Lower shopper prices deliver higher shareholder profits

Harrison Polites at Business Spectator recently wrote a great article on the relative profit performance of key major Australian retailers, with the graph reproduced below (with thanks) clearly highlighting the power of ‘price’, the second of the ‘Four Ps’ we were all taught in our Marketing 101 courses. Remember, product, price, place and promotion?

Well the thrust of Harrison’s article was that if a retailer that was as fundamentally broken as Kmart, before Guy Russo took over, can now rank as one of the most profitable retailers in Australia, what’s stopping the rest? He went on to highlight that a narrower range of products, better direct sourcing and fewer non-Kmart owned brands have combined to provide a constant comfort in the Kmart shoppers’ mind that they are always getting the “lowest” price for that item in a Kmart store. So they buy it, and they buy other stuff too. Just because they are comfortable, and they are there.

What he didn’t go on to say was that you don’t just generate that “linger longer, spend more” with just the lowest price. When shoppers are happy they are getting the best price, or service, or choice, or exclusivity, they will also linger longer and spend more. However, the power of price is considerable.

He also didn’t mention that if an Australian retailer with an Australian cost base can make good money with low prices, just imagine what a vertically integrated international retailer with a lower European or US cost base can make? And that’s why H&M is the latest new arrival on our “Fatal Shore”.

So what does all of this mean to the middle of Australian retail? The one or two,  or 10 to 50 store chains of fashion retailers? Well if you haven’t yet secured good prices, as defined by “close to international pure online or multi-channel retailer prices”, then your service, choice or uniqueness had better be outstanding. And even if you have that, then you need to be constantly working on your sourcing plan to lower your cost of goods so you can pass on lower prices to shoppers, whilst protecting your margin without lowering quality…too much.  

All sound too hard? Well it isn’t easy, but it is doable. And often in small business, you just have to accept that you have to do it. And when you do, the business gets stronger.

Kevin Moore is a retail expert and the chairman of Crossmark Asia-Pacific Holdings.