Improving Retail Margins and Profitability: Practical Strategies to Consider
August 2023
Investing right now, in a multi-channel approach that is on-brand, with a focus on ethics and sustainability, could not only see Australian retailers through this crisis, but in a much stronger position once consumer sentiment improves.
Ecommerce is booming. Australia Post is delivering about 1.8 million parcels a day. Online department store purchases have increased 5-fold and fashion purchases have trebled.
Certain categories are benefiting more than others as consumers are more conscious of their expenditure. More essential items, such as groceries, pharmacy products and alcohol are bought online than previously. However, the boost in online fashion sales is not making up for the loss of sales in their bricks-and-mortar shops. The luxury fashion sector has been hit particularly hard. Shoes in particular.
Retailers that were already selling via omni-channels pre-COVID-19, has found it relatively easy to adapt. They just needed to shift some staff and effort from the shop floor to the back of the house. For electronics and home office equipment selling omni-channel, overall retail sales are up 9.4% on last year, even with the huge reduction in retail footfall.
However, bricks-and-mortar retailers that didn’t have the time, resources or logistics in place to do Ecommerce properly (or at all) are scrambling to catch up. They have had to adapt quickly in order to survive. An added struggle is to transfer the customer experience from the shop floor to the digital space.
A successful online business needs to reflect what makes the physical store so successful. Shoppers need to see a different shopfront as often as they would when they go to a physical store. They need to be able to hunt for bargains – think limited sales events communicated via pop-up messages, SMS, email and social media. They will expect the same customer service pre and post purchase. And they will appreciate the same sense of community, which will now need to be replicated on social media.
Australia has traditionally been lagging on the Ecommerce front. Currently online retail penetration in Australia is behind other parts of the world. For instance, the UK has twice the penetration of online sales.
Online retail spend as a percentage of total retail spend (including grocery and liquor) is 9% in Australia compared with 22% in the UK. COVID-19 and its aftermath could give it a leg-up.
When consumer confidence begins to recover after the COVID-19 threat subsides, consumers will be very familiar with buying online. On top of that, as the economy slowly recovers, consumers will tend to be more frugal. Buying online allows for research on purchases as well as endless possibilities to hunt down bargains.
There is a precedent for this. A four-year Ecommerce boom started after the Global Financial Crisis; growth almost doubled over the next four years. So, it is likely that the effort that is put into online businesses now, will not be wasted in the long term.
The current state of physical distancing is fostering a sense of community and connection to our environment. Post COVID-19 consumers are likely to expect retailers to provide what they want, not only at a value price point to stretch their limited funds, but also sustainably and responsibly. Fast fashion is struggling currently as there are no events to buy new outfits for. Local businesses are getting more attention due to a feeling of ‘we’re all in this together’ combined with the practicality of delays in overseas shipping.
There are already signs now- investors are signalling a preference for companies with a positive societal impact. ESG funds are continuing to gain assets, even during what is one of the most significant disruptions to markets, and as of April 6 2020, the S&P 500 ESG Index was outperforming the S&P 500 by 2.47%.
Jane Cohen, James Stewart, Matt Darby - COVID-19: Retail’s survival and revival – KPMG Australia- 02-04-2020
Neil Kelly- COVID-19: E-commerce ups its game – Inside Retail Australia – 01/04/2020
Rochelle March – S&P Global Market Intelligence – The Positive Impact Scorecard - 15/04/2020
Kirsten Robb and Ashlynne McGhee – Waiting on a parcel from Australia Post? This is why it is taking solong - ABC News – 22/04/2020
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