The 10 rules of the new retail game

The retail landscape in Australia may not be dead, but the shifts that have taken place have certainly hurt several major industry players.

Household names such as Angus & Robertson and Colorado are prime examples of retail companies that could not withstand the changes that have occurred.

So what’s the future for retail start-ups? Are we now in a permanent discount environment and, if so, how can start-ups exploit or adapt to this?

According to industry observers, Australian retailers are too dependent on discounting and need to innovate to compete in the new, increasingly international, retail game.

Mark Ritson, an associate professor of marketing at Melbourne Business School, says while some retailers would like to think there has been a general drop-off in consumer spending, it’s not the case.

“It is not a secret that online shopping has opened consumers’ eyes to a wider range and better value. The Aussie consumer is not changing fundamentally what they buy; what’s changing is how they buy,” Ritson says.

“If anything, they are trading up. International retailers like Zara are coming to the market and doing it better. Demand is being filled by other players.”

“The Australian economy is going okay… It’s not booming but people are still buying.”

Jacqui Fernley, a senior research analyst at wealth management firm Wilson HTM, says retailers that are doing well have a point of difference.

“They tend to be branded product. It’s not just about discounting, it’s about product differentiation. If your only tool is discounting, the consumer is numb,” she says.

“Looking at [UK department store] Selfridges and Barneys New York, neither is particularly cheap. The reason someone shops there is because of the offer… no one can be Barneys in New York or Selfridges in London. It’s difficult to execute.”

“Aussie retailers have said they are the cheapest but now with the online channel they are not the cheapest. So they must be something more.”

According to Michael Lonie, a spokesperson for the National Retailers Association, the retail sector is in the midst of a revolution.

“Where is it heading? It’s not just a cyclical chain; it’s the whole structural chain. That’s the thing that people aren’t recognising,” he says.

“It used to be that the retailer held the balance of power, then the supplier. Now the consumer has all the power… That’s the big difference and if people don’t recognise that structural change, they’re going to get caught.”

According to Lonie, there are other factors weighing on consumers’ minds, none of which are helping retailers.

“There are four or five storms that have become a cyclone. Consumer sentiment is down and the savings rate is up. Petrol prices are also up but housing prices have fallen significantly in most capital cities,” he says.

“This is by far the worst I’ve seen it in 30 years – it’s far worse than [the recession of] ’92, ’93. It’s a very serious matter given what retail occupies as part of the economy.”

Colin McLeod, executive director at the Australian Centre for Retail Studies, says the challenge for start-ups is to identify a way to add value for customers.

“Unless start-ups can provide added value, they will also get caught up in the product/price cycle and will lose out to stores with lower costs,” he says.

The Australian Retailers Association believes start-ups are better positioned than most to value-add within their offering.

“Start-ups have a huge opportunity to offer service that’s flexible, high quality and often focuses on the availability of niche products, which someone may not find in a bigger or more mainstream store,” ARA executive director Russell Zimmerman says.

There’s no doubt that retailers have a responsibility to innovate or face the inevitability of further profit downgrades and closures.

Here are the top 10 ways to ensure you prosper in the new retail game.