so many options for people today. Any brand needs to earn the right to be part of someone’s life, and that means being more than simply a product worth buying.

WHAT PLANS DO YOU HAVE FOR THE DIGITAL SIDE OF THE BUSINESS?

We want to engage with our customers where they are. That means ensuring that not only do we offer a brilliant instore experience, but also that T2 is available where our customers are spending their time outside of shopping locations (for example, cafes, restaurants, planes, airports and conference centres), and this means great partnerships are vital.

It also means that T2tea.com is really our always-open store so our customers can browse and buy whenever it suits them. Wrapping all that up in conversations with our T2 community via social forums also allows us to build quality engagement and dialogue.

WHAT IS YOUR OPINION OF THE LOCAL RETAIL LANDSCAPE, AND WHERE DO YOU SEE IT MOVING THIS YEAR?It will continue to be a challenging market for retailers with its uncertainty, but I also think that brings opportunity, a chance for brands to really push boundaries, upend the status quo and really innovate. The market may be changing, but customers are still looking for wonderful products, incredible experiences and being part of a community of people connected by a shared purpose or passion.

Any brand needs to earn the right to be part of someone’s life, and that means being more than simply a product worth buying.”

“


Building on the

While the Spar grocery brand has been in Australia for more than 20 years, it has had a few false starts, but last year it truly got out of the traps.

foundationsBY STEPHANIE WANLESS

IN REVIEW, IT’S FAIR TO SAY LAST YEAR WAS SOMETHING of a groundbreaker for Spar Australia and its band of retailers. While the global powerhouse has been in Australia since 1994, it wasn’t until late 2010, with the help of new majority shareholder Jardin investments, that it really started motoring.

CEO Lou Jardin says the years of laying the foundations finally translated into positive sales growth last year – impressive, especially considering the sector is going through one of the most difficult trading periods in a decade.

Being part of a global business has brought a scale of economy for Spar retailers in Australia, and acts as a point of differentiation. Products are sourced in conjunction with Spar International,

with the buying power and subsequent scale of economy helping maintain good margins.

It has significant reach, with more than 12,000 locations in 44 countries, and the Australian business has bought into the “better together” program that encourages the sharing of information, knowledge and learning between the retailers in those countries, from logistical support to procurement expertise via innovative store design and layout.

MILESTONE PROGRAMA milestone for Spar last year was introducing its private-label program. The retailer is slowly converting products from the Fabulous brand to Spar private-label. These products are now sourced from around the world,

achieved with significant help and support from Spar International.

Meanwhile, delivery companies such as Deliveroo, Foodora, Menulog and Uber Eats have transformed consumers dining practices. Whether it is delivered to your door or picked up in-store, there is a significant trend toward ready-to-eat take-home food. There is also growth within the health segments, with consumer trends moving toward sugar-free and low-fat options.

“The offers in stores are undergoing rapid change with many new products appearing on the shelves,” says Jardin. “This is an exciting time for retailers who are innovative and abreast of trends.”

Also having a major impact on Spar Australia’s business is the Queensland

RETAIL PROFILES


Most governments talk about how they prioritise small business with less red tape, but the reality is very different.”

“

government’s deregulation of trading hours in south-east Queensland, says Jardin.

“We would have liked the changes to have been phased in over a number of years to ensure small retailers have time to adjust their businesses,” he says. “At least commonsense has prevailed with a moratorium of five years on further deregulation for the rest of the state.

“We are not opposed to deregulation, but any changes to market conditions need to be staged and phased to ensure the impact to small business is carefully considered.”

SCHEME ‘HEADACHE’Jardin also says the New South Wales government’s introduction of the Container Deposit Scheme caused somewhat of a headache. “We had to change most of our business practices to accommodate the legislation, as it

is specific to New South Wales and does not include the Australian Capital Territory and Queensland.

“As Spar services all of these markets from Acacia Ridge in Queensland, it has added enormous complexity and placed an undue burden on the way Spar Australia interacts with its retailers.

“Both the deregulation of trading hours and the Container Deposit Scheme are examples of the regulator having a massive impact on the way small business works and creating unintended consequences.

“Most governments talk about how they prioritise small business with less red tape, but the reality is very different. We enjoyed a very successful year with positive growth in the high single digits, and this was done despite some extremely adverse and challenging conditions.”

With significant change in the retail

sector in the past year or so, Jardin says the company is well-positioned to withstand the extra complexity. “The formula, which has taken time to develop, is finally paying dividends.”

Jardin points to the fall of Masters as the key disruptor. “It positioned Woolworths back as a formidable force, and Metcash was a major beneficiary too, as it was able to achieve significant synergies from integrating home hardware into Mitre 10. This provided them with a major source of revenue.

“Aldi began rolling out its new concept with expanded fresh food, and its entry in Western Australia and South Australia has established it as an national player.

“Costco continues to open stores, and now Amazon has entered the market. All these events are transformational and will bring about rapid change to an industry already going through enormous change.”


HOW WOULD YOU DESCRIBE OPORTO’S PAST YEAR?Oporto had the strongest growth in its history last year. Sales are hitting records across our restaurants in conjunction with top quartile franchisee and employee engagement, and also our highest-ever customer net promoter score. We signed our first international market to open this year, and a number of new format stores will also roll out this year.

We have had four key areas of focus: refiring our brand; modernising our customer experience; celebrating our core products; and delivering exceptional value.

WHAT HAVE BEEN THE HIGHLIGHTS AND GREATEST CHALLENGES?Returning franchisees to profitability and having the business performing well in all states and territories has been the major highlight.

Key projects, such as the launch of our catering and delivery platforms, as

well as our Oporto on Wheels (or Sobre Rodas), are also highlights. Being able to engage our customers in channels not previously explored has created a step change in our business.

Our industry is always been challenged by input cost increases. This has been particularly pronounced lately, driven by rent appreciation, electricity costs and more recently the Container Deposit Scheme. We’ve managed those well, but they are challenging for the industry as a whole.

HAVE YOU NOTICED ANY INTERESTING SHIFTS IN CONSUMER BEHAVIOUR IN THE PAST YEAR?Our customers love brands with an authentic edge that serve real food. We have a genuine story with Antonio Cerqueira coming from Porto in Portugal to set up our first store in Bondi. Our original chilli sauce is a family recipe, and we serve chicken that is fresh not frozen, grilled and not fried.

Unfortunately, our newer customers

Retelling the story

Brands with provenance and authenticity have a real attraction for today’s consumers. Re-telling its story has helped drive the strongest growth in Oporto’s history. We chat with CEO Craig Tozer about what is in store for the Portuguese chicken brand.

RETAIL PROFILES


have not known our story, and some of our older customers have forgotten it, so a big focus last year was to reclaim our heritage and be proud of our familia and our food.

We also learnt that we don’t have to be the fastest, just fast enough. Our customers don’t mind waiting if the product they receive exceeds their expectations.

WHAT PLANS DO YOU HAVE FOR THE BUSINESS FOR THE NEXT 12 MONTHS?We are working on two major initiatives. The first is to expand our beverage category to introduce alcohol – there is nothing better than an ice-cold beer with our hot and spicy Bondi burger or fiery Portuguese chicken. The second is to relaunch our in-store experience program, creating an environment that resonates with our heritage.

HOW ARE THE PLANS GOING FOR INTERNATIONAL EXPANSION?We are tracking to plan. Our goal is to open our markets carefully and not be too rushed. Over the coming few years we would expect to see stores in Sri Lanka, Singapore, the Middle East and a few other selective markets.

DO YOU HAVE ANY PLANS FOR THE DIGITAL SIDE OF THE BUSINESS?We’re relaunching our loyalty app and have spent time upgrading our websites and franchisee recruitment processes.

We gained a global award from Salesforce for our digital marketing work with its cloud marketing platform, and are investing heavily in our digital platforms. The use of data, decision science and artificial intelligence is at the core of our strategy.

DO YOU HAVE YOUR EYE ON ANY FOOD RETAIL TRENDS?The biggest change in recent times has been the introduction of delivery. How will this evolve, how will the sharing of economics be fair for all participants, and how can we delight our customers each time with our delivery?

WHAT PLANS DOES OPORTO HAVE FOR DELIVERY?Our trials with Deliveroo went extremely well and our national launch has been completed. Delivery is a channel that continues to grow and is definitely a part of Oporto’s strategy

Over the coming few years we would expect to see stores in Sri Lanka, Singapore and the Middle East.”“

going forward. We are also trialling UberEats.

HOW WOULD YOU DESCRIBE THE QUICK SERVICE RESTAURANT LANDSCAPE, AND WHERE DO YOU SEE IT GOING?The competition is fierce. Our competitors are getting better, and we admire what many of them do. We are seeing some international players coming into our market, which could be described as already crowded.

Food courts will be challenging, and medium term growth will be impacted by the introduction of Amazon and reductions in foot traffic. This coupled with landlords introducing more food options to combat a subdued retailing environment will impact

overall demand. There is a ceiling as to how much food you can squeeze into a shopping centre, and this is evidenced by some our our competitors restructuring.

From a franchising perspective, we have seen significant legislative changes regarding the protection of employees.

WHERE DO YOU HOPE TO SEE OPORTO THIS TIME NEXT YEAR?Oporto will again achieve record sales, employee engagement and customer NPS. We will have two successful international markets. We will remain true to our Portuguese heritage. We will continue to lift spirits by adding a little spice to people’s plates, and to their day.


Delivering a seamless customer journey and an ever-evolving retail experience has been key for shopping-centre owner GPT, and it’s all powered by data. We chat with GPT group head of

retail Vanessa Orth.

Global outlook,local connection

RETAIL PROFILES


HOW WOULD YOU DESCRIBE THE PAST YEAR AT GPT?Data has been a key focus. We have built a data lake that now incorporates a variety of GPT and external sources. We use this to gain a deeper understanding of our markets and our centres’ performance.

We have continued to share data insights with our retailers, helping improve productivity and performance. We are also using data analytics to help re-imagine and build the shopper journey, testing and trialling concepts that can influence shopping outcomes.

There has been a drive to shift the retail mix, introducing first-to-market brands, international retailers, and curating and incubating best-in-class local offers.

HAVE YOU NOTICED ANY INTERESTING SHIFTS IN CONSUMER BEHAVIOUR IN THE PAST YEAR?

Conscious consumption is growing and mass consumption is waning. People are moving toward personalised goods and services, seeking experiences that create moments and memories. They want products with a sense of purpose and provenance.

We are seeing and sensing the need for our communities to connect. People want to find their tribes and belong. People want to have a global outlook but a local connection.

WHAT WERE SOME OF THE YEAR’S HIGHLIGHTS AT GPT?The remix of Wollongong Central, which started with the opening of the $200 million West Keira expansion in 2014, has played a major role in the reinvigoration of the Wollongong CBD as a retail, food, cultural and tourism hub.

This year we reinvested $60 million into the asset and welcomed a new-generation David Jones and Mecca

Maxima, as well as Anaconda, H&M, T2 and TK Maxx.

Another highlight was the opening of our refreshed food court at Casuarina Square, which has enhanced the centre’s appeal as one of Darwin’s key food and entertainment destinations.

On a smaller scale, we have also been trialing concepts to create a stronger sense of place in our centres. This includes “In:Transit”, our incubator concept at Highpoint, which comprises three retailers, online fashion brand Kenny Parker and Melbourne food brands Dex2rose and Up in Smoke.

The precinct is a great example of our team making the most of public space while enhancing the retail experience.

WHAT SHOPPING-CENTRE TRENDS DO YOU PREDICT FOR THE YEAR AHEAD?We expect to see closer partnerships and collaborations between brands, online retailers and new categories

within shopping centres. More brands will be wanting to create concepts and test the boundaries.

We have already seen some online brands appear in our centres, such as gift brand Hunting for George, which opened a pop-up store at Highpoint during the year.

This was a major coup, given it had previously never had a physical store presence.

There will also be the ongoing trend of consumers seeking more immersive experiences rather than accumulate possessions.

We hosted our first Be You Be Well health and wellness festival at Rouse Hill Town Centre late last year. The event embraced 20 pop-up retailers, 10 ambassadors who held workshops and talks, along with events and activities hosted by our retailers. The success of this event reinforced the importance of creating the right experience and the need for people to feel connected to something important to them.

WHAT IS GPT DOING IN THE TECHNOLOGY SPACE IN ITS SHOPPING CENTRES?We are focused on ensuring technology provides us with value insights we can

use to better understand our consumers and influence their behaviour.

We have tested and trialled several new technologies and services for our customers. An example was a partnership with Afterpay and a key retailer that saw location-based SMS, email and social marketing distributed to key segments within our market. This campaign was extremely successful, driving traffic and sales for the retailer.

SAVING ENERGY IS ON THE AGENDA IN MANY SHOPPING CENTRES. WHAT IS GPT DOING IN THAT SPACE?Sustainability is embedded in our business. Our retail portfolio has cut energy use by 40 per cent over the past decade, which has been achieved through a mix of energy-efficiency initiatives and more use of renewable energy.

We have also rolled out sizeable solar installations across several of our assets including Rouse Hill Town Centre in Sydney and Casuarina Square in Darwin.

We continue to cut back our energy consumption through increasing the efficiency of our heating, ventilation and air-conditioning systems, and with lighting upgrades, including the wider use of LEDs and improved building-control systems.

DELIVERY IS ANOTHER MAJOR FOCUS FOR RETAILERS. WHAT ARE YOU DOING IN THAT AREA?We now have click-and-collect parcel-collection services across all our shopping centre. In November, we launched Retail Runner, a last-mile delivery service at Melbourne Central, which enables customers to have their parcels delivered to home, their office or hotel on the same day for a flat fee.

We continue to work with our retailers to understand and unlock the right last-mile delivery service.

Conscious consumption is growing and mass consumption is waning.”

“


HOW WAS THE PAST YEAR AT FLORA & FAUNA?It was great. We grew about 500 per cent year on year and now really understand who our customers are and who we are. We’ve developed a community and have had some really cool wins, like being a finalist for a responsible retailing award at the World Retail Congress.

WHAT ARE THE IMMEDIATE CHALLENGES FOR THE BUSINESS?When you have growth like that, keeping up can be a challenge. But we have recruited well, and while we are still small, we have people all over the country.

Competition is another challenge. Online retailers are popping up every day. Reaching customers and marketing is so competitive, and it’s becoming even more so. We need to be smarter and keep up with technology.

WHO ARE YOUR COMPETITORS IN THE INDUSTRY?Some traditional retailers now have

Rising to the challenge

Running a company built on sustainability brings its own special challenges, and with competitors introducing eco, organic and vegan ranges, competition is fierce. However, a nimble entrepreneurial approach has enabled online retailer Flora & Fauna to continue to flourish, says CEO Julie Mathers.

RETAIL PROFILES


eco, organic or vegan sections within their businesses, so there is competition there. There is also competition with retailers doing similar things. We’re now doing fashion, and there’s competition in that space.

You can be worried about the fact there is a lot of competition or you can rise to the challenge and accept that it is growing the industry.

WHAT PLANS DO YOU HAVE FOR THE NEXT 12 MONTHS?We’ll be continuing to focus on the customer experience. We need to be communicating in the right way, at the right time. We have developed a community, so we need to leverage that. Personalisation has been around for a while, but few people are really doing it, so that is a focus as well.

WHAT ARE THE BIGGEST E-COMMERCE TRENDS TO WATCH?There is much chat about artificial intelligence (AI). So many businesses still have data that is terrible, so they won’t be able to anything with AI until they get the basics right. I think traditional retailers have a lot of fixing to do.

Being young, small and online-first means you can be nimble. You have speed and passion, you can test and there’s little red tape.

WHAT IS STOPPING TRADITIONAL RETAILERS FROM CREATIVITY AND INNOVATION?I think they are risk-averse. When you’re a big retailer, there are so many people who have a say, and unless your CEO has absolutely bought into being digital, you’re going to struggle to get that creativity and innovation happening.

WHAT ARE THE SPECIAL CHALLENGES OF RUNNING A COMPANY BUILT ON SUSTAINABILITY?You’ve narrowed your niche and market, and in Australia it is a challenge as it is a relatively small market. At the same time, it’s an opportunity, because the potential wins are big. If you’re in there first, then that potential is really exciting. Equally, you are dealing with brands that are very small, that cannot always keep up with production and demand, so that has

its challenges. As you grow, you need them to grow with you.

We also have to ensure we are squeaky clean. We’ve said we are cruelty-free, so that has to be the truth. One supplier we looked at recently said, “We’re vegan, no testing on animals”. I asked them to double check. It turned out that its suppliers tested on animals.

So when you come out and say you’re ethical, you really have to look at every single point. If you don’t, customers will crucify you.

PEOPLE ARE INCREASINGLY SOCIALLY CONSCIOUS. DO YOU SEE THAT CONTINUING?People are happy to come out now and say, “These brands are bad” or “These brands are great”. That will become more and more relevant, especially with

millennials. We see it with all our customers, but

millennials are particularly vocal. They have no boundaries and will take brands to task, which I think is awesome.

WHAT ARE THE CHALLENGES OF BEING ONLINE ONLY?There is heaps of competition and plenty of them aren’t particularly ethical. They sell faulty products or do not ship your order properly. Customers have a bad experience and get burnt, so you have to focus on building your brand and being more than just a shop.

The other thing is that costs are rising for marketing, delivery and fulfilment. Product margins are growing tighter every day, and it costs a fair bit to acquire a customer now, particularly on Facebook and Google.

DO YOU SEE YOURSELF OPENING A FLORA & FAUNA PHYSICAL STORE?I think if we were to open a store, we’d look at it differently. Does it help us as an overall brand? That store might just be part of the brand experience, and if that helps customers shop online with us, that’s cool. There are six to eight touch points before someone buys – so many pieces of the journey that you have to look at your business overall. So quite possibly, it’s something I’ll think about.

We also have to ensure we’re squeaky clean – we’ve said we are cruelty-free, so that has to be the truth.”

“


Technology is at the forefront of Super Retail Group’s evolution, with new store formats beginning to mix the online and bricks-and-mortar experience, says CEO Peter Birtles.

Drivingtechnologicalgrowth


WHAT WAS SUPER RETAIL GROUP’S MAIN BUSINESS FOCUS LAST YEAR?Our focus has been on safety, team engagement, customer advocacy and business improvement. Our engagement levels continue to be up inside the top quartile of Australian businesses. We have built strong loyalty programs with about 5.5 million active members and have seen a significant increase in the

net promoter score ratings from our loyalty members.

NOW THAT YOU’VE CONVERTED AMART STORES INTO REBEL, WHAT CHANGES DO YOU EXPECT TO SEE IN THE BUSINESS?The decision to focus on one single core brand within our sports division will combine Rebel’s strengths in options and services with Amart Sports’ customer service excellence into one strong national sports retailer. Rebel will focus on engaging both the casual enthusiast and serious competitor with a full range of products and services.

WITH DECATHLON AND JD SPORTS LAUNCHING IN AUSTRALIA, HOW WILL REBEL STAND ITS GROUND AGAINST THE BIG INTERNATIONAL

BRANDS?At a macro level, revenues are expected to continue to benefit from a greater focus on healthier, more active lifestyles. The continued strong performance from Rebel is reflective of that.

THE SPORTING GOODS CATEGORY IS CONSIDERED VULNERABLE TO ONLINE COMPETITION, ESPECIALLY AMAZON. DO YOU HAVE PLANS TO MANAGE THAT?We have built a group of businesses that work in markets where customers are looking for more than product. They buy products to support a passion, be it landing an 80cm barramundi or running 10kmin 40 minutes. We can engage the customer in store or online, offer them related information and services, and build a relationship based around their passion.

RETAIL PROFILES


Retailers need to be very clear about how they differentiate themselves. The middle ground will become a harder space to work in.”

“YOU DESCRIBE THE SUPERCHEAP AUTO STORE IN PENRITH AS A CUSTOMER EXPERIENCE CENTRE. WHAT MAKES IT DIFFERENT?Supercheap Auto’s new customer experience centre is an immersive experience where digital is integrated into the store environment, and it’s one of the ways in which we are exploring omni retail.

Key features include a 24-hour parcel-collection service, a 60-minute click-and-collect program, Tesla electric-vehicle charging, nitrogen tyre inflation, windscreen chip repair, car babyseat fitting demonstrations, a service concierge, an occasion-based layout with products grouped by category or use, a stadium-style hanging octagon with 360deg digital screens offering personalised content, and external LED screens.

More broadly, it provides a “test and learn” environment in which we can continue to develop insights and innovation. We will also be looking to open some new-format stores across both our auto and sports businesses this year.

CLICK-AND-COLLECT HAS BECOME A MAJOR PART OF YOUR STORES AND IS STARTING TO BE EMBRACED BY MANY RETAILERS. WHAT ARE THE CHALLENGES, AND HOW CAN A RETAILER GET IT RIGHT?Building near-real-time and seamless integration across store and online systems is a critical component of a successful click-and-collect offer, but we have found that working processes are even more

important. Firstly, you need strong stock

integrity to ensure information presented to the customer is accurate, a focus from the store team to ensure it is responding to click-and-collect orders in line with service standards, and the setting up of a click-and-collect area for customers in a highly visible and convenient spot within the store.

HOW ARE YOU TAKING THE SUPERCHEAP AUTO BRAND INTO NEW TERRITORY?The diagnostic and digital components of cars today demand technology not commonly available in the average workshop. At the same time, customers feel there should be a better alternative to having to change their own wiper blades, and that it should come at a fair price.

Supercheap Auto has established a JV with Bosch that recognises the market potential created by the rise of the “do-it-for-me” customer – an independent technology-driven full-service auto workshop offering.

WHAT DO YOU SEE AHEAD FOR THE AUSTRALIAN RETAIL LANDSCAPE IN THE NEXT 12 MONTHS?Retailers need to be very clear about how they differentiate themselves. The middle ground will become a harder space to work in, and retailers need to make a choice as to whether they will deliver the best prices, focus on providing a niche or luxury offer, or invest in becoming real category specialists.


How sweet

Evolution, rather than revolution, is the guiding principle at Gelatissimo, where international expansion plans are ready to roll

out this year, says CEO Felipe Barbosa.

life isBY STEPHANIE WANLESS

SINCE LAUNCHING IN 2002 WITH A STORE ON SYDNEY’S King’s Street, Gelatissimo has cemented itself as a major gelato player. Its retail presence continued to grow last year with a further four stores in Artarmon and Wetherill Park in Sydney, Chermside in Brisbane and Bundaberg in Queensland, taking its total to 44.

Over the past 12 months, the brand has placed significant focus on product and flavour development to ensure customers have a reason to keep visiting its stores.

“On a wider front, geographical diversification was also an area we concentrated on and which should start to show results in the coming year, both in Australia and in the international space,” says CEO Filipe Barbosa, who has been with the company since the beginning in a variety of roles, and began leading the brand in 2013.

Particular success has come in China, with three stores. Barbosa believes the inevitable momentum in the coming year will help the brand grow further.

“The US is still a work in progress,” he says. “We are seeking to put the right partnerships in place before we pull the trigger.”

Delivery is a huge issue for all retailers, and food retail has been particularly disrupted over the past 12 months. It’s about embracing the opportunity to get products to people in different ways, Barbosa says.

“We’ve certainly seen huge growth in the popularity of home delivery,


My question is always whether a new entrant is a ‘one-hit wonder’ with another fad product, or whether they’re here to stay for the long haul.”

“

RETAIL PROFILES


with the entry of offerings such as Uber Eats,” he says.

CUSTOMER FEEDBACKAs well as catering to the demands for delivery, Gelatissimo also continues to evolve its offering based on customer feedback.

“Innovation has been evident for a number of years, and continues to grow and influence Gelatissimo,” he says. “We have had consumer demand increase for innovation, and this continues to influence what we do.”

All innovation has to be true to align with the Gelatissimo brand,

of course. “Our menu is about providing the choice of flavours made fresh in store, both traditional and contemporary.

“We won’t be doing anything crazy. However, we will continue to offer our premium flavours of the month, as well as those slightly more quirky options like Coconut Ash [activated charcoal with coconut].”

Barbosa intends to continue on a path of incremental growth this year. It will continue its online offering with more creative content, including video. “We’ve become more active in the digital space in the past few years, but certainly still have room to grow and improve.”

NEW ENTRANTSMeanwhile, the gelato market continues to be very competitive with a multitude of new entrants every year, challenging the status quo. “My question,” says Barbossa, “is always whether a new entrant is a ‘one-hit wonder’ with another fad product, or whether they’re here to stay for the long haul and provide a compelling customer offering.”

He says he is also intending to keep a close eye on the food-truck scene to see how the space develops. “It’s obviously a bit of a trend, and it will be good to see if it is just a fad or something that is here to stay.”

Over the next 12 months or so, Gelatissimo’s retail target is to reach 50 stores in Australia, and have

a presence in three international territories. The brand currently has offshore stores in Bangladesh, China, Kuwait, Saudi Arabia, Singapore and the Philippines. High leasing costs, he acknowledges, will continue to be challenging in the years ahead as profit margins are squeezed.

“We’ll continue focusing on much of the same activities we have in past year, with an emphasis on controlled growth of four to five more stores and continuing to support our franchise network,” he says.


Lap of

Luxury institution Harrolds’ enviable commitment to continual evolution and delivering a stellar customer experience means business continues to grow at an

impressive rate.

BY STEPHANIE WANLESS

HARROLDS HAS BEEN A LUXURIOUS FIXTURE ON Melbourne’s Collins Street since the 1980s. The family business, known for its impeccable menswear, launched a womenswear store in Sydney in 2015, and the refurbishment last year of its Collins Street flagship store saw the introduction of womenswear into what was once strictly a male domain.

“The Sydney womenswear store has been a great success, and we wanted to recreate that in Melbourne under the one roof and create Australia’s luxury department store,” says Harrolds managing director Ross Poulakis.

“We took 550sqm on the lower ground, which was previously a car park, and did a full refurb of the store. As well as luxury womenswear on the ground floor, we have men’s and women’s contemporary on the lower ground.

People called us crazy for having men’s and women’s clothing on the same floor men would not shop in that context, but we’re seeing the polar opposite. A lot of brands are bringing out unisex collections now, so it has worked to our benefit.”

FOCUS ON EXPERIENCEBricks-and-mortar retail has faced huge challenges from online stores, but for Harrolds there has been little competition. Far from a transactional approach to retail, Harrolds focuses on the experience it delivers to customers.

And, says Poulakis, its best selling product is not the new season’s hottest fabric or an innovative cut, but something intangible.

“First and foremost, we sell confidence,” he says. “The product is

When we were little, our father would tell us that if you stay still, you die in the retail environment.”

luxury

“

RETAIL PROFILES


almost only secondary.”It is a consistent approach, regardless

of generation. “We don’t differ our experience

whether the customer is a millennial or gen Y, because luxury is luxury,” says Poulaskis. “When you’re buying a luxury product, you need to ensure you have that luxury service, and the customer is actually walking out confident and excited.

“People need to have the same luxury experience, no matter who they may be or what they are buying, but obviously you can talk to them in different ways.”

LACK OF RESEARCHIn the Australian luxury market, a number of brands are opening mono stores, environments where they can position themselves exactly as they see fit. It has been dubbed as the luxury retailer’s biggest challenge, but Poulakis sees it slightly differently.

“The mono-brand stores coming in really haven’t done their research. They

are seeing different sales in the Asian market, in China and Hong Kong for example, and their next thing is, ‘Okay, how many stores can we open in Australia?’.

“Now, you can’t go and open three boutiques in Melbourne. It’s not going to work. Australia does not have the population to warrant all these mono-brand luxury stores. They’re going to face extremely high leases, and this is going to be an issue in the next five years.

“We are actually gaining momentum from that because those brands are spending significant amounts of money on marketing.”

SUITING THE MARKETNoticing a global decrease in the sale of men’s suiting around a mid-price point of $2,000 to $4,000, Harrolds has rethought its own label, focusing on Italian-made suiting. Now coming in at the $1,200 price point, the suits are aimed at the everyday businessman

who will no longer spend $2,000 to $4,000. So far, the tactic is working.

“We’re seeing increased sales of suits that are $4,000-plus, but that middle-market suiting has really been affected, and that is where our private label was priced at,” says Poulakis.

Going in at a lower price point has reaped rewards.

“It’s taken us a bit of time, but we really feel that we are executing it perfectly at the moment, and we’re really going to look to build the private Harrolds label, within the store – not just suiting, but maybe look to introduce some casualwear as well.”

LOOKING ONLINEThe passion to continually progress has been ingrained in Harrolds for more than 30 years, and the next area of focus is creating an online store that complements the experience of shopping in its stores. Some serious international expansion is also in the pipeline.

“The greatest challenge is continuing to strive to be the best,” says Poulakis. “When we were little, our father would tell us that if you stay still, you die in the retail environment. So the greatest challenge is just constantly trying to reinvent ourselves.

“This year we’ll launch an online store. It’s in the development phase at the moment. Aside from that, it would be good to actually just have a year of consolidation and focus on driving more traffic into the stores, and giving an even better customer experience.”

That is not to say there won’t be significant work going on behind the scenes.

“My goal is to have the business in an international market. It’s in the pipeline – it’s something that just needs more research.”

Poulakis is not talking about specific countries or cities just yet, “but let’s just say it is a model that will work in any city on any continent”.


Flyinghigh

RETAIL PROFILES

Airport retail and catering to travelling customers presentsexciting opportunities, combined with some unique challenges,

says head of retail at Sydney Airport, Glyn Williams.

HOW WOULD YOU DESCRIBE 2017 AT SYDNEY AIRPORT, RETAIL-WISE?We had an incredible year of delivering globally recognised retail offerings and we’re proud to showcase a revitalised T1 international terminal to the world, rich with value, range and choice.

The luxury fashion precinct is now complete and features 13 global designer brands such as Tiffany & Co., Hermès, Rolex and Gucci, delivering a premium shopping experience for passengers.

We unveiled gourmet food precinct City View, featuring Kitchen by Mike, The Bistro by Wolfgang Puck and Heineken House, elevating the dining at T1. Meanwhile at T2 Domestic, the new casual dining precinct offers a fresh new mix of healthy food brands, which is leading to greatly improved

customer satisfaction scores. We also began transforming the retail mix at T3 Domestic to cater to the affluent business traveller.

TELL US ABOUT THE ‘ROAD TO RUNWAY’ STRATEGY AND HOW AND WHY T1 HAS BEEN TRANSFORMED.Our retail strategy encapsulates a holistic view of the customer journey, from the time a customer is booking flights online and researching travel destinations to their departure. We coined this the ‘roadway to runway’, focusing on how we can enhance the customer’s whole airport experience.

We do this by working across a range of platforms, from free wi-fi to geo-targeting and dynamic wayfinding, to building one-on-one engagement with every passenger who we understand

wishes to be constantly connected, delivering them relevant information.

We have transformed T1 and its retail product mix to include the best global and local brands to suit our evolving passenger mix. This includes securing over 25 first-to-Australian airport brands and 12 first-to-Australia brands, as well as airport exclusive products.

We’re very proud of the partnerships we’ve secured with chefs including Wolfgang Puck, Luke Mangan, Mike McEnearney and Shannon Bennett to deliver an elevated dining experience at Sydney Airport.

HOW IS THE TRANSFORMATION GOING AT T2 AT THE MOMENT? The transformation at the T2 Domestic terminal is moving along nicely. We’ve had huge demand from brands looking to take up space in the casual dining


precinct, which now includes Chur Burger by Warren Turnbull, a first for an Australian airport, and SumoSalad Green Label.

The The passenger traffic at T2 puts it on the same level as a super-regional shopping centre, yet our retail footprint is only 6,000sqm; the brands need to work twice as hard to cater to the busy domestic traveller.

We’ll shortly start work on further improvements at T2 that will see the introduction of 10 new retail tenancies to deliver a revitalised mix of lifestyle brands for visitors, enhancing value and choice.

WHAT PLANS DO YOU HAVE FOR T3? We have extensive plans for T3, informed by extensive research on how domestic travellers interact with retail at Sydney Airport. Our affluent T3 passengers often hail from regional locations where the brand mix doesn’t have a presence and have a higher propensity to spend and capitalise on a range of lifestyle brands they wouldn’t otherwise experience.

HOW IS THE AIPORT RETAIL CUSTOMER DIFFERENT TO THOSE IN SHOPPING CENTRES OR ON THE HIGH STREET?Customers travelling through an airport are in a totally different frame of mind to those walking around a shopping centre.

Once in Departures, customers are relaxed, there’s a desire to shop and high propensity to spend. Coupled with the extended dwell time, the conditions are optimal for customers immersing themselves in a great shopping experience.

HOW WOULD YOU DESCRIBE THE DIFFERENT RETAIL EXPERIENCES FOR CONSUMERS IN T1 AND T2 AND HOW ARE THEIR NEEDS DIFFERENT?We’ve focused on segmenting the terminal ‘personalities’ to deliver a retail mix to suit our passenger profiles.

At T1 International, we’ve harnessed the best of global and local brands, while at T2 Domestic, we’ve secured a range of urban lifestyle brands that resonate with busy domestic travellers.

In the future, T3 will be a hub rich with brands that suit the affluent business traveller.

WHAT TOURISM AND TRAVEL TRENDS DO YOU HAVE YOUR EYE ON YOUR 2018 AND HOW WILL THEY IMPACT RETAIL AT SYDNEY AIRPORT?While we’re very conscious of current travel trends, at Sydney Airport, we’re focused on the airport of the future, which will be incredibly connected and seamless.

Customers will be able to better plan their time at the airport from home and have a streamlined experience when they arrive, as many of the airport processes we go through today will be transformed using biometrics and other technologies. This will make it easier to do everything from paying for parking and finding your check-in counter to shopping at duty free and accessing relevant retail offers.

WHAT IS THE FUTURE OF AIRPORT RETAIL?Delivering a considered retail mix rich with experiences is paramount. Brands must resonate with the passenger demographic, while delivering brand exclusivity and concepts that cannot be experienced anywhere else. For example, at Sydney Airport we’ve delivered innovations including Australia’s first airport gift card, yoga room and pre-flight food pack in response to customer preferences for bespoke experiences and healthy options.


EXPERT FORECASTS


Change is a-comin’As technology rapidly moves forward, it’s time for businesses

to step up to the challenge and evolve.

EXPERT FORECAST

ALTHOUGH THE CURRENT RATE OF TECHNOLOGICAL change and its impact on retail is rapidly increasing, it is set to accelerate even more with the advent of the next industrial revolution.

The invention of the microchip in 1959, the catalyst for the third industrial revolution, led to the exponential growth that brought us to the current digital era.

We are now on the verge of entering the fourth industrial revolution – a period of rapid transformation driven by the advent of cyber-physical systems (CPS).

CPS includes technologies like driverless cars, smart robotics, lighter and stronger manufacturing materials and smart grids. The fourth industrial revolution will blend the physical, digital and biological worlds – everything will be ‘smart’, ‘automated’ and ‘connected’.

Some of this technology is already close to reaching consumer adoption. For example, all Tesla vehicles are now equipped with the hardware necessary to make them autonomous.

The fourth industrial revolution will also bring about the era of ‘smart retail’ as consumer technology becomes an immersive experience.

Imagine owning a fridge that automatically lets you know when you’re low on milk and places an order on your behalf at the nearby convenience store. Or heading to your favourite sushi place for lunch, where the GPS location of your phone has alerted it of your arrival. As you head to the counter, the electronically displayed menu highlights today’s special, predicting that you will enjoy it, based on your previous order history.

Other technologies such as blockchain and cryptocurrencies could also be incorporated, serving to completely automate the recording and payment process of each transaction.

We believe this future could be feasible within 10 years or less, as much of this technology already exists and is simply in the process of being commercialised. Think Amazon Go –

the store with no checkouts.

AGILITY TO STAY RELEVANTAdapting to such a high level of pace and change requires retailers to be agile, innovative and completely customer-centric.

After all, some of the most common factors that lead to a retailer’s failure (such as a lack of business model innovation and mismanagement of inventory) are often due to complacency, which is typically born out of hubris.

Best practice retailers keep up with the changing needs of their customers and make a concerted effort to organise their business models to deliver, support and strengthen customer engagement.

Every retailer will claim that their business is customer-centric. But the reality is that there is a significant gap between what they think they are delivering and the true satisfaction of their customers.

Some companies are guilty of being too focused on their product – many have a ‘build it and they will come’ mindset. On the other hand, customer-centric businesses put customers at the heart of their operations, which creates repeat buying, advocacy, retention and loyalty.

READY FOR CHANGE?Traditional retail business models are often product-led, where the various functions operate in silos and fail to deliver a seamless customer experience.

On the other hand, a truly customer-oriented retail business is based on a ‘customer-pull’, not ‘product-push’ model. It leverages customer insights backed by data analytics to assist decision-making. It also has the following traits:

• Integrated cross-functional business processes that deliver a seamless customer experience, enabled by technology;

• A structure and performance incentive framework that facilitates and rewards teamwork and collaboration across functions.

Does your business look more like (1) or (2)? Is your business truly customer-oriented? Do you know exactly who your customer is and what they want? Is your business model able to adapt if your customer’s needs change?

Responding to your customer in a changing environment isn’t just about being tech-savvy. It is about how your business thinks, how it is structured and how it executes.

BY NEERAJ SHARMA, Partner, Head of Performance Improvement – Azurium


“WE NEED BANKING, BUT WE DON’T NEED BANKS ANYMORE.”– Bill Gates 1994

This famous quote was uttered almost 24 years ago and for many futurists, it may have taken longer than expected but in 2018, established players in every industry would concede (at least privately) that their organisations are facing a sustained threat to their traditional business models.

Evidence of this is everywhere – from Uber and Lyft in the transportation industry, to Airbrb in hospitality and Amazon in retail. Facebook’s Mark Zuckerberg helped to create an industry that did not even exist back in 1994. The change confronting organisations today is at its greatest since the industrial revolution.

What are the key technologies enabling this disruption and how can organisations approach technologists to disrupt themselves and drive their own turnaround?

THE CLOUDThe cloud is the building block for most disruptive success stories, as the capital constraints for go-to-market (especially the hardware element) are removed.Amazon, via their Amazon Web Services (AWS) subsidiary, is a great example of this disruption. Initially developed so Amazon could scale its online store empire, it was so revolutionary the service is now offered more broadly and AWS was born.

Cloud-based solutions enable small businesses to access infrastructure, platforms and software that has traditionally been cost-prohibitive. Physical IT infrastructure isn’t required and businesses have greater flexibility when growth or bandwidth fluctuates.

BIG DATAThe development of distributed forms of databases has been the biggest innovation, making data a disruptive technology. These new types of databases are scalable, faster and cheaper, enabling

companies to analyse and interrogate large amounts of data both structured (eg. spreadsheets and customer records) and unstructured (eg. email messages and social media) to generate rapid insights into customer and product behaviour, driving profitable business decisions.

ARTIFICIAL INTELLIGENCEAI is currently the least mature of the disruptive technologies, but is likely to drive the biggest transformation of business models over the next decade. In its most basic form, AI represents a shift from humans telling computers what to do, to computers learning for themselves.

While the application of AI has manifested itself in everyday applications such as Amazon’s Alexa and Apple’s Siri, its transformational potential to business models is much broader.

A recent report by Goldman Sachs identified a raft of productivity use cases, many based around the automation of processes. It is estimated that by 2025, this application of AI can deliver cost savings of up to $54 billion in the retail sector alone.

IT ARCHITECTUREThe evolution of IT architecture over the last decade has also played a significant role in the rise of digital disruption. Traditionally, organisations undertook multiyear programs to develop software.

However, in a time of rapid technology development, these programs can become obsolete before they can even be fully implemented. To solve this problem, organisations who are more exposed to rapid growth, such as start-ups, have adopted a new method of software development known as ‘microservice architecture’.

Essentially, software is developed as a suite of smaller modular services

which can then be combined and reused to meet any number of future IT software needs.

Along with this has come the ability for IT

systems to exchange vast amounts of information or data with each other through Application Programming Interfaces (APIs). APIs allow any other (external or internal) IT system to plug into a database or information repository and extract it in a standardised way.

From a retail perspective, retailers with significant amounts of internal data can share this information through APIs, enabling third parties to develop apps which, for example, can make product recommendations based on purchase history. From an operational perspective, APIs can give store staff access to inventory levels in other stores or the warehouse to help customers find out-of-stock items in other locations.

HOW DO YOU EMBRACE DIGITAL?Embracing digital to turnaround an organisation has three key elements – engaging, incubating and executing:

1. Engaging within the business to validate existing strategies (if any), assessing the maturity for adoption and developing roadmaps for the future.

2. Incubating by building and teaming with digital partners to accelerate capability and unlock value.

3. Executing to make the strategies come to life by identifying the appropriate partners, overseeing execution and validating the financial benefits.

Cost reduction and speed, enabled by technology is now key for any organisation, particularly those facing the threat of disruption.

Disruption is real

With technology and innovation changing at the speed of light, how do businesses keep up and stay on top?

BY IAN RENWOOD, Partner, Head of Digital – Azurium

EXPERT FORECAST

The cloud is the building block for most disruptive success stories.”“


Big data, big deal?

Last year, big data was one of the hottest topics in retail. But which retailers are actually using their analytics to become more customer-led businesses?

BY DR IAN THO, Executive Director, Head of Analytics – Azurium

EXPERT FORECAST

MANY BUSINESSES HAVE JUMPED ON THE BIG DATA bandwagon in recent years with great success, but we thought it is pertinent to consider what’s next, especially when businesses are becoming complacent and even downsizing their analytic capability once their initial analytics investment has delivered a return.

Big data accompanied by expert analysis and advanced analytics can be brilliant in helping a business become more successful, along with being truly customer-centric and in touch with actual shopper behaviour.

A case in point is a large retailer we have worked with that has made significant in-roads in the Australian retail industry over the last 10 years thanks, in part, to using their own data to better understand customer behaviour and engineer strategies to sell more items, more often, every day.

As easy as it sounds, the task of being truly customer-centric is a difficult one – from marketing and buying to operations and logistics – but a task made easier with the business being lead from the top. Sure, like most, this retailer had a target market and unless you were a mum aged 25-45, this retailer most likely failed to engage you.

However, that changed when data proved that most of the population visits this store on an annual basis and focusing on only one group or segment was limiting its growth.

An example was the demographic of young adults ‘fleeing the nest’ – they aren’t the biggest spenders on an annual basis nor do they return that frequently. But when they visit, they spend big on everyday items, so why ignore them? This also applied to empty nesters and retirees who need ‘stuff’ from time to time and have grandkids to spend on. So again, why ignore them?

Offering products to all demographic

segments with accompanying marketing campaigns that brought all ages and lifestyles together became the norm and soon the magic key to sales growth was unlocked.

We are not saying that targeting everyone for your business is right. But take stock of what you sell and truly understand your customer. If there are items that appeal to more than just your core demographic, then maybe a reset is in order.

OBSTACLES TO OVERCOMEHow many companies are utilising their data as well as they could? In our experience, we would suggest not many.

This can sometimes be due to a lack of expertise and other times, a lack of autonomy to help shape strategy.

Data is often used to back up a theory or provide evidence that something exists, but how many companies let their data actually shape strategic direction?

Many companies with customer data give a lot of lip service to the phrase ‘we are customer-focused’, but few deliver. They either fail to mine their own data for insights or simply do not listen to how their customers’ thoughts,

feelings and beliefs are shaping their product or service.

Big data can also become a hindrance if companies have the data (either internal or a purchased third party dataset) but don’t know what to do with it in creating strategic insight that drives marketing strategy and commercial outcomes. Why are you purchasing or capturing data if you aren’t using it? How could your business benefit from interrogating such data sets?

During a turnaround phase, quick wins through data interrogation and analysis can be easily identified and enacted. But what happens in a business that has seen success after a

rebuilding phase and is now maturing to grow to new heights whilst greater profits are becoming more difficult to find? All the low-hanging fruit provided by the data insights has been ‘picked’, so what next?

Then the questions start: “Should we save a few dollars, given we know a lot already and begin to scale back our big data and analytics capability? Or maybe even divert that money to the emerging digital space as a source of insight and tracking customer behaviour?”

These are realistic options but not what we would embrace if you are after long-term sustainable profits.

This is where complacency creeps in. It is any area of your

business that can be damaging and is no different with your data capability. Cost cutting for a short-term gain and losing analytic capability and experience can become a crutch at a time when arguably, you need to put the pedal to the metal with analytics and grow its capability even further.

When the quick wins are over, uncovering finite detail about your business or customers is crucial to stay relevant, no matter what industry or business you are in.


3 marketing trends to watchAs rapid changes shake up the world of retail this year,

businesses need to realise the power of data.

BY PRESSY SANKARAN, Criteo ANZ commercial director

AS THE WORLD OF COMMERCE CHANGES RAPIDLY, THIS IS NOT the time for rest if you are an Australian retail business that wants to stay competitive. With global giants continuing to open for business here, innovation will be key to staying ahead over the next 12 months.

Over the past year we have seen the number of mobile-first shoppers increase significantly, with retailers taking steps to understand the customer journey and deliver a more personalised shopping experience. Retailers came to understand the importance of harnessing customer data to increase overall spend.

This year, this trend is likely to develop twofold, as data

collaboration initiatives and offline/online integrations form a basis for commercial success. Customer data has become an essential requirement for Australian retailers and brands looking to better understand today’s omnichannel shopper.

1. THE RISE OF VOICE SHOPPINGVoice-recognition technology will revolutionise commerce this year, changing the way consumers buy online. Already, through the use of Android and iPhone devices, Australians are becoming increasingly familiar with using voice command. From setting alarms to making calls, voice commands are slowly but surely replacing keystrokes and swiping.

The rise of integrated technology

The key will be to deliver a seamless and relevant shopping experience across all devices and channels.”“

EXPERT FORECAST

Amazon’s Echo or Google Home, suggests that even more mobile-first shoppers will turn to voice activation, not only for convenience but to simplify and speed up the shopping process.

2. THE CONVERGENCE OF ONLINE/OFFLINE RETAILCustomer data is key, and throughout this year, it will be crucial for retailers to seek partnerships that help them to not only capture both offline and online data but to also use it to increase their reach and customer spend. In particular, major retailers will be placing an increasing emphasis on driving offline foot traffic to online interactions. By doing so, they will be able to capitalise on upsell opportunities and gain a better understanding of buying habits.

The competition in the ecommerce retail space in Australia is at an all-time high, but to stay competitive, Australian retailers will need to improve their use of in-store CRM data to find and reach consumers online, with personalised campaigns for re-engagement and upsell.

3. THE POWER OF PRODUCT-FEED OPTIMISATIONCustomer expectations are at an all-

time high, and in the coming months mobile-first shoppers, in particular, will be wanting a seamless shopping experience. Retailers seeking to improve conversion can do so by ensuring that product-feed assets, including descriptions and images, are of the highest quality. Contextual product photos, high-resolution close-ups and 360° images will become crucial in giving shoppers the best online experience.

Along with a seamless aesthetic, fulfilment will be the focus of retailers this year, as many look to offer better ways for customers to collect products bought online from their stores.

Major retailers will continue to drive customer expectations, with options for free shipping or return quickly becoming the norm, along with online customer service access and speedy response times.

The key for Australian retail businesses this year will be to deliver a seamless and relevant shopping experience across all devices and channels. We are living in an experience-based economy, and whether they work online or offline, businesses need to create innovative customer experiences to help them to stand out from the crowd and to build loyalty. This means optimising their data strategy and putting that information to use.

It is only by personalising the shopping experience for each individual that businesses can truly connect with their customers in new and meaningful ways.


Six retail predictions: true or false?

While there have been manythoughts on how the retailsector may have evolved inthe past 12 months, it is hardto separate reality from thehype. Here are six insightsfrom experts on what’sin store.

BY DAVID BRAY, sales director of retail for Netsuite in ANZ

EXPERT FORECAST

1 Amazon’s arrival signals the end for retailersIt was a year of speculation and

doomsday prophecies after newsbroke of Amazon’s impending arrivalin Australia. While it all was a bitoverhyped, the news has hopefullyprompted retailers to prepare forinevitable disruption. Most agree thatit is not a matter of if Amazon willsignificantly disrupt the industry, but when. You need only look at theimpact Amazon Prime has had on the US to see what’s in store for Australia.

Major department stores have downsized and many retail brands have closed shop completely. Shopping centres and malls are most at risk, and retailers cannot rest on their laurels. If not from Amazon, disruption is sure to come from other emerging players and technologies.

2 It’s easier than ever to compete on costSpurred by greater connectivity

and mobility, the growth of online retail has enabled more retailers to reduce manufacturing and shipping costs, increase profit margins and offer increasingly competitive prices. But this will not be a key driver of growth for too long.

PricewaterhouseCoopers research has found that nearly 45 per cent of shoppers say convenience is the main reason they shop online. If low prices are your key differentiator, you could be in trouble, especially when the competition heats up. For instance, many might credit low prices for Amazon’s success, but in reality it is more about the experience.

From vast product selection, price comparisons, authentic reviews, fast shipping and personalised product recommendations, the “a-ha” moment for Amazon is that it makes shopping

convenient and easy. Personalisation permeates its customer interactions, regardless of the channel – the “it factor” other retailers are striving to achieve.

3 Stores will turn into showroomsPhysical stores are valuable assets

for brands in what is becoming an increasingly nuanced customer journey. Many customers still want the option to walk in, touch and feel products, or walk out with what they want, right then and there. Others, however, want to try in store and buy online.

Showrooming will continue to be a key retail trend as brands look to provide special in-store experiences that drive online engagement. The key to success is ensuring the link between the two is seamless for the customer, and that brands collect valuable insight for those in-person visits and put it to use at key touchpoints.

4 We won’t recognise the store of the futureThe stores of the future will

enable a better, more personalised and data-driven shopping experience for customers, but they won’t look too different from what we see today. The biggest change will be the amount of technology embedded in our stores, from the use of smart devices, beacons and proximity-targeting to robot-aided shopping.

Cash registers may be demoted to the back of the store, as workers increasingly rely on mobile point-of-sale (mPOS) technology. mPOS terminals will accept a variety of payment methods, email customers their receipts or warranty information and help collect valuable customer data along the way.

Technology will decrease reliance on staff but store workers are likely to be more specialised and able to provide

context and insight into product benefits and uses.

5 Data will be the key driver of growth in retailData presents both the biggest

challenge and the biggest opportunity for retailers. Right now, most retailers do not have a 360° view of their customers to guide engagement. They often act on limited information using legacy systems and disparate data sources. Those who can collect and analyse the data might not be quick enough to execute, wasting much of the potential value.

Regardless of retailers’ abilities, customers expect a seamless experience, whether they are browsing on their phone or walking down a store aisle. It is critical that retailers explore ways to update their capabilities to gain a more holistic view of their customers – to better understand behaviours and trends that will impact their bottom line.

6 Will the “little guys” be able to keep pace?With retail’s biggest giant

looming over Australia, some seem to think that small businesses are most at risk. Often, however, these small and microbusinesses are already relying on cloud technologies that enable them to be agile and responsive in the face of disruption.

This transition can be slow and cumbersome for major players, leaving them vulnerable. Small retailers might not have deep pockets to invest in advanced technology or marketing and advertising campaigns, but one major factor is on their side – they are much closer to the customer. This is the era of the customer and a commitment to customer-centricity will serve small businesses well, even in a David versus Goliath landscape.


Delivering success for retailers

As the boom in online shopping continues and Amazon shakes up the industry, fast, reliable deliveries of purchases are becoming even more important.

BY JAMES CHIN MOODY, CEO and co-founder, Sendle

EXPERT FORECAST

GIVEN THE GLOBAL POWER AND INFLUENCE OF ECOMMERCE, as well as the pressures and opportunities presented by Amazon’s local launch, it came as no surprise that last year, online shopping boomed in Australia, particularly during the holiday season.

But now, many ecommerce business owners are trying to determine what tools and knowledge they need this year to continue adapting to such a fast-paced, vigorous industry.

Knowing what is coming can mean the difference between a business that thrives and one that just gets by, but it is absolutely critical that ecommerce leaders also educate themselves about all aspects of the online retail experience in order to truly compete in the digital age.

To help guide the planning process for the year ahead, here are some of our projections on what is likely to be in store for the retail industry this year, especially in the fields of expertise, delivery and logistics.

DELIVERIES AND LOGISTICS WILL EVOLVE TO SUPPORT ONLINE RETAILERSThis year, the stakes are higher for retailers to ensure they get delivery right. Shipping and logistics cannot be considered separately from the online retail industry. Instead, they are vital elements of the entire ecommerce ecosystem.

This year, the cart, payment and shipping trifecta will merge into one experience. A customer’s experience with any of the three will impact their perception of the brand and the overall emotional and retail value of the purchase, so it is important for retailers to invest in payment and shipping services they can depend on.

Likewise, couriers play a critical role in supporting each retail business that they service. Meanwhile, business owners should seek out logistics service providers that can act as a natural extension of their online or physical store experience.

LAST YEAR’S BARRIERS ARE THIS YEAR’S OPPORTUNITIESThe pain points small businesses faced last year will be addressed this year. Barriers to online shopping such as long shipment times, high shopping costs, lost or stolen packages without insurance, poor tracking and lining up at the post office will be addressed by agile, innovative startups in the space.The result? Those who embrace these changes will win.

FREE SHIPPING WILL LOSE ITS SHINEFree shipping is almost the norm in many high-margin categories and will no longer be a differentiator for businesses. As a result, subscription-based shipping services for these high margin items will become extinct.

Also, some experts predict that within five years, 20 per cent of Australian ecommerce will be with overseas customers. As local retailers reach a more global customer audience, delivery services will have to keep evolving to connect them with overseas markets. Retailers will need to find a reliable logistics partner with international reach and consider flat-rate pricing options to stay competitive.

AGILE SMALL BUSINESSES WILL BENEFIT FROM AMAZON’S ARRIVALAnd while on the subject of offering the lowest price in the market, Amazon is expected to do in Australia what it has already done in other markets around the globe: redefine the rules of convenience and delivery for customers by offering unprecedented low prices and lightning-fast shipping times. If true, this means local retailers are likely to be passed over if they are unable to meet the same standards.

But it is not all bad news. Experiences in the US and Canada have shown that as shoppers move to buying items online, businesses that can differentiate what they offer will also see excellent growth. Moreover, Amazon as a marketplace provides businesses with a huge, high-traffic retail platform.

For larger, established enterprises with legacy infrastructure, similar change is possible, but it is much harder and slower to take effect. As they say, “it is better to be at the table than on the menu”.

Small, agile businesses that can react quickly and take advantage of new technologies and logistics networks will be the ones that truly shine.

Some experts

predict that within five years, 20 per cent of Australian ecommerce will be with overseas customers.”

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