Australian Retail Outlook 2019 · aldi’s ‘alternative’ trend-focus camilla: fashioning more growth 38 42 46 48 expert forecasts fortifying against digital attacks recipes for

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CONTENTSFOREWORDSTATE OF PLAY2019 AUSTRALIAN RETAIL OUTLOOK SURVEY RESULTS

WINNERS AND LOSERS by Ferrier Hodgson & Azurium

JB HI-FI: FROM STRENGTH TO STRENGTHACCENT: STEPPING UP IN 2019MECCA: A RETAIL MAKEOVERMYER: WHO SAID RETAIL IS EASY?“JUST AFTERPAY IT”FRANCHISING HEADWINDS

4511

192021222324

RETAIL TRENDS by Ferrier Hodgson & Azurium

LAST MILE STANDAUSTRALIA’S NEW RETAIL CALENDARTHE AGE OF BRANDSPARENCYSTAND FOR SOMETHINGAMAZON: ONE YEAR ON

2728293032

RETAIL PROFILES

GREENLIT: HOUSEHOLD NAME TARGETS BIG 2019DYMOCKS: PAGING MORE SUCCESSALDI’S ‘ALTERNATIVE’ TREND-FOCUSCAMILLA: FASHIONING MORE GROWTH

38424648

EXPERT FORECASTS

FORTIFYING AGAINST DIGITAL ATTACKSRECIPES FOR SUCCESSMANAGING ORGANISATIONAL CHANGE IN RETAILSTAYING ONE STEP AHEAD IN FMCG

53545657

30

32

38

Australian RetailOutlook 2019

®

www.insideretail.com.au

FOREWORD

AUSTRALIAN RETAIL OUTLOOK 2019 4 |

WELCOME TO THE AUSTRALIAN RETAIL Outlook 2019, co-produced by Octomedia – publisher of Inside Retail – and Azurium.

It’s certainly been a big year in Australian retail, even by its own lofty and competitive standards.

Impacted by the effects of e-commerce, the entry of international heavyweights and consumers benefiting from having more choice than ever, retailers certainly have their hands full keeping up with the pace of change in today’s business landscape. It’s sink or swim for those in retail Down Under.

In this year’s edition we look at the latest trends set to take shape in the industry, hear from some of the largest local retail names, including the newly formed Greenlit Brands [formerly Steinhoff APAC, owner of Freedom Furniture, Harris Scarfe, Best & Less, Fantastic Furniture] and examine the results from our industry-wide survey.

Ferrier Hodgson’s consulting business, Azurium, runs the rule over the winners and losers from the retail scene and provides its customary expert forecasts.

Here’s to another successful year in retail, happy reading!

DIMITRI SOTIROPOULOS Editor

From the editor

2018 in reviewRETAILING ISN’T EASY AND 2018 PROVED to be another challenging year for many retailers.

Roger David and Laura Ashley entered administration and we saw Esprit announce the closure of all Australian stores as it exits the Australian and New Zealand markets.

Department stores continued to feel the pinch as digitised consumers challenged business models. A slew of scandals resulted in a parliamentary inquiry into the Australian franchising industry.

The year saw a number of changes begin (or continue) to take place. Australia’s traditional retail calendar is being transformed by the growing number and size of retail events in November placing pressure on traditional Christmas trading. In addition, shifts in consumer behaviour are placing greater value on transparency and demand for retailers to stand for something.

And while broadly the retail market remains tough, many retailers made 2018 a year to remember. Amazon Australia bolstered its range and introduced the highly anticipated Amazon Prime, and we saw Afterpay transform (and reap the rewards) of the adoption of new payment solutions. Retail heavyweight JB Hi-Fi defied its critics and continued to perform strongly and the digital transformation of Accent Group’s brands [Footlocker, Platypus] saw it post record profits.

The stage is set for a big 2019 for Australian retail.

JAMES STEWART, Partner, Head of Retail –

Ferrier Hodgson, Azurium


STATE OF PLAYCHANGE IS THE NEW NORMAL IN 2019

AUSTRALIAN RETAIL OUTLOOK 2019 6 | www.insideretail.com.au

STATE OF PLAY

Retail Down Under

in 2019

The pace of change in Australian retail is not slowing down anytime soon – here’s a brief

look at the local business landscape.

THOUGH THE LAST 12 MONTHS LAID CLAIM TO YET MORE HIGH profile fashion casualties, with Ed Harry joining the list early in 2019, moving forward it’s not all doom and gloom for retailers operating in Australia.

The glut of small-middle market clothing chains entering administration or winding up is not exactly a new phenomenon, as consolidation of the market in this crowded space is never-ending. For every headline failure, there’s a matching success story in the fashion world.

This year’s Australian Outlook Survey

(ARO) provides an inside view of those operating across the industry, straight from the horse’s mouth so to speak and not those on the outside. The results make for interesting reading and show that there’s ‘more than meets the headline’, when it comes to the art of retailing.

Of the 427 participants in this year’s survey, over 22 per cent are C-suite executives and more than 10 per cent are area/store managers. Participants represent small, middle and large-sized retail firms, across all retail categories including fashion, household goods,

food/grocery, general consumer goods and automotive accessories.

While 2019 will be no less challenging than previous years for retailers, (has there ever been an ‘easy’ year?) this year’s survey is a good indicator of what those in the game, make of the market Down Under.

GOOD WITH THE BAD Somewhat intriguingly and at odds with the usual catch cry that business sentiment is low or crashing, this year’s survey found there’s been an increase in respondents that said the


past 12 months were the best trading conditions they’d experienced, while a healthy host think that conditions have been good [page 12].

In bucking the trend, Azurium says 2018 was a winner for JB Hi-Fi [page 19] as it navigated technological transformation through its product mix and added whitegoods to its offering through the acquisition of The Good Guys.

Backed by same-store sales growth in its Australian stores rising by 3.4 per cent and total sales increasing by 5.3 per cent in the September 2018 quarter, JB Hi-Fi’s earnings defy the average downturn in discretionary spending.

Equally, success stories can be seen in the likes of Accent Group – owner of The Athlete’s Foot, Hype DC and Platypus [page 20] – and Mecca [page 21] to name but a few retailers successfully plying their trade in the current climate.

But it would be remiss to say it’s rosy for everyone. The continued struggles across the industry are evident – from The Reject Shop to Myer to multiple fashion firms – 2019 is set to be a testing year for several retailers.

Azurium has placed Myer onto its list of losers for the third year in a row, describing 2018 as arguably its toughest year yet [page 22]. 2019 is shaping up to be the defining year for department store retailers. It’s hard to argue this point, given the continued decline of Australia’s iconic Myer and David Jones department store chains, which

both have gargantuan turnaround tasks on their hands.

Meanwhile, in a post-Christmas trading update, Wesfarmers revealed that Kmart’s total sales (excluding Kmart Tyre and Auto Services) rose 1 per cent in the first-half of financial year 2019, while comparable sales dropped 0.6 per cent. Citi research analysts have asserted that Kmart’s 19-quarter run of like-for-like sales growth had likely come to an end, with Target and Big W to deliver positive sales in the low single digits.

IDES OF NOVEMBER One of the overwhelming trends to note from the end of 2018 and moving into the current year, is the embrace of online sales events in

November by consumers.According to data from the

Australian Bureau of Statistics (ABS), Australian retail businesses saw record sales in November 2018, with turnover increasing 3.6 per cent year-over-year. No longer is Christmas the be-all and end-all for businesses bottom line it seems.

The growing importance of retail sales events including Black Friday, Cyber Monday and Click Frenzy, now act as the established prelude to the traditional holiday retail period.

National Retail Association (NRA) deputy chief executive, Lindsay Carroll, anticipates even stronger figures for the month of December as a result of November’s strong showing in 2018.

“Retail turnover from online sales ►

While consumer confidence, discounting and rental overheads occupied the headline challenges nominated by retailers in this year’s survey, the threat of offshore online retailers has eased slightly, a reflection of local firm’s rising confidence against overseas e-commerce players.”

“

8 | www.insideretail.com.auAUSTRALIAN RETAIL OUTLOOK 2019

continues to increase at a high rate, and this can be attributed to the rise in popularity of events such as Click Frenzy and Cyber Monday, combined with the fact that buying online is a convenient option for many shoppers.”

Online retail contributed 6.6 per cent to total retail turnover for the period, compared to 5.9 per cent in October 2018. According to the ABS, this is the highest level recorded and continues the pattern of increasing online contributions to sales in November.

But the NRA says rising online sales need to be viewed in perspective.

“Online turnover still only accounts for less than 9 per cent of total retail sales and many retailers offer an online channel that complements their physical store,” says Carroll.

Australian Retailers Association

executive director, Russell Zimmerman is confident that the industry will “show its stripes” when December trade figures are released.

“Based on what we have seen and heard from retailers and our members, we believe the overall Christmas trade will indicate secure growth, with many large retailers noticing growth in-store,” Zimmerman says.

In this year’s ARO survey, over 30 per cent of retailers say they increased revenue from e-commerce operations ‘significantly’ over the past 12 months, while over 32 per cent enjoyed ‘slight’ increases.

Only 4 per cent of participants experienced decreases from online revenue last year.

All digital positivity aside, it should be noted that despite the bumper

increases, over 43 per cent of retailers surveyed said the percentage of total revenue coming from e-commerce represented less than five per cent of their total revenue. Just over 5 per cent said 100 per cent of their revenue came from online retailing.

SPENDING TIMESHIFT Azurium says there is an evident shift in when Australian consumers spend in the critical Christmas quarter [page 28], with movement in consumer spending in the last few years mirroring the rise of global online retail events.

Meanwhile Greenlit [formerly Steinhoff APAC] CEO Michael Ford says the group’s Fantastic Furniture brand “generated very strong online sales in 2018 while undergoing a rebranding of its own” while the company’s general


merchandise operations performed solidly with “Harris Scarfe emerging as one of the best performing department store brands in the country” [page 38].

Dymocks general manager Sophie Higgins says 2018 was the year that Black Friday became a “much bigger shopping event in Australia” [page 42].

Even supermarket giant Woolworths now participates in Black Friday, offering discounts on hundreds of products online for the second year in a row.

During December, Australia Post says it delivered over 40 million parcels last year, a new record thanks to the growing popularity of online shopping and sales events. This was 11.7 per cent up on the 37 million parcels the delivery service handled in December 2017.

The nation’s postal company says it

delivered a record three million parcels across the country on December 17, representing the busiest day in its history.

According to Australia Post CEO, Bob Black, 2.7 million parcels were delivered on Christmas Eve, with Australians increasingly leaving Christmas shopping to the end of the month.

COME ONE, COME ALL Despite the retail alarms sounded around the influx of international retailers entering Australian shores in recent years, this year’s survey paints a picture of local resilience, with over 45 per cent of respondents claiming they are not concerned by overseas firms entering the fray.

But Azurium’s James Stewart observes that sceptics should beware

Amazon’s ‘slow start’ after launching in Australia last year. The US giant continues to invest heavily into the local market and Stewart thinks that Australian firms should do the same, by turning defence into attack [page 32].

CHALLENGES AND OPPORTUNITIES While consumer confidence, discounting and rental overheads occupied the headline challenges nominated by retailers in this year’s survey, the threat of offshore online retailers eased slightly, a reflection of local firms’ rising confidence against overseas e-commerce players.

Meanwhile entering new markets [24.8 per cent] remains a significant priority for retailers as does expanding product ranges, with over 26 per cent ►


looking to achieve a wider offering. Azurium notes that fast food franchising is seen as a sector

that is somewhat isolated from the headwinds of online retail and the digital revolution [page 54].

BUSINESS AS USUAL As for the year ahead, retailers predominantly believe trading conditions will either remain the same or slightly change.

Recent Urban Property Australia (UPA) research finds the Australian retail property investment market had a strong 2018, despite a pullback from Chinese purchasers, with $9.7 billion transacted, the second highest annual level on record. The near record year of transactions was boosted by the sale of several major regional shopping centres and CBD-based assets.

“In 2019, we expect a bifurcation of the retail investment market with investor demand for Australian CBD retail assets and regional shopping centres to remain stable for trophy assets; whereas demand for neighbourhood and large format centres will ease, impacted by the challenging retail conditions” says Sam Tamblyn, UPA founder and managing director.

In looking ahead and with e-commerce expected to continue increasing its share of the retail pie, Tamblyn expects rental growth to remain subdued for retail assets, while yields for retail property will be under upward pressure as investor demand eases for the asset class.

2019 is shaping up to be the defining year for Australian department store, most notably the iconic Myer and David Jones retail chains.


SURVEY: AUSTRALIAN RETAIL OUTLOOK 2019


AUSTRALIAN RETAIL OUTLOOK SURVEY 2019

Voices of the industryPerennial challenges, relative confidence in the face of international players and generally positive sentiment to get on with the job – depending on who

you ask – are the key findings from the ARO Survey for 2019.

THIS YEAR’S AUSTRALIAN RETAIL OUTLOOK survey drew responses from 302 local retailers and 170 related industry members.

Of the survey respondents, 22.9 per cent identified as c-suite executives, owners or board members and 36 per cent worked at businesses with more than 400 people.

The survey includes responses from all sectors in the industry, with 10.6 per cent working in marketing, 7.2 per cent in buying and merchandise planning, 10.8 per cent in area/store management

and 10 per cent in sales and customer service.All retail categories were healthily represented,

with 25.9 per cent trading in apparel and accessories, 12.1 per cent in household goods, 9.1 per cent in food and grocery, while 11.2 per cent operate in the general consumer goods/variety sector.

Pointing to the diverse retail landscape Down Under, 38.1 per cent of respondents identified in the Other category within sectors including travel, pharmacy, and luxury goods. All data is in percentages.

For the first time in three years, over five per cent of retailers said that trading conditions were the best they’d experienced, compared with 2.5 per cent last year and 3.4 per cent in 2017.

At the other end, nearly 7 per cent

indicated that conditions were the worst experienced, representing a rise on last year’s 4 per cent.

The overwhelming majority of responses were less extreme, with 38.3 per cent classifying conditions as good,

while 36.2 per cent indicated ordinary trading. The number of retailers characterising trading conditions as poor slightly rose on last year’s results, with 12.9 per cent up from 12 per cent in 2018.

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

12 | AUSTRALIAN RETAIL OUTLOOK 2019

5.1% 38.3% 36.2% 12.9% 6.9%

Best I have experienced

Good Ordinary Poor Worst I have experienced


In a positive sign for the industry, 17.4 per cent of the industry said their full-year results were a significant improvement on the previous year, which compares favourably with 10.9 per cent of last year’s respondents providing the same response.

Significantly, 34.5 per cent asserted that there’d been a slight improvement, up on 31.1 per cent from last year, while the number of respondents indicating their full-year was slightly worse decreased from last year’s 22.3 per cent to 19.7 per cent.

Somewhat alarmingly, the number of retailers who experienced a significantly worse full-year rose to 7 per cent, up on last year’s 3.9 per cent.

Significant improvement

Q.2 How did your full-year compare to the previous?

With respondents asked to select the three major challenges facing the industry in 2019, the same old culprits once again prominently featured. The major challenge according to respondents, backed by 51.3 per cent, was consumer confidence, closely followed by discounting with 48.5 per cent, mirroring the top two threats from last year’s survey.

Respondents said rental overheads remained a significant problem, with 44.5 per cent of votes up on last year’s 36.8 per cent. Despite the influx of international e-commerce conglomerates Down Under, the threat of offshore online retailers declined to 34.1 per cent, down from 37.7 per cent last year. Labour costs [33 per cent], global economic factors [18.9 per cent] and the value of the Australian dollar [16.7 per cent] were the other significant challenges nominated by retailers. ►

Q.4 What are the

biggest challenges facing the retail industry in 2019?

Q.3 In the year ahead, how do you expect

trading conditions to change?

Meanwhile, the overwhelming majority of respondents expect trading conditions to moderately change, with 48.9 per cent indicating they expect slight changes, while 30.3 per cent expect conditions to remain about the same.

Only 20.8 per cent of respondents think there will be significant changes within the trading environment.

Significant changes

Remain about the same

Slight changes

20.8%

30.3%

48.9%

Slight improvement

Remained about the same

Slightly worse

Significantly worse

17.4%

34.5%

21.4%

19.7%

7%

Rental overheads

International entrants

Offshore online retailers

Discounting

Consumer confidence

Labour costs

Global economic factors

Value of Australian dollar

Taxes

Private label

Government regulation

Other

44.5%

20.5%

34.1%

48.5%

51.3%

33%

18.9%

16.7%

12.5%

5.9%

5.5%

8.5%


Respondents were once again given three choices to select from and most are keen to increase margin [56.8 per cent] and turnover [60.6 per cent] in 2019, with retailers (predictably) selecting the two key financial elements.

E-commerce [45.1 per cent] remains an area of focus, with over 35 per cent of retailers looking to prioritise omnichannel initiatives. Entering new markets [24.8 per cent] remains a significant priority for retailers as does expanding product ranges, with over 26 per cent looking to achieve a wider offering.

Other comments included prioritising the improvement of personalisation, one-to-one marketing and seeking alternate revenue streams.

In 2019, 28.4 of retailers plan to increase their physical presence, while 9.3 per cent of respondents expect to reduce the number of stores they operate. The majority of respondents [36.9 per cent] expect to keep the same amount of stores.

Q.5 What will be the top priorities for your business this year?

Q.6 Do you plan to change your

number of stores this year?

YE

S –

IN

CR

EA

SE

TH

E

NU

MB

ER

OF

ST

OR

ES

Increasing margin 56.8%

E-commerce

Expanding store network

60.6%Increasing turnover

Omnichannel initiatives

Entering new markets

Closing stores

Rebranding

Expanding product range

Reducing product range

Others

45.1%

35.6%

17.4%

24.8%

26.1%

6.4%

9.3%

9.3%

8.7%

YE

S –

DE

CR

EA

SE

TH

E

NU

MB

ER

OF

ST

OR

ES

NO

– S

TA

Y A

BO

UT

TH

E S

AM

E

WE

DO

NO

T O

PE

RA

TE

A

NY

PH

YS

ICA

L S

TO

RE

S

28.4%

9.3%

36.9%

25.4%

Q.7 Does the influx of international

retailers to Australian shores worry you?

Respondents remain bullish about the prospect of international firms entering Down Under, with over 45 per cent asserting they are not concerned.

Meanwhile, those more concerned than last year dropped from 54.3 per cent to 32 per cent and those less concerned than last year rose from 12.1 per cent to 22.9 per cent in this year’s survey, reinforcing the local confidence from local firms against new competitors.

More concerned than last year

Less concerned than last year

Not concerned 45.1%

22.9%

32%



Q.8 How do you believe the Australian retail market is placed compared to other international markets?

The majority of respondents indicated the local retail market is located firmly in the middle-range, compared with overseas marketplaces.

While less than 2 per cent said the Australian market was in the high rank, 13.3 per cent placed Australian retail in the lowest-tier.

Q.9 Did you find

that you received more flexibility and help from landlords last year?

0

0.5

1

1.5

2

2.5

3

3.5

WEIGHTED AVERAGE

In a hotly-debated topic for the industry, respondents provided some interesting responses to what is a contentious issue in the industry.

While the majority of respondents [65.5 per cent] said they received about the same flexibility and help from landlords, over 19 per cent said they received more. In contrast, over 15 per cent said that they received less help and flexibility from landlords.

Significantly more

Remained about the same

Slightly more

Slightly less

Significantly less

3.6%

15.7%

65.5%

10%

5.3%

2.7%

Q.10 How do you expect leasing

terms to change this year?

It’s very much a status-quo, in terms of retailer expectations for leasing charges this year. Over half [52.7 per cent] expect leasing terms to remain the same, while nearly 40 per cent anticipate slight changes. Only 7.8 per cent expect significant changes to leasing terms to occur in 2019. ►

SIGNIFICANTCHANGES

SLIGHTCHANGES

REMAIN ABOUT

THE SAME

7.8%

39.4%

52.7%


Over half [57 per cent] of respondents expect the Aussie dollar to negatively impact their business this year – a possible indication of the effects from globalisation and political volatility across several continents. While 34.7 per cent expect no impact on their business, over 8 per cent are more optimistic about benefits afforded from the value of the dollar.

Reflecting the continued evolution of the industry, retailers’ response to e-commerce’s impact was predominantly positive. Only 4 per cent said revenue from e-commerce operations decreased. Meanwhile, over 30 per cent said revenue had significantly increased, while nearly 33 per cent said revenue had increased slightly.

30.5%

Increase significantly

Increase slightly

Stay about the same

Decrease

Q.11 How will the value of the Australian dollar impact your business this year?

Q.12 How has your revenue from

e-commerce changed in the past 12 months?

Positive impact

Negative impact

No impact

8.3% 57%

32.8% 32.6%

4%

Though revenue growth has been large for the majority of retailers, it’s interesting to note that most respondents said total revenue from e-commerce represented less than 5 per cent. Only 5.3 per cent of retailers gained all of their earnings through e-commerce.

Less than 75%

100% of revenue

Less than 10%

Less than 5%

Less than 25%

Less than 50%

0 10 20 30 40 50

43.2%

22.2%

18.6%

7.2%

3.4%

5.3%

Q.13 What percentage of your total revenue comes from your e-commerce channel?

34.7%

Q.14 Which are the most effective social media channels your retail business uses?

Respondents were asked to select two platforms and the results were predictable, with Facebook [74.6 per cent] and Instagram [62.9 per cent] clearly on top, mirroring last year’s result albeit with a marked rise of over 10 per cent for Instagram.

Native content/blog had a solid response, with 18.2 per cent nominating their use of this channel.

Pinterest

Blog/native content on website

Snapchat

WeChat

Don’t use social media

Twitter

LinkedIn

Instagram

Facebook 74.6%

62.9%

23.5%

6.4%

18.2%

2.7%

2.5%

3.7%

5.5%

E-commerce’s impact on the industry can be seen in the response to consumer expectations, with online delivery options and speed usurping customer service [34.1 per cent] and price [32.8 per cent] as the areas where customers will expect more from retailers in 2019.

Product freshness/relevance [17.16 per cent] remains an integral area of customer expectation, according to the survey responses.

Q.15 What areas do you think consumer

expectations will increase the most in?

Online delivery options

Online delivery speed

Price

Customer service

In-store digital functionality

Product quality

Product variety

Product freshness/ relevance

Other (please specify)

5.7%

5%

4.5%

3.3%3.4%

3.4%

2.7%

2.7%

2.1%

2.1%

AldiWoolworths

CottonOnKmart

JB Hi-FiMeccaAesopColes

The IconicSmiggle

Q.16 What is the best

Australian retail brand for 2018?

Though this question is hardly definitive in its findings, Australia’s typical who’s who came out on top.

Interesting to note, was the general commentary offered by many respondents, who claimed it way “far too hard to tell” and that “none stood out".


38.8%

41.3%

32.8%

34.1%

11%

13.3%

9%

17.2%

2.5%


WINNERS AND LOSERS

AUTHORS

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

Nicholas Tsaptsalis, Ferrier Hodgson

Philip Muscari, Ferrier Hodgson

Charlie Griffiths, Ferrier Hodgson

Alexandra Askey, Ferrier Hodgson

David Hacker, Ferrier Hodgson

Peter Mann, Ferrier Hodgson

| 192019 AUSTRALIAN RETAIL OUTLOOK

From strength to strengthDespite a raft of new challenges, this electronics powerhouse

shows no signs of slowing down.

WINNERS AND LOSERS

THE RETAIL ICON THAT IS JB HI-FI (JBH) HAS BEEN IN EXPANSION since listing in 2003. Its recipe for success has largely been driven off a high energy store format, low price points supported by a strong in-store discount ambiance and extensive product range.

While JBH’s long-term success is something to admire, 2018 presented no shortage of potential challenges for the brand as Amazon entered the market and the online electronics retailer Kogan went from strength to strength.

While the impact of Amazon in Australia has been somewhat muted – remember it should be compared to a tsunami not an earthquake – JBH has continued to deliver on its core business by leveraging an efficient supply chain, digital capabilities and new market growth.

JBH has also navigated technological transformation through its product mix and has added whitegoods to its offering through the acquisition of The Good Guys.

As a result, JBH’s earnings defy the downturn in discretionary spending and the broader retail landscape, with same-store sales growth in its Australian stores rising by 3.4 per cent and total

sales increasing by 5.3 per cent in the September 2018 quarter.

Over the same period, The Good Guys also reported same-store sales growth of 1 per cent and total sales growth of 2.3 per cent.

While trading conditions softened for household goods in 2018, The Good Guys still outperformed its largest rival, Harvey Norman, which reported a 1.1 per cent fall in same-store sales over the same period.

A GOOD BUYThe acquisition of The Good Guys arguably provides a more compelling strategic rationale for the JBH business through diversification of the JB brand to include larger items, typically purchased in-store and difficult to sell online.

The difference in performance between The Good Guys and JBH inevitably invites comparisons between the two, and how JBH will replicate its successful model across two brands with significantly different product propositions.

Last year saw The Good Guy’s promotional strategies moving closer to JBH’s, as well as a greater emphasis on consumer electronics in store.

In 2018, JBH also defied expectations

as the most shorted stock on the ASX by delivering a strong FY18 full year result and confirming its sales guidance for FY19. The company reported an increase in its EBIT margin from 6.3 per cent to 6.4 per cent which would suggest that the electronics Goliath is holding up well in an increasingly competitive market.

The US retail market suggests that bricks-and-mortar retailers can compete with Amazon. Best Buy has been trading strongly in recent years, but it took a significant shift in pricing strategies and a recalibration of its online offer to move the dial after poor performance in the years leading up to 2012.

JBH is in an interesting space. On the one hand, consumer spending on tech products is arguably the highest it has ever been, with Quartz reporting consumer spending has surpassed spending on apparel in the US market since 2010.

On the other hand, spending on household goods is facing significant headwinds as consumers tighten their belts under pressure from falling house prices, falling equities markets and the weakening Australian dollar.

The stage is set for an interesting 2019 for JBH.

...JBH has continued to deliver on its core business by leveraging an efficient supply chain, digital capabilities and new market growth.”

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

and CHARLIE GRIFFITHS, Ferrier Hodgson


Stepping up in 2019

With a focus on digital initiatives and backed by retail veterans, this footwear firm has eyes on more growth this year.

WINNERS AND LOSERS

DESPITE AUSTRALIA’S CHALLENGING RETAIL climate, Accent Group (Group), whose brands include The Athlete’s Foot, Platypus and Hype, continued to thrive in 2018.

The Group posted a record net profit of $47.1 million and EBITDA of $90.8 million, up 17.9 per cent and 16 per cent respectively on the previous year, off the back of $860.8 million in sales.

The Group, formerly RCG Corporation Limited, operates 420 stores across Australia and New Zealand under 10 retail brands, holding exclusive distribution rights for 10 international brands.

Underpinning these results is a fresh digital strategy focused on connecting the physical and digital stores to offer a seamless experience to customers. The digital strategy centers around the Group’s newly created ‘Digital Hub’, a place where the organisation’s digital talent can connect, collaborate and drive changes.

The Digital Hub has allowed the Group to gather customer data and make substantial changes to the business, which have enhanced the in-store and online experience across their brands. For example, the Group has created endless isle capability for their customers, providing access to the entire inventory catalogue across all brands. This includes inventory of all stores and online warehouses.

The Group is also focusing heavily on speed-to-market.Accent already offers next day delivery for online sales,

however in July 2018, same day delivery commenced in 12 Platypus stores with a $14 delivery fee.

After just 10 days of going live, the Group said same day delivery accounted for 3 per cent of total orders and this is expected to increase to 5 per cent after year one of operating

and 10 per cent within 2 years. Ultimately, it is expected same day delivery will roll out across all 350 stores with the possibility of 3-hour delivery in the future.

A TOE IN THE MARKETS?Other initiatives introduced as part of the businesses omnichannel transformation included the introduction of click-and-collect and click-and-dispatch.

Click-and-collect was introduced across all retail brands and accounted for more than 5 per cent of digital sales for the Group in FY18. Click-and-dispatch grants an online customer access to the catalogue of all stores and accounted for 36 per cent of digital sales in FY18.

The early results from these digital initiatives have been promising with a 130 per cent increase in digital sales in FY18.

The digital strategy has been supplemented by investments in brick-and-mortar stores and reduced discounting.

During FY18, 29 stores were refurbished while CEO, Daniel Agostinelli, banned discounting at all Group stores in late 2017 deriding it as “lazy retailing” and creating the perception that the product was substandard.

Moving forward, the focus shifts to expansion.The Group expects to open 30 new stores in FY19 including

a 600 square metre Platypus megastore in Melbourne Central. There are also plans for an additional 30-40 new stores opening over the next two-three years.

Perhaps the most exciting and ambitious proposal is the planned international expansion of the Platypus brand. The Group plans to introduce the Platypus model overseas, starting in Singapore, by leveraging the experience and knowledge of retail icon, Brett Blundy, the Group’s largest shareholder.

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


A retail makeoverThere’s seemingly no end in sight for the growth of this cosmetics powerhouse,

as it continues to delight customers with physical and digital nous.

WINNERS AND LOSERS

FRUSTRATED WITH IN-STORE C U S T O M E R S E R V I C E F O R cosmetics? Not getting what you want online? For those of you looking for some divine intervention in personal cosmetics...

Welcome to Mecca. Mecca is arguably the hottest

cosmetic retailer in Australia and has established itself as the place to be for beauty products, service and knowledge for the Australian customer.

CURATE YOUR STYLEWhile the traditional beauty market was being dominated by department stores, with single brand counters operated by a brand representative, Mecca’s founder, Jo Horgan, recognised the desire of Australian consumers to try imported, high-end labels, that moved away from the department store approach.

Rewind to 1997 and Mecca’s first store opened in South Yarra, offering consumers a handful of imported, innovative brands.

Now Mecca offers over 120 brands across its physical and online stores, providing consumers the opportunity to curate their own beauty collection and style.

Mecca’s successful expansion has capitalised on the choice that beauty-loving customers are after.

The beauty sector is defined by a level of customer engagement that is unique. Beauty customers are passionate, socially aware and want to understand a beauty brands story, brand values, its product ingredients and expect a commitment to environment and often animal welfare.

At $5 billion in sales a year, global brands take notice of what the customer wants.

The emergence of challenger brands was recognised by Horgan, with Mecca’s original store offering a curated sample of these brands, such as Nars, Too Faced and Hourglass. These challenger brands now take up 10 per cent of the beauty market, with McKinsey reporting their sales growing

four times faster than the legacy brands of the department store era.

Today, Mecca’s approach to cosmetics has landed itself as a beauty destination, offering cutting edge brands side-by-side to high-end labels.

THE POWER OF THE SELFIEThe growth of online engagement in beauty products has revolutionised the way major brands engage with their target customer.

YouTube and Instagram now offer a steady stream of beauty tutorials and product reviews that 10 years ago largely didn’t exist. In 2017, YouTube beauty content videos grew from 55 million to 88 million, registering more than 700 million views.

Mecca has successfully leveraged these platforms developing a loyal following of ‘beauty junkies’ who can access the brand’s online content, top beauty products for the season and video tutorials for new releases. Thoughtfully curated content creates a sense of community and loyalty between the brand and its devotees. Physical and online stores have also been successfully integrated, creating a seamless shopping experience across platforms.

In-store, customers are greeted by the physical counter-part of Mecca’s ‘Top 5 Products for Summer Skin’ that they may have read about online before going into store.

Customers can also use the in-store snap-chat decals, studio lights (for the ‘perfect camera-ready look’) and even selfie-studios, to create their own online content. Not only does the amalgamation of physical and digital create an enticing experience for customers, but it also furthers Mecca’s online reach through micro-influencers.

Although the brand is reluctant to discuss its financials, industry sources estimate Mecca annual revenues to be circa AU$350 million and that it holds roughly 25 per cent of the market. What is most impressive is Mecca’s growth, with Horgan on the record in late 2017 stating that the brand had experienced year-on-year growth of 45 per cent for the previous five years.

In the era of choice and instant gratification that beauty customers desire, Mecca is their match. A truly modern Australian brand with a thoughtful digital strategy and interaction between online and physical, we expect Mecca will continue to grow its loyal fan base in 2019.

The growth of online engagement in beauty products has revolutionised the way major brands engage with their target customer.”

“

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


Who said retail is easy?It’s been 12 tough months for Myer and 2019 is not looking any easier

for the department store retailer.

WINNERS AND LOSERS

ONCE THE MAIN ATTRACTION OF THE MALLS AND SHOPPING precincts across the country, Australia’s long-standing love of department stores is finally fading.

Impacted by fast fashion retail chains, online retail models and digitised consumers, across the globe department store heavyweights are restructuring their businesses, changing their product mix and closing stores due to poor performance.

The department store model, a model that is over 100 years old, is under siege as customers lose patience with substandard service, poor pricing and product range parameters that are limited by their physical store environment.

FROM BAD TO WORSEMyer has now made its way onto our list of losers for three consecutive years, with 2018 arguably its toughest year yet.

While Myer has become the poster child for the challenging retail landscape retailers now live in, controversy and ongoing speculation regarding its financial future have continued to embattle the retailer.

In 2018 Myer posted an annual loss of AU$486 million, its first loss since

listing on the ASX in 2009, largely due to the company’s move to write-down its brand name and goodwill, but also impacted by a total sales decline of 3.2 per cent and operating gross profit down by 2.9 per cent.

This poor financial result has simply added fuel to the fire for significant shareholder and retail icon, Solomon Lew, who continued to relentlessly attack Myer’s management for incompetence, calling for the board to step down.

Indeed, at Myer’s annual general meeting in November 2018, the retailer’s management team suffered a second strike against its board and executive remuneration, however a spill motion to declare all director positions was defeated.

A silver lining to Myer’s 2018 results is the increase in online sales, which rose 34.1 per cent to AU$192.5 million in FY18, albeit only a small portion (7 per cent) of total sales.

In a performance-driven industry, Myer’s poor results have inevitably seen key leadership changes. John King was brought in from the UK to replace the outgoing Richard Umbers in June last year.

While King’s CV included a role as

chief executive of UK retailer House of Fraser (which itself went through a performance turnaround), analysts have questioned the appropriateness of this appointment given his lack of Australian retail experience and point to the fact that House of Fraser entered administration in the UK shortly after his appointment as Myer CEO.

As 2018 progressed, more issues arose as shares were put into trading halt late in November by the ASX compliance unit in response to reports of falling sales for the first quarter of FY19. The share price closed at 45 cents prior to the trading halt, almost a tenth of their listing price of $4.10 in 2009.

ACROSS THE SEGMENTComparatively speaking and less publicised than Myer, rival department store David Jones posted a reduction in same store sales of 0.4 per cent for the year to June 24, 2018. Like Myer, David Jones experienced strong online sales growth (21 per cent) but the online channel is currently too small (5.3 per cent of total sales) to make a meaningful impact on total sales.

While key department store players have been challenged, some discount department stores, which have also encountered significant headwinds in recent years, led the way in FY18.

Wesfarmers’ Department Store Division posted $8.8 billion in revenue and a record EBIT of $660 million (an increase of 21 per cent year-on-year) for FY18. The results of the division, which is made up of discount department stores Kmart and Target, offered a positive story among an industry which continues to be challenged.

Kmart’s run of success has come through continued evolution of product mix, store formats and customer service, and shows the discount department store can hold a valuable place in Australian retail. However, Kmart’s 2018 Christmas sales failed to meet expectations, prompting Wesfarmers to flag lower earnings for the division for the half-year. 2019 looks to be defining year for the department store model.

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


“Just Afterpay it”Though regulatory clouds loom ahead, rapid and relentless growth for this

fintech firm highlights the spending habits of millennial consumers.

WINNERS AND LOSERS

YOU KNOW YOU’VE MADE IT AS A START-UP WHEN YOUR company’s name becomes a verb. We “Google” questions to find the answer, “Uber it” to get from A to B, and “YouTube it” to find out how it’s done. So what do millennials call it when they want to “buy-now-pay-later”? They “Afterpay” it!

Afterpay, the payment platform allowing an immediate purchase that is then paid-off in four equal fortnightly instalments, went from fintech start-up in 2015 to a darling of the ASX worth nearly AU$5 billion in 2018.

In three years, Afterpay has rapidly grown to have 2.3 million active customers and over 18,000 retailers, including Kmart, The Iconic, Rebel Sports and Officeworks.

All this has amounted to Afterpay delivering AU$2.2 billion in sales for its retail partners and processing approximately 25 per cent of total online fashion retail sales and 8 per cent of total online retail sales in Australia [Australian Financial Review, 2018].

Co-founder Nick Molnar came up with the concept when trying to grow basket size and conversion rates in his online jewellery business. Molnar was convinced millennials would be more willing to make purchases if there was a service available that could smooth

the payment process, and he’s been proven right so far.

Afterpay’s business model captures the shifting spending behaviour of millennials, which Molnar believes is increasingly cashless and free of credit.

Afterpay pays the retailer for the customer’s purchase, less a commission of course, and then assumes the risk of recovering this amount from the customer. However, should the customer miss a payment, Afterpay charges a late fee allowing it to collect revenue from both sides of the transaction. At last report, customer late fees account for 24 per cent of Afterpay’s revenue with the remaining 80 per cent representing retailer commissions.

As Afterpay doesn’t technically charge any interest to the customer, it’s avoided being governed by the National Consumer Credit Protection Act.

REGULATORY CLOUDS, INTERNATIONAL GOODSThis could all be about to change due to the growing calls for Afterpay to be subject to responsible lending regulations. The Australian Labor Party

has called a parliamentary inquiry into financial products not subject to scrutiny in the Royal Commission and Afterpay appears to be in the firing line.

While regulatory uncertainty looms, the changing Australian landscape seems unlikely to be stemming Afterpay’s growth as their venture into the USA continues full steam ahead.

Since launching in the USA in May 2018, Afterpay has signed over 900 retailers, including Urban Outfitters, amassing around 300,000 consumers. These early signs suggest Afterpay has the potential to make a huge splash as it took the business nearly 18 months to reach similar numbers in Australia.

Considering the size of the US market, US$450 billion in annual online sales vs US$18 billion in Australia, any foothold Afterpay can build is likely to be significant to its overall performance.

2018 has seen Afterpay’s share price double during some of the toughest retail conditions in recent history making it an unarguable winner. With the potential for global expansion gaining traction, its winning days may continue well into 2019 and beyond.

Molnar was convinced millennials would be more willing to make purchases if there was a service available that could smooth the payment process, and he’s been proven right so far.”

“

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


Franchising headwindsA slew of scandals and a parliamentary inquiry dealt a number of blows to

Australia’s franchise industry in 2018. Is the industry set for a major shakeup?

WINNERS AND LOSERS

A FAR CRY FROM THE FRANCHISE BOOM OF PAST DECADES, Australia’s franchising industry is facing some serious headwinds.

The AU$170 billion sector came out of 2018 battered and bruised, with several franchise models embroiled in scandals ranging from poor treatment of franchisees to systemic underpayments of employees.

The industry has faced scrutiny

under the very public microscope of the parliamentary inquiry into the Franchising Code of Conduct, which saw a number of submissions to the enquiry label the franchise model broken and detail widespread mistreatment of franchisees.

The public scrutiny overlays difficult trading circumstances where many franchisees are struggling to make a buck in the face of flatlining (or

declining) sales, high franchise licensing fees and high occupancy and wage expenses (from trading outside normal hours).

RETAIL FOOD GROUPPerhaps the most publicised example of the franchise industry’s struggles last year is Retail Food Group (RFG). The group, whose brands include Gloria Jeans Coffee, Donut King and Brumby’s Bakery has been dragged through the mud in 2018.

RFG has experienced troubles since a Fairfax Media investigation revealed the business model had created financially distressed franchisees. This prompted questions about the value of its brands and the quality of the company’s performance.

Despite a 7.1 per cent increase in revenue, the group reported a full year loss of AU$307 million for FY18. The questions raised from the investigation severely damaged the brands, which saw Gloria Jeans Coffee book a AU$90 million goodwill impairment and Michel’s Patisserie record a AU$59 million impairment for the period. These were among a total of AU$403 million in impairments across its suite of brands.

To further RFG’s pain, CEO Richard Hinson abruptly resigned at the end of last year, following a management restructure outlined at the company’s annual meeting.

HARVEY NORMANHarvey Norman was dealt several blows last year after a bumper 2017.Shareholders voted to reject the retailer’s remuneration report at its AGM in November, with the board receiving a first strike. This presents the challenge of a potential board spill at this year’s meeting should a second strike be received.

Shareholders cited the lack of independent directors on the board, loans made to a franchise and the businesses risk assessment capabilities following failed agriculture and

It’s not been a great year for the parent company of Michel’s Patisserie, Brumby’s Bakery, Donut King and Gloria Jeans.

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


mining investments. Net profit was down 16.4 per cent in FY18 on the previous year, underpinned by property revaluations and failed investments. Harvey Norman’s share price dipped to four-year lows and the retailer will be looking at 2019 as an opportunity to bounce back.

DOMINO’S AUSTRALIAAn 18-month investigation by the Fair Work Ombudsman into Domino’s Pizza’s practices concluded late in 2018, handing down a number of findings, including the discovery of underpayments, non-payment for work, leave entitlements and several other breaches by franchisees.

Domino’s has said that it is dedicating resources to achieve full compliance in the future, however

the investigation has been somewhat damaging for the brand’s image.

Despite the investigation, financial performance certainly doesn’t appear to have been affected, with Domino’s posting a record profit after tax of AU$136 million in FY18, up 15 per cent on the previous year. Same store sales are also up across all markets for the period, including 4.5 per cent growth in the domestic market.

Time will tell if Domino’s well-publicised issues will have an adverse effect on their financial performance.

OTHERSWhile several franchises’ struggles have been highly publicised, changes are also occurring away from the spotlight. The likes of Yum Restaurants Australia (KFC’s franchisor), Beacon

Lighting and The Good Guys have begun purchasing back franchises and the shifting landscape has raised questions as to what the future of retail franchising in Australia looks like.

The parliamentary inquiry has shone a light on deep issues within Australian franchising seeking to raise the standard of conduct in the sector. The Franchise Council of Australia’s recommendations to the inquiry include mandatory legal and business advice prior to purchasing a franchise and the introduction of a mandatory franchise registration requirement.

As some of the franchising heavyweights feel the pressure and the regulatory setting shifts, the stage is potentially set for a major shakeup of the industry.

The likes of Yum Restaurants Australia (KFC’s franchisor), Beacon Lighting and The Good Guys have begun purchasing back franchises and the shifting landscape has raised questions as to what the future of retail franchising in Australia looks like.

“


AUTHORS

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

Alexander Burrows, Ferrier Hodgson

Harrison Bailey, Ferrier Hodgson

David Hacker, Ferrier Hodgson

Christopher Nicolaci, Ferrier Hodgson

RETAIL TRENDS


Last mile standAustralia’s geographical challenges have forced local retailers to rethink how

they can effectively service consumer’s growing appetite for delivery.

AS RETAILERS COMPETE FOR MARKET SHARE IN AN increasingly saturated market, last mile delivery and click-and-collect have become defining battlegrounds for attracting and retaining customers.

The new age of smart devices and other mobile technology has led to a surge in e-commerce and turbo charged customer demand for higher levels of service, convenience and speed through all channels.

Like their global counterparts, Australian retailers face the challenge of sustainably servicing the demand for fast and efficient delivery at price points that customers are willing to pay.

Global retailers have undoubtedly raised the expectations of customers and pushed local retailers to assess their logistics and fulfilment capabilities in order to stay competitive. Conquering the last mile, the final, and most costly, step in the sale of a product is no easy feat.

Overseas, retail heavyweights such as Amazon, Walmart and Alibaba continue to invest in last mile innovations and acquisitions to bolster their capabilities in this area. These Goliaths are rolling out a host of delivery and collection options around the world including 24-hour self-service kiosks, delivery ‘robots’ and even couriers unlocking your door and leaving deliveries in your home through Amazon Key.

In Australia however, the domestic market presents challenges less prevalent in many overseas markets, including consistent delivery times across all regions due to our geographical spread and lack of population density, outside the major cities.

JB-Hi-Fi, listed as one of our winners in 2018, is an Australian retailer that has

focused on providing multiple delivery options for customers.

These options vary largely, from third-party delivery (Australia Post), to express or couriered packages. Customers can use click-and-collect or three-hour rush delivery is offered during business hours if you live in a major city (or fringe suburb) and are prepared to pay the premium of $14.99.

Accent Group, whose brands include Platypus, Footlocker and Hype – another one of our winners of 2018 – launched same day delivery across its entire retail network last year. The group, like an increasing number of retailers, are leveraging their store network as fulfilment centers to ship from stores, rather than regional warehouses and as distribution centers for collection of purchases.

These retailers are among a growing number of brands, including The Iconic and Cue, that are building same-day delivery into their offering. Inside Retail reported on Cue becoming a trailblazer as the first national bricks-and-mortar retailer to launch three-hour delivery nationally last year, joining online marketplace The Iconic.

Additionally, customers are demanding greater transparency around product tracking through the delivery cycle, seeking features such as Australia Post’s text message updates and notifications.

While same day delivery is targeted by many retailers, it’s no longer just the speed of delivery, but also visibility, transparency and customer control.

BRINGING DELIVERY IN-STORE To avoid issues (and costs) associated with the last mile, retailers are embracing the click-and-collect model. Consumers can ensure that their desired products are available before

leaving the house and avoid delivery fees.

In early 2018, Officeworks stated that 20 per cent of their online orders were fulfilled through click-and-collect (Channel News, 2018). Coles have added 1,200

locations across Australia, comprising 25 per cent of total online sales (Australian Financial Review, 2018).

Adobe’s head of digital transformation, Scott Rigby, refers to the latest data from the bumper 2018 Thanksgiving shopping weekend in the US, which includes Black Friday and Cyber Monday, as a sign of what’s to come.

“Australia can use the US data as a barometer for trends, where we saw a record 50 per cent increase year-over-year for click-and-collect,” he said. “This reinforces the importance for businesses to have the ability to orchestrate campaigns across online and offline retail experiences.”

The last mile remains one of the toughest logistical challenges for retailers. With these issues comes new innovations, startups and more effective methods to meet customer demands. As customer demands shifts to customer expectation, optimising the last mile will become an even greater focus for retailers in 2019.

RETAIL TRENDS

...customers are demanding greater transparency around product tracking through the delivery cycle…”

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

and ALEXANDER BURROWS, Ferrier Hodgson


Australia’s new retail calendarThere’s a veritable deluge of spending events affronting consumers in

today’s retail scene. Are they friends or foes?

CASH IS KING. During the critical Christmas and end-

of-year sales period, the age-old expression becomes even more relevant for retailers.

For years Australian retailers have made business decisions around predictable consumer spending patterns. For many, the Christmas season is the only time when they bank their profit for the year and if Christmas doesn‘t perform well, neither do they.

Inventory management, product mix, marketing and staffing requirements are often planned up to nine months in advance, meaning many retailers lock and load their anticipated profit result well before the selling season actually occurs.

This may all be starting to change. We are starting to see a shift in when Australian consumers spend in the critical Christmas quarter.

Traditionally, retail sales would steadily increase month-on-month in the lead up to Christmas and Boxing Day. However, there has been movement in consumer spending in the last few years coinciding with the rise of global online retail events.

These retail events, which largely did not exist in the Australian retail calendar five years ago, are the product of continued growth in online retail on a global basis and are capturing consumers who are channel agnostic and technology savvy.

This shift is seeing Australia’s traditional retail calendar become vulnerable to a pull forward effect on some of the traditional Christmas sales and margin into November.

RETAIL TRENDSSo

urce

: ABS

For Australian consumers, the November buying season has a small tsunami of online events to participate in either on a domestic or international basis:

• Singles Day [Alibaba] on November 11, 2018. In last year’s event, sales exceeded 213.5 billion yuan (AU$42.4 billion).

• Click Frenzy on November 13, 2018. In 2017, over 2 million Aussie shoppers logged on to bag a bargain from more than 500 retailers.

• Black Friday [US] on November 23, 2018. Online sales alone in 2018 reached US$6.2 billion (AU$8.4 billion).

• Cyber Monday [US] on November 26, 2018. The online event achieved sales of US$7.9 billion (AU$10.7 billion).

TOTAL RETAIL SPEND (2017) (S.A.)

25.6

25.7

25.8

25.9

26.0

26.1

26.2

26.3

26.4

26.5

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

EOFY sales

Amazon Prime day

Singles DayClick FrenzyBlack Friday

Small business SaturdayCyber Monday

Super SaturdayChristmas Boxing day

DOUBLE-EDGED SWORD Of all, the greatest global event is undoubtedly China’s Alibaba Singles Day.

Held on November 11 each year, Singles Day was created as an anti-Valentine’s Day. Single Chinese consumers treat themselves to a ‘little’ retail therapy in lieu of romance, and while the narrative suggests it caters to single shoppers, the numbers suggest it is far greater than that.

Bloomberg reports that in just 24 hours last year, consumers spent over 213.5 billion yuan (AU$42.4 billion) during the event. This represents a 27 per cent increase year-on-year after staggering 39 per cent growth the year before.

As Chinese retailers are capitalisng on the event, Australian retailers represented the third-largest international selling country on Singles Day in 2017. Australian-based Chinese were also the fifth-largest overseas consumer group.

This momentum continued into 2018, with data showing Australian retailer revenues increased by 16 per cent year-on-year on Singles Day.

While these retail events are relatively new to Australians, they are gaining traction with consumers, disrupting the traditional retail calendar and placing pressure on margins for many Australian retailers at a critical time.

While these online events can present major upside for Australian retailers, they can also be a double-edged sword.

The downside risk is whether retailers can then back up a strong November and also achieve their budgeted sales and margin outcomes during the traditional Christmas shopping period.


$B


WE LIVE IN THE AGE OF CUSTOMER CENTRICITY AND brand transparency.

In some respects, the days of the all-powerful bricks-and-mortar retailer which spins its products and charms the customer, are gone.

The customer now dictates the brands they engage with and the ones they ignore. They trust anonymous online reviews and digital word-of-mouth over flashy advertisements and marketing spin. In particular, Millennials have become values-driven customers who invest their dollar with brands that align with personal values and a holistic view of the world.

Smart retail brands are adapting to the new world order, offering levels of transparency around their products and ethical sourcing practices not previously seen in the retail landscape.

More than ever before, brand transparency is a central theme in building customer relationships, with a survey conducted by US-based Label Insight finding that 73 per cent of respondents would spend more on a product that offers complete transparency.

Millennials are a driving force for change and are even more likely to have their dollar spend influenced by a brand that offers complete transparency, with 94 per cent of respondents more likely to stay loyal to a brand they trust.

EVERLANE | Everlane was founded in 2010, positioning itself as a leader in ethical practice with the tagline ‘radical transparency’. Everlane committed to revealing the true costs behind all its products from materials to labour to transportation. Customers are shown the exact mark-up that is applied to each product and even, in some instances, able to elect their own purchase price. Today, Everlane’s annual revenue is estimated at over $100 million. ALLBIRDS | Allbirds is a San Francisco-

RETAIL TRENDS

Smart retail brands are adapting to the new world order, offering levels of transparency around their products and ethical sourcing practices not previously seen in the retail landscape.”

“

based, direct-to-consumer startup aimed at designing environmentally-friendly footwear. Starting online in 2016 selling its first shoe from New Zealand super fine merino wool, Allbirds went on to open its first brick-and-mortar store in 2017. The company offers transparency about all the materials used in its shoes, which include natural materials like merino wool, eucalyptus tree fibre and sugar cane. In October 2018, Allbirds sold a stake to investors at an enterprise valuation of US$1.4 billion. While Allbirds’ financial information is not publicly disclosed, the brand sold 1 million pairs of shoes at US$95 each in its first two years and has been profitable for a long time according to co-founder Joey Zwillinger.

PACT APPAREL | Founded in 2009, Pact makes affordable 100 per cent organic cotton basics – combining design, comfort and sustainable materials with support for social and environmental causes. The company’s mission is to clean up textile and apparel production around the world, with all of Pact’s products being free of toxic dyes and pesticides. Jeff Denby and Jason Kibbey created Pact Apparel after meeting at business school in California. After being exposed to terrible labour conditions in Asia, Denby wanted a sustainable solution, teaming up with Kibbey, who had worked previously with Patagonia.

PATAGONIA | Outdoor apparel retailer Patagonia has long been associated with sustainability. From the beginning in 1973, the company has been clear about its business mission to protect the environment and inspire social change. Recently, Patagonia launched a Fair Trade campaign asking people “how is your clothing made?” aiming to get consumers to think about where clothing is made and create a stronger demand for Fair Trade products. The campaign trailer video received over 100,000 Facebook

views in one week. The California-based retailer is estimated to generate annual revenues of US$700 million.

ICEBREAKER | In 1995, Icebreaker was born in New Zealand by a passionate 24-year-old founder, Jeremy Moon, seeking a more sustainable future. The brand uses roughly a quarter of all merino wool produced in New Zealand, with its merino products fully biodegraded after 9 months. Icebreaker pioneered transparent, ethical and sustainable production of natural performance apparel. In 2018, it released its (100+ page) Transparency Report, stating “we think people should know exactly what they are putting next to their skin, how it was made and all the effects their choice is making”. The brand is estimated to produce annual revenues of NZ$220 million and in 2018 it was purchased by retail giant VF Corporation, owner of The Northface, Vans and Timberland.

Today, customer retention, engagement and loyalty start with transparency. Customers want to know what a brand stands for and that the brand lives its values. Everlane, Allbirds, Pact Apparel, Patagonia and Icebreaker are just a few examples of brands that have adopted transparency – and won.

There’s a new world order taking shape in retail and flashy advertisements simply won’t cut it with today’s value-driven engaged consumers.

The age of brandsparency



I T I S O F T E N S A I D T H AT T H E R E I S N O S U C H T H I N G as bad publicity.

On September 5, 2018 – the 30th anniversary of its “Just Do It” campaign – Nike released its latest campaign featuring Colin Kaepernick.

THE STORY OF KAEPERNICKJust in case you have been living in a cocoon in the last couple of years, Colin Kaepernick is an American NFL footballer, who in 2016 refused to stand for the national anthem in support of the Black Lives Matter movement in the US.

His actions caused a social media storm and he was roundly denounced by the owners of many NFL teams and Donald Trump, the US President. The campaign that began with a backlash, developed into thought leadership pieces, debates and finished with cheers from the likes of musicians Stevie Wonder and Pharrell Williams.

The outrage was everywhere. As other athletes such as Bruce Maxwell [Oakland Athletic – baseball], Megan Rapinoe [US Women’s national soccer team], and Jerry Jones (owner of Dallas Cowboys – NFL) joined in by also kneeling, Donald Trump called for them all to be sacked by the league labelling the action as “disrespectful.”

Trump fuelled the initial outrage by tweeting that the campaign sends “a terrible message.” Loyal fans posted videos of themselves burning Nike apparel, prompting the company to publish a how to guide on safely burning Nike products.

NIKE’S CALCULATED MOVENike’s controversial move comes at a time when retailers are under pressure to appeal to consumers with something more than just what they physically sell. Nike’s appetite for brand risk makes it unique and is designed to demonstrate its core values.

Nike wants to be the brand that stands for something. It’s a calculated risk.

On huge billboards, a black and white photo of Kaepernick displayed the simple message: “Believe in something. Even if it means sacrificing everything.”

Nike’s campaign has been shown in city squares from New York’s Times to San Francisco’s Union. On TV screens, an emotive Kaepernick narrates inspirational

images ending with the same message: “Believe in something. Even if it means sacrificing everything.”

Nike wants to demonstrate to its customers – particularly millennials – that it is not a brand that plays it safe. It is different from its competitors. It just does it.

FINANCIAL EFFECTSales data suggests Nike smashed last year with its new campaign.

Edison Trends scanned receipts from

more than 200 online retailers including Nike.com and found that the Tuesday after Labor Day [September 4 2018 – being the first full day after Kaepernick’s ad went viral] Nike purchases were 22 per cent higher than the same day in 2017.

The next day they were 42 per cent higher, and by Thursday they were 23 per cent higher. They remained above 2017 levels through to the end of the week.

Even the market responded. On the back of the ad’s release, Nike’s share price rose 5.44 per cent over a two-week period.

Stand for somethingArmed with a heightened understanding of the elusive millennial

demographic can transition into tangible sales. Just ask Nike.

RETAIL TRENDS

ONLINE SALE OF NIKE PRODUCTS

0.6

0.7

0.8

0.9

1

1.1

1.2

Friday Saturday Sunday Monday Tuesday Wednesday

2018 2017

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

Data collected from receipts from over 200 online retailers, using “Nike” as a search term. 1 shows 1x the number of Nike product orders on August 12018 (i.e. 1 August 2017 is the base case). Source: Edison Trends


To ignore this data or put it down to either coincidence or improved market conditions ignores the fact that by taking a risk by aligning with a deeply divisive social issue, Nike has shown how its heightened understanding of the elusive millennial can transition into tangible sales.

SOCIAL IMPACTA Quinnipiac University poll showed that overall, respondents approved of Nike’s campaign, 49 per cent to 37 per cent. The poll also found a distinct age gap, with those 18 to 34-years old approving of Nike’s decision by a 67-21 margin, while respondents 65 and older disapproved of the decision, 46 to 39 percent.

So, what does this apparent age divide show us about the typical Nike consumer?

According to pollster Ipsos Mori, millennials are “the most carelessly described group we have ever looked at”.

Many claims about millenials are oversimplified or wrong. It is often said, that conventional marketing tactics are ignored, or that millennials are more concerned with communicating in 280

characters or less.In fact, what the Nike campaign

demonstrates is that Gen Y and millennials are heavily influenced by brands which stand for something and align with their values.

The Nike strategy to use Colin Kaepernick was bold and brave, but it was not a fluke. The campaign was a deliberate strategy to align the Nike brand with their target customer.

Nike’s transparency and fortitude appealed to millennials because the modern, connected consumer does not want to be sold to, but rather be sold for.

Nike was not playing catch up to a tune written by millennials, instead they wrote the script themselves and the results have proven to be a success.

JUST DO ITAs tricky as they are to advertise to, Nike has shown that by developing a healthy respect and understanding of the millennial – one that can develop mutually – they did not need to sacrifice everything.

Standing for something doesn’t always mean sacrificing it all.

Nike’s transparency and fortitude appealed to millennials because the modern, connected consumer does not want to be sold to, but rather be sold for.”

“


Amazon:one year onAmazon’s quest for global domination continued through 2018 and while many observers were surprised at its slow start in Australia, Amazon is investing serious capital into the market Down Under – sceptics beware. Let’s look back on the year that was for Amazon, both domestically and overseas.

AMAZON 4-STARLaunched in September 2018, a new physical store located in Soho, New York where everything for sale is rated either four stars (minimum) on Amazon’s website; is a top seller; or is new and trending strongly on Amazon.com.

Amazon 4-Star is effectively a physical catalogue of Amazon’s greatest hits and a direct reflection of their customers’ buying preferences. Amazon 4-Star includes popular categories, consumer electronics, kitchen, home, toys, books and games.

MINIMUM WAGEIn October 2018, Amazon announced plans to increase the minimum wage to US$15 (AU$20.85) for approximately 250,000 full-time, part-time and temporary employees. Jeff Bezos was quoted as saying that “we listened to our critics…and decided we want to lead”.

To put Amazon’s move in perspective, Walmart and Target currently pay entry-level employees US$11 and US$12 per hour, respectively and the US federal minimum wage has been stuck at US$7.25 an hour since 2009.

NEW HEADQUARTERSIn November 2018, after a drawn-out bidding process Amazon chose America’s financial and political capitals for its two new headquarters.

The US$5 billion headquarters located in New York and Washington DC will house approximately 50,000 employees, each earning an average wage of more than US$150,000, making its ability to hire and retain talented individuals easier.

Amazon is also expected to receive more than US$2 billion in tax credits and incentives from the proposed deals.

RETAIL TRENDS


BY JAMES STEWART, Partner, Head of Retail – Ferrier Hodgson, Azuriumand CHRISTOPHER NICOLACI, Ferrier Hodgson


AMAZON GOLaunched in Seattle in December 2016, Amazon has been trialling their cashier-free GO concept store on a larger scale across Chicago and San Francisco since November 2018.

The Wall Street Journal has reported that Amazon is considering opening 3,000 stores across America and potentially integrating it within its circa 460 Whole Foods network of grocery stores.

MARKET IMPACTAmazon now has domestic websites in 16 countries, over 300 million user accounts globally and more than 200 million monthly visits to its US website alone.

In April 2018, Jeff Bezos revealed that Amazon had surpassed 100 million paying Amazon Prime members.

As the behaviour of consumers continues to shift towards online channels, major brick-and-mortar retailers continue to be impacted by Amazon’s growing Prime membership base. For example, in the US:

• Amazon accounts for 49.1 per cent of all online sales, beating out other online retailers such as Ebay (6.6 per cent), Apple (3.9 per cent) and Walmart (3.7 per cent) – eMarketer, July 2018.

• Amazon did not release sales figures for Cyber Monday (where US shoppers spent a whopping US$7.9 billion – up 19 per cent on 2017), but noted that it was “the single biggest shopping day in the company’s history with the most products ordered worldwide”.

• The three dedicated shopping days of Thanksgiving Day, Black Friday and Cyber Monday generated approximately US$17.8 billion in sales, with online shopping on mobile devices representing 54.3 per cent of site visits, up 18.9 per cent over 2017 – Practical Ecommerce, November 2018.

• Traditional US brick-and-mortar retailers, such as Macy’s, planned to close a further 30 stores during 2018 whilst Sears filed for Chapter 11 bankruptcy in October 2018 and announced that approximately 180 stores

will be closed by February 2019. Both retail veterans are continuing to reel from the effects of another bumper year from Amazon which saw it:

• Reach an all-time high share price of $2,050 in September 2018. As at January 8, 2019, it currently stands at US$1,629.51 (or over 38 per cent higher than what it opened in 2018 – giving it a market cap of US$802 billion). While Microsoft (US$826 billion) and Apple (US$805 billion) have edged slightly above the retail giant, Amazon is still miles ahead of its rivals – Alibaba (US$393 billion), Walmart (US$273 billion), Costco (US$98 billion), Target (US$36 billion) and Ebay (US$28 billion).

• Remain on track to eclipse total sales in excess of US$200 billion after recording – US$51 billion (up 43 per cent) during the first-quarter of 2018, US$52.9 billion (up 39 per cent) during Q2 2018 and US$56.6 billion (up 29 per cent) during Q3 2018.

• Maintain its dominance with respect to its cloud-computing offering (Amazon Web Services) – which continues to grow exponentially (up 46 per cent year-on-year to US$6.7 billion in sales during Q3 2018).

• Bring in US$4.6 billion worth of revenue from sponsored ads (up 155 per cent from 2017), with projections to grow these ads to US$10.9 billion by 2020. Jason Goldberg of SapientRazorfish says that “manufacturers have little choice – they have to run sponsored ads…no one will find you if you don’t pay”.

LOCAL LAUNCHLocally, after its launch in late 2017, which some commentators described as “underwhelming”, Amazon has quickly and quietly ramped up its assault on the local market with the introduction of:

• Two warehouses based in Melbourne and Sydney.

• Its Prime subscription service promising free two-day delivery. At $59 a year, Prime is comparably cheaper in Australia than in other developed markets ($161 in the US, $141 in the UK, $80

We believe Amazon’s impact in the Australian market will become more pronounced as time goes on, as history shows that Amazon plays a long game. No single Australian retailer has the financial or structural clout to go head-to-head with Amazon.”

“


in Canada and $77 in Germany). Morgan Stanley have suggested that this pricing point is extremely aggressive given the “complexities and costly realities” of delivering goods around Australia’s vast land mass. Amazon is looking to pursue household penetration over short-term profitability and will benefit as more products are offered and distribution networks enhanced.

• A four-fold increase in its Australian product range to 100 million SKU’s whilst increasing its product categories to 29.

Bain & Co believes that Amazon could become Australia’s sixth-largest retailer within five to 10 years – behind Woolworths, Coles, Bunnings, Aldi and Metcash’s IGA network. This would put Amazon in Australia ahead of Harvey Norman, Kmart and JB Hi-Fi – with revenues of AU$8 billion to AU$10 billion, compared with estimated revenue of AU$1 billion in 2017.

Morningstar analyst Johannes Faul tips Amazon to account for five per cent of all retail spending in Australia by 2028 by “emphasising quicker and cheaper deliveries rather than dramatically lower prices”.

TURNING DEFENCE INTO ATTACKIn last year’s Australian Retail Outlook, we suggested that both physical and online retailers be proactive in taking steps to differentiate themselves from Amazon. We still believe that retailers should:

• Continually challenge and refine their business models by clearly articulating their reason for being or “why”?

• Adopt an analytics-based approach in order to unlock options and value related to the buying habits of their customers.

• Develop an engaging physical retail experience to be able to retain customers attracted to the

in-store experience.• Embracing digital, mobile and social

strategies to ensure efficiency and ease right throughout the customer buying experience.

Several retailers are investing heavily to fight back against the Amazon threat.

WALMART’S TECH RACEWalmart entered into a strategic partnership with Microsoft for wider use of cloud and artificial intelligence technology. The five-year agreement leverages the full range of Microsoft’s cloud solutions, including Microsoft Azure and Microsoft 365, to make shopping faster and easier for customers. Microsoft has been working on a technology that would eliminate cashiers and checkout lines from stores, allowing retailers to keep pace with the Amazon Go format.

OCADO’S ROBOTIC RETAILINGOcado has never owned a retail store

Customers walk out of Amazon’s well-publicised GO store.

– instead it designs and runs highly automated warehouses similar to those operated by Amazon. At first, the company created robots for internal use, but quickly realised it could make more money by selling this capability to competitors with larger shares of the market, who lagged behind in digital transformation. In May 2018, a new deal with retail giant Kroger catapulted its share price by 44 per cent. When fully up and running, Ocado’s Andover operation will be able to process 3.5 million items or around 65,000 orders every week.

NORTH FACE’S TAILORED PLAYNorth Face – the newest North Face store in Brooklyn, USA, is curated,

personalised and fluid, meaning it won’t look the same way in any given month. The merchandise in-store is localised to reflect customer interests from the surrounding area, and the brand will use heat mapping technology to further determine what installations and collections are resonating the most. Additionally, there will be no cash register. Customers can check out with store employees’ mobile point of sale systems wherever they are.

WOOLIES DIGITAL INVESTMENTWoolworths have spent an extra AU$130 million last year on a new data and digital centre, WooliesX, IT and supply chain, including a new AU$350 million automated distribution centre, and

a cloud-based back-end IT system. Wesfarmers has said it plans to double its investment in digital and data.

LONG GAMEWe believe Amazon’s impact in the Australian market will become more pronounced as time goes on, as history shows that Amazon plays a long game. No single Australian retailer has the financial or structural clout to go head-to-head with Amazon.

Through Amazon’s Marketplace, Amazon will continue to present opportunities for SME’s to develop their brand awareness and grow sales with more than 20,000 SME’s worldwide surpassing $1 million in local sales on Amazon during 2017.


Humanisingretail

HUMANISINGRETAILA SPIN ON HR

4TH JUNE 2019 MELBOURNE | 6TH JUNE 2019 SYDNEY

Humans V automation: where machines may replace employees and where they can’t.

Humans of retail: real lives, real stories, real success.

How to build an emotionally intelligent business.

Essentials of an entrepreneurial mindset and why big business can benefit.

HHow to use creative leadership to cultivate a happy workplace and happy humans.

To learn more or register your interest,go to insideretail.com.au/academy


RETAIL PROFILES

HUMANISINGRETAILA SPIN ON HR

4TH JUNE 2019 MELBOURNE | 6TH JUNE 2019 SYDNEY

Humans V automation: where machines may replace employees and where they can’t.

Humans of retail: real lives, real stories, real success.

How to build an emotionally intelligent business.

Essentials of an entrepreneurial mindset and why big business can benefit.

HHow to use creative leadership to cultivate a happy workplace and happy humans.

To learn more or register your interest,go to insideretail.com.au/academy


RETAIL PROFILES

Having safely navigated the tumultuous waters of 2018 – with its former parent-company the cause of many well-publicised issues – newly-formed

Greenlit Brands [formerly Steinhoff APAC] and highly-respected CEO Michael Ford have big goals for one of APAC’s largest retail firms in 2019.

Household nametargets big 2019


HOW WOULD YOU DESCRIBE THE PAST TWELVE MONTHS AT GREENLIT BRANDS?Despite the unexpected and extraordinary circumstances concerning Steinhoff International [former parent] that emerged in late 2017, the past year has been a formative and galvanising one for Greenlit Brands.

As the debt-burdened crisis hit for Steinhoff International, it was critical that we reassured our landlords, suppliers, staff and bankers that the Australian operations were both profitable and cash flow positive.

We retained financial advisors to assist us in reviewing our options in order to ensure an orderly and controlled process in the event that an ownership change might transpire, and to avoid a forced, distressed sale.

In September 2018 we changed our name to Greenlit Brands. This is a significant step for our business as it represents the next stage of development of our business, as we operate independently of our parent company from an ongoing funding perspective, as well as an operational and strategic perspective.

Everyone at Greenlit Brands has done a remarkable job over the past year in very challenging circumstances, with our iconic brands now housed under Greenlit Brands.

In this respect, it has been a formative year for us, especially as we have preserved the value of our group and ensured that our landlords, suppliers and most importantly, our 10,000 employees are safe and secure.

GREENLIT HOLDS AN ENVIABLE STABLE OF BRANDS – WHAT HAVE BEEN THE HIGHLIGHTS AND CHALLENGES OVER THE PAST YEAR?The highlights of the past year were shaped by the challenges we faced, which were many and varied. They included protecting our brands from adverse publicity; negotiating with local and overseas lenders to secure our long-term funding on normal commercial terms; retaining key executives through this volatile period; coping with immense work pressure from crisis management whilst maintaining business as usual; handling constant media speculation; ensuring suppliers remained on side; and dealing with credit insurers.

A major highlight for 2018 was the extraordinary teamwork across our group, in extraordinary circumstances. In particular, the team that led our debt restructure did a remarkable job. At the same time, the leadership team across

all brands ensured it remained business as usual.

For example, our Fantastic Furniture brand generated very strong online sales in 2018 while undergoing a rebranding of its own while our general merchandise operations performed solidly with Harris Scarfe emerging as one of the best performing department store brands in the country.

IS INTERNATIONAL EXPANSION A CONSIDERATION FOR ANY OF GREENLIT’S BRANDS?We know that some of our iconic brands would translate well in international

markets but right now, our priority is to bed down our strategy as Greenlit Brands.

International expansion will be a matter of sequencing for us. Having just emerged from the parent-company crisis, we have been going through a merger of our household goods [furniture] brands and our general merchandise brands. That merger has moved from the acquisition/merger phase to the stabilisation phase.

Once we have moved through this phase, we believe there are very interesting opportunities for some of our brands and products to be sold in ►

The fundamental difference between a successful traditional retailer and one at risk is that the former has more sophisticated management capabilities, which enable them to drive greater returns from the investment in offline and online spending.”“

Greenlit CEO Michael Ford says the emergence of all-channel retailing is a key trend.


South-East Asia. However, this will only come under consideration when we move out of stabilisation into growth phase.

HAVE THERE BEEN ANY INTERESTING SHIFTS IN CONSUMER BEHAVIOUR IN THE PAST YEAR?I think the most significant shift is the influence of the millennial customer whom, by 2020, will represent 30 per cent to 40 per cent of all retail spending.

The battle for market share of the millennial’s wallet begins well before they enter a store.

The retail war is being conducted on two fronts; before the store and in the store. This makes it critical to have a unified brand story and a superior customer experience across all channels.

WHAT PLANS DO YOU HAVE FOR THE BUSINESS IN THE NEXT 12 MONTHS?Our plans are to stabilise and move forward under the direction of our corporate strategy.

We need to cascade our strategy down into our brands and then assist them putting in the appropriate structures –

people, capital, systems – to enable the brands to grow.

The fundamental difference between a successful traditional retailer and one at risk is that the former has more sophisticated management capabilities, which enable them to drive greater returns from the investment in offline and online spending.

We also have to examine our starting position. If any of our individual business units are under threat, we must be realistic about what we can defend. We have the scope and scale of a large company but must operate with the spirit and heart of a small one.

We will also focus on our operations, our inventory management and supply chain processes and systems, and invest in best-of-breed systems and analytics to support our planning and reporting.

In some of our brands we will have to re-think our pricing strategies, together with our incentive structures and our go to market plan.

In some instances, we need to change or modify our approach to selling and customer service – both online and in-store. This can be achieved by implementing a customer engagement model that focuses on

building relationships. We will also introduce store

clustering, assortment planning and item planning systems. We need to do this in order to be competitive with other tier-one retailers and enable our product assortment to be customer-centric and ensure the right inventory is distributed to the right geographic locations for the right demographic.

HOW HAS E-COMMERCE AFFECTED GREENLIT’S SUPPLY CHAIN OPERATIONS?A connected all-channel retail experience requires a complete transformation of the supply chain operating model. This is a complex exercise and requires substantial ongoing skill and cultural change.

E-commerce trends are impacting Greenlit Brands’ supply chain in three ways. We need to overhaul operations in relation to inventory management, to invest in best of breed systems and analytics and to seamlessly integrate online and offline distribution and logistics capability, supported by speedy and free last mile or easy pick-up in stores.

From a supply chain standpoint,


the retail marketplace is now a democratised marketplace and the internet and mobile devices have eased what were previously siloed channels of distribution.

In this regard, there is a need in many instances for a complete re-design of distribution centres. All of these changes and requirements require radical entrepreneurial innovation and out-of-the-box-thinking and doing.

To their credit, both Walmart and Amazon are done with just thinking and talking – they are walking the talk and they have become experts at doing it and doing it well.

At present, Greenlit’s supply chain operation is a major competitive edge, particularly in a vertically integrated household goods operation. We are Australia’s only national two-person delivery for bulked items and are the largest manufacturer of mattresses in Australia. We need to build on this competitive advantage.

ARE THERE ANY KEY TRENDS IN THE HOUSEHOLD AND GENERAL MERCHANDISE SPACE?Undoubtedly the emergence of all-channel retailing is a key trend. This is not limited to just online purchasing but rather, speaks to the impact of digital experience marketing. We know that our websites influence 60 per cent of our total sales so as a retailer we must continue to invest in customer-experience led digital solutions. In prior years some of our brands failed to make the appropriate level of capital investment into their online performance.

Further investment needs to take place to ensure that our online offer has flexibility, functionality and efficiency.

The website must deliver a consistent brand experience over multiple devices; inclusive of mobile, tablet and desktop. Adding these elements will improve the overall customer experience. Everything we do should be considered from a mobile-first point-of-view; most people are using their mobiles to access our websites.

Because of this connectivity, customer engagement and delighting customers in our stores needs to be at an exceptional level.

Whilst we acknowledge this trend, we still recognise the importance of our fundamental bricks-and-mortar operations. This more conventional approach remains critical and stable in the face of constantly evolving digital trends.

The shift in consumer behaviour and accompanying online capabilities are

seen as tools to be wielded by Greenlit Brands and integrated into our existing strategy rather than a strategy in and of itself.

WHERE DO YOU HOPE TO SEE GREENLIT THIS TIME NEXT YEAR?We have just come through a year of financial re-construction. Our finance team, under Michael Gordon [chief financial officer], has done a remarkable job in securing local financing.

As executives, we now need to return to our day jobs.

During the course of the next year we will overhaul many of our processes and systems, thereby ensuring that good process serves the retailer so that we can serve the customer.

It is very easy for the process to

become the proxy for the result an executive may want! We will need to constantly ask ourselves – do we own the process, or does the process own us? We will also continue to work on stabilising and improving our profitability.

Our CEOs and executive teams will work towards improving the productivity of our working capital, which as a formula is our profit margin multiplied by the turnover of the working capital. The secret sauce is the ability to improve our inventory turns and maintain the margin.

We believe that Greenlit Brands is equipped to emerge as the premier retail group in our key markets and that we will watch each brand flourish under this new identity.

“It is very easy for the process to become the proxy for the result an executive may want! We will need to constantly ask ourselves – do we own the process, or does the process own us?”

“


HOW WOULD YOU DESCRIBE DYMOCKS’S PAST YEAR?2018 overall has been a year of ups and downs. Dymocks looks like it will finish the year in line with the year prior; which considering how challenging November sales were, is no mean feat.

Retailers always say Christmas is getting later and later every year but it’s particularly true now as bricks-and-mortar store sales visibly skyrocket once online cut-off dates hit mid-December, so you make up a lot of ground very close to the finish line.

WHAT HAVE BEEN SOME OF THE HIGHLIGHTS AND GREATEST CHALLENGES?Highlights were most definitely our new store openings in 2018 with our new store design, including one at High Point in Victoria and another at Midland Gate in WA.

Key projects, such as the launch of ouDymocks customers are extremely loyal and often give the feedback that

they would like more locations; this is of course very dependent on landlords and appropriate offers. It seems that finally, and too late for some retailers, certain landlords are willing to come to the party for new openings at least.

Challenges as always are lease renewals; flat percentage rent increases in some sites are unsustainable and last year Dymocks had to walk away from a centre where we have had a presence for over 20 years, which is incredibly disappointing for both our franchise owner at that location and their customers.

HAVE YOU NOTICED ANY INTERESTING SHIFTS IN CONSUMER BEHAVIOUR IN THE PAST YEAR?Dymocks had certainly been aware of Black Friday, as a US and online shopping event but this year the whole weekend to ‘Cyber Monday’ you saw all retailers get on board in Australia with offers to rival Boxing Day both

Paging more successThere’s been many a challenge for one of Australia’s oldest retailers — whether it’s been online competition, e-books or increasingly demanding consumers — but Dymocks has eyes on continued success in its 140th chapter. We hear from Dymocks general manager, Sophie Higgins, about what to expect from the retailer in 2019.

RETAIL PROFILES


in-store and online. 2018 felt like the year “Black Friday” weekend became a much bigger shopping event in Australia, beyond overseas online.

WHAT PLANS/INITIATIVES DO YOU HAVE FOR THE BUSINESS OVER THE NEXT 12 MONTHS?A key focus for the business is improving our data integrity. We are in the final stages of completing a full product information management system, as in book and gift retailing there can be up to 30 million SKUS with in and out of stocks occurring regularly.

The focus for 2019 will be improving our customer data management for our Booklover Rewards Program. We have done a lot of work to personalise communications with our customers but more can always be done to ensure you are contacting customers at the right time, with content that is relevant to them.

With duplicate and incomplete records this can be challenging.

Dymocks have done a lot also to make sure that they are a gift destination for customers. So many customers look to books as a gift that can suit any taste; and while they are in-store they expect a good range of wrapping paper, cards and other related gifts to complete the purchase in one go as we are all increasingly time poor.

For example, our sales of board games and puzzles have skyrocketed and we are focused on doing more online and in-store to cater to this growing area. It’s natural that if customers love the Harry Potter books, they will be interested in cute Muggles t-shirts, sorting hats and wands.

DO YOU HAVE ANY PLANS FOR THE DIGITAL SIDE OF THE BUSINESS?Dymocks will launch a mobile-optimised website in the first week of January 2019, which is something that was the focus for 2018 and we are very happy to share at long last.

Our online sales continue to grow but our site needed a lot of improvements to search and to make mobile shopping more customer friendly. The exciting and challenging thing about online retail is that you need to be constantly improving and updating so while we will launch with an improved ‘base’, there is still so much more we can do to make finding the right book easier on our site.

Dymocks staff are known for their well-read recommendations in-store, to help translate that to the website we use a recommendations algorithm that also ties into what’s hot in the wider book market, via Nielsen [research and data company] to create a trending section in key categories and overall.

TECHNOLOGY/DELIVERY ARE MAJOR AREAS OF FOCUS FOR RETAILERS. WHAT ARE YOU DOING IN THAT AREA?We are conducting a full-freight review to see if there is a way we can get our online orders to our customers more quickly, and with clearer delivery dates and balance the cost of that service.

The main challenge is that delivery times across Australia from the publishers distributors to our stores have not changed in line with customer expectations.

It is faster for our stores to get stock from overseas distributors than it is in many cases from a local one. For our WA and Tasmanian stores this is a real frustration as customers expect special orders overnight, or within days but not several weeks after enquiring in-store. ►

It seems that finally, and too late for some retailers, certain landlords are willing to come to the party for new openings at least.”

“

Credit: Enzo Amato


WITH SO MANY E-COMMERCE OPERATORS NOW OPERATING IN THE BOOK RETAILING SPACE, WHAT ARE THE MAIN TRENDS TO WATCH OUT FOR IN THIS CATEGORY?In some senses book retailers are lucky in that we have faced online competition from Amazon-owned Book Depository and Amazon itself for many years and some consolidation has already occurred.

Book loving customers will always value a conversation with a well-read Dymocks staff member and the tactile experience of browsing in a bookstore with first rate customer service.

I think patience for customers with out of stocks or a poor level of

service is extremely low as they are looking for an experience beyond the transactional they can get online. So the focus must relentlessly be on improving that level of service.

In terms of trends, health and wellbeing is still a thriving category as so many of us try to improve our work life balance and live healthier lives; the ‘anti-self-help’ book “The Subtle Art of Not Giving a F*ck” was also in our bestsellers again this Christmas.

HOW WOULD YOU DESCRIBE THE LOCAL BOOK RETAILING LANDSCAPE?I think everyone would need to acknowledge by now that in spite of numerous challenges, the book

retailing sector is remarkably resilient! Nick Sherry [former small business minister] said in 2011 that by 2016 bookstores would cease to exist...I think having survived the e-book phenomenon where sales have plateaued at about 10 per cent-15 per cent of the market here – depending on the category – and online retailers, the landscape is fairly positive.

The challenges are those faced by any retail business in 2018; rising costs from energy to salaries to rents.

As long as Dymocks can continue to exceed our customers’expectations on the things they tell us value; our curated range, expert knowledge and rewards program the outlook is good as it has been.

2018 felt like the year “Black Friday” weekend became a much bigger shopping event in Australia, beyond overseas online.”

“

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Aldi’s

Aldi’s marketing tagline of ‘Good Different’ has certainly struck a chord with the Australian consumer – but as its growth trajectory continues

upwards and with more initiatives set for 2019, the German-owned giant is doing its best to make ‘different’, the new norm Down Under.

IN DESCRIBING THE HIGHLIGHTS from the last 12 months to ARO, an Aldi spokesperson says 2018 was “another great year for Aldi Australia, with continued growth across our store network, product range and employment opportunities.”

Let’s not forget, Aldi only entered Australia in 2001 and according to Roy Morgan’s last total grocery market survey, now holds over 12 per cent of the $100+ billion market.

Now employing over 12,000 staff and calling on more than 1,000 local suppliers, it’s hard to argue that it was another decent year for the company in 2018 and even better 17+ years of work, against well-established competitors.

In 2018, Aldi received Canstar Blue’s Most Satisfied Customers Award in the supermarket category, for the fourth time in the last five years; ARA’s Retail Employer of the Year, Employer of Choice in the Australian Business Awards 2018 and Roy Morgan’s Liquor Retailer of the Year.

Last year saw Aldi continue its expansion across Australia, opening 26 new stores in 2018, with a store refresh program on-track for completion by 2020 with 68 stores across the eastern seaboard receiving the transformation last year. Aldi now has around 500 stores operating around the country.

In August 2018, Aldi also announced its partnership with not-for-profit organisation, Tresillian, to help support

Aldi’s everyday range now consists of 1600 products, which Aldi expanded last year by almost 10 per cent with 150 new products across meat, fruit and vegetable and chilled categories.”

“

RETAIL PROFILES

‘alternative’trend-focus


more Australian parents and in November introduced a new Family and Domestic Violence Policy, which includes 10 days of paid leave annually for full and part-time employees.

FRESH ALTERNATIVE FOCUSThe refurbishing of old-format stores will continue throughout 2019, with Aldi expecting to introduce a new range of every day and special buy products.

But of note – particularly for those in the grocery space – is Aldi’s expectation that in 2019, the Australian nutritional landscape will continue to change.

“We anticipate an increased demand for products developed to cater to specific diets, with alternative meat and dairy products leading this trend,” says Aldi’s spokesperson.

“Meat substitutes such as vegetarian burgers and sausages will continue to be popular next year, while in 2018 we saw the popularity of milk alternatives grow exponentially. Our range currently includes rice milk, oat milk, almond milk, soy milk and coconut milk.”

Products containing coconut will continue to be a popular, says Aldi, with food and beauty essentials embracing this trend.

“Other food trends in 2019 will include a variety of organic options as well as healthy snacks for different dietary needs. Customers can already enjoy wholefood balls, goji berries and fruit and nut mix.”

Aldi’s everyday range now consists of 1600 products, which Aldi expanded last year by almost 10 per cent with 150 new products across meat, fruit and vegetable and chilled categories.

“The health category has also been a focus for us, with new products added to our organic and gluten free ranges,” adds Aldi’s spokesperson.

According to Roy Morgan’s latest Supermarket & Fresh Food Currency Report, Woolworths holds 27.4 per cent of the fresh food market overall, ahead of Coles (24.6 per cent) and Aldi (9.8 per cent).

Outside of the grocery race, Aldi will continue its partnership with Football Federation of Australia as the official supermarket of the Aldi MiniRoos, Australia’s biggest junior football program for kids.

With Aldi’s archrival in Europe, Kaufland, set to commence trading in Australia this year – armed with approximately 30,000 SKUs versus the roughly 1300 SKUs from Aldi and over 20,000 at Woolworths and Coles – not to mention the likes of Harris Farm, IGA’s network, Costco’s steady expansion and looming threat of Amazon’s tilt at online groceries – grocery retailing is set for a big year in 2019.


The last 12 months have seen bohemian luxury firm, Camilla, go from strength to strength. We speak with Camilla CEO, Jane

McNally about what to expect from the fashion retailer in 2019.

RETAIL PROFILES

Camilla:Fashioning

more growth


HOW WOULD YOU DESCRIBE CAMILLA’S PAST YEAR IN AUSTRALIA?2018 was an extraordinary year at Camilla.

We opened four new boutiques here in Australia, in three different states, signed two leases for our first boutiques in the USA, evolved our collections to incorporate more separates, knits and contemporary-wear and we closed Mercedes-Benz Fashion Week Australia to critical acclaim, with our first ready to wear collection.

Alongside this, we conducted a huge overhaul of systems, structure and processes – to future-proof our business for projected high growth.

WHAT HAVE BEEN THE HIGHLIGHTS AND CHALLENGES?Managing rapid business growth has been both a highlight and an exciting challenge. We are continuing to improve the experience for our customers in Australia while growing exponentially overseas.

Without question, our greatest highlight was closing Mercedes-Benz Fashion Week Australia 18 to critical acclaim. It was a very special moment.

It has also been fantastic to open retail stores in Australia and reach untapped local markets – we have loved expanding our Camilla tribe domestically.HAVE YOU NOTICED ANY INTERESTING SHIFTS IN CONSUMER BEHAVIOUR IN THE PAST YEAR?There have been some interesting evolutions in how customers access fashion.

We have noticed the resale market growing – our product is highly coveted, widely collectable, long lasting and maintains its value, so it’s a great investment. Many of our customers wear it as long as they like, then sell it to another customer in order to buy into the new collection, or purchase other collectable second hand pieces.

We’ve also watched the success of the rental market grow – with customers wanting that one outfit for their Instagram ‘moment’.

Within our own business, we continue to see customers swapping across channels regularly – they simply wish to buy the item they want, the moment they want it.

They are happy to purchase in

We have noticed the

resale market growing – our product is highly coveted, widely collectable, long lasting and maintains its value, so it’s a great investment.”

“boutiques, online, in independents or in the major department stores. We have a very balanced business in terms of channels – with sales coming almost equally from all.

WHAT PLANS/INITIATIVES DO YOU HAVE FOR THE BUSINESS OVER THE NEXT 12 MONTHS? We will be opening our first two stores in the USA, which is a huge moment for our brand and the cause of most anticipation. ►


Photographer – Georges AntoniStyling – Marina DidovichMakeup – Nicole ThompsonHair – Alan WhiteCreative Direction – Tony AssnessModels – Alejandra Alonso (KULT), Helena Vestergaard (CHIC), Adual Akol (CHADWICK), Jack Vanderhart (KULT)


Camilla has also recently been taken onto the ready to wear floors in Bergdorf Goodman, Saks Fifth Avenue and Neiman Marcus, so we’re growing awareness around our contemporary designs in the states.

We are developing more cooler climate clothing and a cohesive separates range, as well as some stunning kaftan variations that our customers can enjoy all year around. We will also be celebrating the brand’s 15th anniversary year – a major milestone – with several activations throughout the year. Watch this space.

Camilla will continue to improve systems and invest in technology to better improve the customer journey and experience.

DO YOU HAVE ANY PLANS FOR THE DIGITAL SIDE OF THE BUSINESS?We’ve recently successfully re-platformed our website and are currently working on a number of digital initiatives to improve the online experience for our customers.

Moving forward, we will be implementing multi-language sites, in response to customer demand. We’ve also recently integrated a new ERP system, Netsuite, which will provide much clearer data for us to work with.

Personalising and customising the customer journey is a key pillar of our activity.

TECHNOLOGY/DELIVERY ARE MAJOR AREAS OF FOCUS FOR RETAILERS. WHAT ARE YOU DOING IN THAT AREA?We are constantly looking at innovating and improving our digital experience and over the past year we have invested heavily in tech to futureproof the business.

There is a current focus internally on planning and allocation channels as we go global with differentiated ranging to ensure right stock/right time/right place.

Delivery is something we are constantly looking at. With a global business, this is particularly important as we look at improving delivery times into the USA and UK markets.

HOW WOULD YOU DESCRIBE THE FASHION RETAIL LANDSCAPE?It is important to have a clear white space, a point of difference, values and a strong brand identity. I believe that has always been the genius of Camilla Franks [company founder].

WHAT ARE THE MAIN TRENDS TO WATCH OUT FOR IN FASHION?In addition to the resale and rental markets, we have started to see an inclusive approach to size and age. Women are wearing what they feel comfortable in, what works for them in everyday life and dressing

for themselves. Camilla has always been ahead of

the curve on this trend – an attitude and approach she has taken from the outset.

It is the cornerstone of her business, which she has enabled us to have a clear affinity with our customer.

“Managing business growth has been both a privilege and an exciting challenge.”


EXPERT FORECASTS


ALL RETAILERS ARE CAUGHT AT THE CROSSROADS OF BRICKS-AND- mortar, the requirement to digitally transform their businesses, and mounting attacks against the customer and card data that represent the lifeblood of their operations.

Online, retailers face the challenge of mounting attacks against their digital storefronts with a goal of fraud, theft and customer information compromise.

Not to mention compliance problems around data privacy (Australian Notifiable Data Breach, EU GDPR) and card data protection (PCI DSS).

The result is that retailer’s sensitive data and the personal data of their customers has never been more at risk. Take for example the spectacular breaches for Target US where a third-party contractor was breached, gaining access to Target’s internal systems resulting in US$18.5m in damages and access to 41 million customer card accounts.

More recently Starwood Hotels said attackers stole credit cards, passport numbers and other personal data belonging to as many as 500 million guests over four years.

In this environment, IT and data security are now a critical challenge for retailers.

With increasingly high volumes of personally identifiable information (PII) and payment card information changing hands with every transaction, the retail industry is one of the most vulnerable targets for cyber-attacks.

This leads to many questions around trends for 2019 when it comes to protecting retail brand as well as customer data.

First, let’s look at some hard data:

• Data breaches occur in retail – 50 per cent of retailers were breached in the last year, with 26 per cent breached multiple times – an increase 2.5x from 2017 [Thales data report 2018].

• Phishing and social engineering was the top method of compromise (55 per cent), followed by malicious insiders (13 per cent) remote access (9 per cent) [2018 Trustwave global security report].

• Web Applications – such as online storefronts – show an average of 1 major vulnerability per application – and

the ability to eavesdrop on data being transmitted over 85 per cent of the time [2018 Trustwave global security report].

• Payment card data is still the most highly targeted type of data in breaches, accounting for 40 per cent of data stolen in all the breaches analysed [2018 Trustwave global security report].

• Spending on cyber defences is not targeted on where risks are. For example, more spending was done on firewalls than on internal cyber training, even though this may have provided a better outcome [Thales data threat report 2018].

• Cloud, Big Data, IoT, Mobile Payments, and Blockchain are in use or planning to be used for most retailers and yet cybersecurity spending has not increased in these areas to meet needs [Thales data threat report 2018].

What does this mean about where to concentrate efforts in 2019? – here are six priorities for retailers to consider:

1. Know where your data is – if retailers know where PII and Card data is located and transmitted – it is easier to put preventative cyber practices in place. Most organisations think they know where their data is, however this is nearly always proven to be incorrect.

2. Know what to protect – do risk assessments [should these be independent?] on data and protection mechanisms to utilise cyber spend wisely, in the areas of greatest need. Market data suggests that retailers spend in unnecessary areas and not on protecting the most important assets.

3. Retailers are going to use Cloud, IoT, Big Data, Mobile Payments and blockchain. Becoming an expert quickly in these fields is very important – use people with knowledge who can help fill the gap. Security is as much a ‘people’ issue as it is a technology issue. To stay on par with determined adversaries, organisations must have access to security experts who can think and operate like an attacker while making best use of the technologies deployed.

4. Train all staff, and train them again. The best mechanism to stop phishing and social engineering is to continuously train staff on new ways attackers gain access. Another trend in training, is on the innate value of information, both to the organisation and the potential attacker. The human factor remains the greatest hurdle for corporate cybersecurity teams, and fraudulent money transactions continue to increase.

5. Check vulnerabilities – and fix them. All systems internal, external and in cloud environments have vulnerabilities that can lead to compromise. Have a trusted system in place to check these on an ongoing basis. Vulnerabilities in systems have seen a sharp surge in the past decade, in part due to the doubling of internet users over the same time period. Cyber criminals are now actively looking for vulnerabilities, selling corresponding exploits on the dark web to make hefty profits. More vulnerabilities equate to greater potential for exploitation and their attacks are becoming more methodical and organised. Cyber crime remains extremely profitable, so we will continue to see threat actors quickly evolving and adapting methods to penetrate networks and steal data.

6. Check third party arrangements and security – any information given to third parties is considered retailers data, so from a compliance perspective treat this data as if it is your own.

The retail sector with its increasing reliance on online and mobile shopping, digital marketing and loyalty schemes mean shoppers submit more and more information to retailers that is of value to cyber criminals.

Retailers hold a goldmine of personal data but their high-profile nature and sometimes ageing systems make them a popular target for hackers.

The challenge for retailers now is good product and high customer engagement is not enough. Customers also expect their favourite retail brands to care for their data and protect them from theft.

Fortifying against digital attacks

The threat of cyber invasion has never been higher for retailers – vigilance will be key in 2019.

EXPERT FORECAST

BY JUSTIN GERI, Director, Forensic IT – Ferrier Hodgson


FAST FOOD FRANCHISING IS SEEN AS A SECTOR THAT IS somewhat isolated from the headwinds of online retail and the digital revolution.

Whilst the sector is performing well, it is not without its challenges:

• Increasing competition – many new innovative players have entered the market, in addition to established brands who have significantly increased their footprints.

• Changing footfall patterns in retail spaces – traditional shopping centres are transitioning into consumer engagement spaces where there is an emphasis on entertainment and experience.

• Rising costs – increasing rent, labour and electricity costs are squeezing already tight profit margins.

• Discretionary spending – the

“negative wealth” effect of declining house prices may go one of two ways: either create a drive for value or create flatlining revenue.

• Adapting to consumer needs – wellbeing, ultra-convenience and innovation are becoming critical differentiators in a crowded market.

What is the best way to counter these potential challenges?

Maintain focus on who your consumer is, what they want, and the changing nature of how they want to interact with your product or service.

It also helps to have a flexible business model that can adapt to structural market changes.

SUMO SALAD: A BRAND THAT KEEPS ON RE-INVENTING ITSELFThe advantage of a franchise model is that it allows franchisees to focus

on business execution, freeing up the franchisor to solely focus on innovation, product development and maintaining a leading brand.

A strong brand and offering are at the core of a successful franchise model, which can be successfully replicated in a changing market.

The Sumo Salad brand was established over 15 years ago, and has continually re-assessed its brand, business and operating model to remain relevant to changing consumer tastes.

Sumo has also navigated the challenges of increased competition and changing footfall traffic in shopping centres by using the voluntary administration process to restructure its affairs.

How did Sumo Salad respond to the raft of challenges?

By listening to its consumers and focusing on its core purpose.

The brand was founded as an

EXPERT FORECAST

Recipes for successWhat does it take to be successful in fast food franchise retailing? Continual reassessment

of brand and product and a clear digital strategy. And above all, resilience.

BY PHIL QUINLAN, Partner – Ferrier Hodgson


A strong brand and offering are at the core of a successful franchise model, which can be successfully replicated in a changing market.”

“

alternative to US style fast food outlets, with fresh and healthy fast food being at the heart of what it does, and what the brand stands for.

Sumo has responded by staying true to its ethos, but adapting its method of execution:

1. Expansion to non-traditional locations – in response to consumer demand, Sumo has diversified its offering into convenience-based locations such as airport terminals and other transport hubs, which deliver consistent footfall.

2. Focus on healthy eating – consumers are consciously making better lifestyle choices and Sumo continues to innovate its menu in response to this.

A DIGITAL STRATEGY THAT DRIVES OPERATIONAL EFFICIENCY AND ENGAGES CONSUMERS Fast food operating models have two key applications:

1. Core back office systems, including financial reporting and supply chain management.

2. Customer engagement.

Over the last 10 years, the sophistication of back office systems has improved rapidly.

However, in order for fast food franchises to be remain successful, they must take customer engagement beyond a promotional level.

While Domino’s Pizza is a much talked about local hero in the food industry, Sonic, a US fast food burger chain, has also invested significant resources into the transformation of their digital customer engagement over the last three years and is widely viewed as the food industry’s leader in digital customer engagement.

To achieve this, Sonic focused on three key areas:

1. Personalisation of customer experience.

2. Timeliness of customer interaction.3. Trend spotting and setting.

Personalisation of customer experience has been important in the transformation of Sonic.

The use of data insights to understand individual customer needs and treat them as valued guests was crucial.

A good example of the application of this data aggregation is Sonic’s Mobile Order Ahead app.

User data is leveraged to provide a personalised menu from which customers can order from in advance of arriving at their preferred outlet.

Timeliness of customer interaction is one of the greatest challenges for fast food organisations and a big source of customer frustration. To address this, Sonic developed a digital method to allow customers to order ahead via their smartphone and installed customised digital menus outside venues to ensure relevant content is delivered at the right time and place.

Trend spotting and setting has transformed Sonic from an organisation

at the whim of customers, to an enabler of customer trends.

This has largely been achieved by implementing a new data analytics suite which segments customers and stores by demographic. As a result, Sonic can deploy testing and experimentation with various customer groups and rapidly implement new offers to reflect upcoming trends.

The Sumo and Sonic stories emphasise the importance of continually assessing branding and digital strategies in order for fast food retailers to remain strong in a rapidly changing market.

SUMO – VOLUNTARY ADMINISTRATION AS AN EFFECTIVE REGIME TO RESTRUCTURE AND RESUSCITATE THE BUSINESS The biggest challenge for Sumo has been dealing with its handful of onerous leases, out of its original portfolio of over 85 sites. The voluntary administration process evolved over two stages:

1. In June 2017, Sumo’s financial position became strained after negotiations to exit underperforming locations stalled, resulting in Sumo appointing voluntary administrators to its leasing entities

2. Through the voluntary administration process, the leasing entities were restructured, and most leases assigned directly to franchisees

3. In July 2018, Sumo was forced to appoint voluntary administrators to the wider group of companies after struggling with legacy debts from its leasing issues

4. Ultimately creditors agreed a restructure through a Deed of Company Arrangement, which provided a return to creditors, ongoing trading for franchisees, employees and suppliers and a right-sized balance sheet

Sumo has maintained its national footprint across Australia, and the business has been restructured to a sustainable platform.


Managing organisational change in retailMastering the art of organisational change is a major competitive advantage

for retailers to consider in positioning themselves for future success.

IN OUR EXPERIENCE, RETAIL BRANDS THAT HAVE successfully turned around their performance have usually significantly recalibrated their strategy and reingineered their operations. Sounds easy when you say it, right?

The reality is however, that often the biggest enabler of a successful retail turnaround is how organisational change is managed – that is, changing the culture and behaviour of the people in the business.

Management guru, Peter Drucker, famously said “Culture eats strategy for breakfast”.

What he meant was that a strategy is the plan for success, whereas an organisation’s culture determines how the plan gets executed. This means engaging people in the process, providing them with ownership of the plan initiatives and leadership of the business, which supports the strategy and the people who are being asked to execute it.

Sometimes the path to sustainable change is best presented through an example.

Over the last three decades, a privately-owned specialty retailer grew aggressively under the leadership of its founder. The growth was organic and inorganic (by acquisition).

What started off as a small but highly profitable ‘single-brand’ business grew in scale and complexity into a ‘multi-brand’ operator with a national store footprint.

While the business experienced tremendous revenue growth over the decades, it didn’t translate into corresponding profits. Aggressive competition in recent years resulted in a flatlining of revenue and deteriorating margins. This exposed weaknesses in this retailer’s underlying operations, exacerbated by an inability to challenge the ‘status quo’ and implement change.

We were engaged to identify the reasons behind the retailer’s deteriorating financial performance and define opportunities to address key challenges.

One of the things we discovered was a business culture hungry to engage in the turnaround process, but lacking the strategy and leadership to guide them.

A range of opportunities to stabilise and transform the business were identified with a key focus on managing organisational change in six key areas:

1 Organisational strategy: providing clarity on what success could look

like in three years time and the strategic shift the business had to make to get there. This was critical to ensure that the owner, the management and the staff had a shared understanding and commitment to the future.

2 Organisational structure: redesigning the organisational

structure and attracting key talent to create an effective and cohesive management team with clear roles, responsibilities and accountabilities to drive the changes.

3 Succession planning: managing generational change with the owner

handing over the reins of the business to the next generation and trusting the newly assembled management team to take the business forward.

4 Performance management: redesigning the performance

management framework with clear and measurable KPIs to drive and reward the right change behaviours across all levels of the organisation.

5 Training and development: key investments in training,

supplemented by external project and change management specialists, to improve the capability and capacity of staff and management to execute the changes more effectively.

6 Communication: designing and implementing a comprehensive

communication plan to ensure all head office and store staff were fully informed and on board with the change program, and what was expected of them to ensure its success.

A detailed roadmap to implement this change program was developed and program management office was established to execute the projects in an integrated way and to ensure that tangible benefits were realised by the business over time.

We believe there are 10 Critical Success Factors to managing organisational change in retail businesses.

Globally, retailers are being constantly challenged by digital disruption of their traditional bricks-and-mortar business models and entry of international competitors into their domestic markets. In Australia, it is no different.

Many retailers are having to refocus their strategy and reengineer their operations to create the foundation for future success.

We believe that retailers that master the art of organisational change have a structural advantage over those that do not.

EXPERT FORECAST

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


As market dynamics shift, those who prepare today will be the success stories of tomorrow.

EXPERT FORECAST

Staying one step ahead in FMCG

WE ARE IN THE MIDST OF A CONSUMER BUYING revolution, with consumers in the driver’s seat and brands racing to keep up. Innovation in technology has opened the door to an explosion of customer touchpoints that significantly impact how consumers discover, research and purchase products and services.

At the same time, tech giants such as Amazon, Netflix and Facebook have redefined consumer expectations; today’s shopper demands current, personalised experiences that are relevant to their specific needs and situation at every point along the shopping journey.

To keep pace, FMCG brands must rethink how they reach and engage shoppers along the path-to-purchase. Relevancy is more important now than ever, and FMCG brands must work alongside retailers, investing more

heavily in data and technologies that will help them cultivate personalised experiences and engage and activate their highest-value customers.

With advancements in technology driving change in the retail sector, brands that are not onboard may struggle to keep up. Understanding what your consumer wants is the first step in riding the waves of change.

OMNICHANNEL SHOPPING CHANGING THE RULESIt may seem like a lifetime, but it was not too long ago that leveraging online to engage with consumers, let alone selling online, was a foreign concept. Traditional media vehicles such as TV and print advertising dominated marketing budgets, with very little allocation or focus on digital channels.

Fast forward to 2019 – and digital touchpoints and online shopping are

integral parts of the shopping journey, while hyper-connected consumers demand seamless experiences regardless of when, where and how they are shopping.

Simply stated, everything about the FMCG experience has changed how consumers access content and buy products.

The rise of big data, artificial intelligence and machine learning is arming retail marketers with new tools for understanding and serving their customers. But this change is also creating confusion, among even the most seasoned brand executives.

As marketplace dynamics continue to shift, the lines between discovery, research, shopping and entertainment continue to blur, and competition for consumers’ attention and wallets seems to intensify by the minute. But the stakes could not be higher: consumers have ►

Contributor acknowledgements:

Tom Doolan data science director, Adam Fisher product development director, Mike Boland consumer shopper analytics director, Ruth Butler e-commerce development director, Daniel Bone retail account director, Susan Viamari, principal, Retail Gateway Solutions at IRI.


an endless choice in what, where, how and from whom to buy. Brands that cannot win attention and share will quickly be dominated, or replaced by brands that get it right.

Furthermore, capturing more share-of-wallet today will drive increased customer lifetime value in the future. So, today’s winners will position themselves well for the battle for lifelong customer loyalty.

CREATING A SEAMLESS DIGITAL SHOPPING EXPERIENCECreating a frictionless online experience is key to building any brand, whether it be on its own website, retailer sites or any other site that the brand is associated with.

The popularity of click-and-collect is evident, with IRI research revealing that shoppers are attracted to this option because they can save time by avoiding crowded store aisles and register lines and save money by avoiding shipping and delivery fees. This is acknowledged by Australian retailers and evident through their commitment and continued investment in this purchasing method.

As a result, effective brand and retailer strategies need to be put in place to support it. The click-and-collect capability allows the shopper to check in at a particular location and view the range assortment and product availability of that store.

This is an important consideration when one in three Australians currently use online location-based services to check in to physical locations when shopping.

So, it’s critical that assortment and stock levels are in the right place, at the right time, as the shopper may not click to buy while browsing but use this

information when making a purchasing decision later in-store. Equally, retailers must be aware that providing a click-and-collect option may reduce basket size, as consumers can quickly and easily pick up their goods without wandering around the store, making impulse purchases less likely.

INFLUENCING CHANGING CONSUMPTION HABITSWhen it comes to the shopping experience, be it in-store or online, or via a click-and-collect service, shoppers are influenced by price and promotional mechanics, in-store point-of-sale, as well as in-aisle and off-location marketing.

According to IRI survey data, 90 per cent of shoppers make a list before going grocery shopping – and if that’s the case – how much of the path-to-purchase can retailers actually influence?

Is the decision of what product to buy already decided? Well in breaking that down, of the majority of the shopping lists written by those surveyed, some were on a mobile device and others were simply in shoppers’ heads. Interestingly, the proportion of those making a digital list has increased five percentage points year-on-year.

In addition to this, shopping lists play an influential role in voice commerce. Recent research has shown that only a third of Alexa users have ever purchased using the technology, however the majority use it to create their shopping lists.

Brands can be suggested rather than just items, which poses a risk to those brands which have not developed a strategy to ensure that their brands are in the consideration set.

And just because a list has been made

doesn’t mean the end-product has been decided. So, there’s a great opportunity to influence shoppers’ purchase decisions, whether that be in-store or online.

MASTERING THE DATA: THE KEY TO PERFORMANCE GROWTHThere are oceans of data available and more being captured every day. Once upon a time, a trip to the store left nothing behind other than the enjoyable experience of engaging with the shopkeeper and a few empty spaces on the shelf. These days, there’s your e-tag record from the toll roads driving to the store, the trail of cell towers your mobile phone has connected to, the image of your car number plate captured going in and out of the carpark and the details of your loyalty and payment cards recorded at the checkout.

As a result of this, the big data marketplace has exploded. Its complexity is marked by reams of disparate data from a variety of sources which can often lack insights. To take advantage of this advanced marketplace and make the most of this complex new world, the industry must master the data.

The marketplace and the data can be complicated, but by utilising gathered trends and insights, it’s possible to gain a deep understanding of how consumers respond to marketing messages and the marketing impact on shopping journeys.

By understanding these, it helps marketers influence the path-to-purchase and, ultimately, buying behaviour. Manufactures and retailers can keep up with the speed of the market; they just need to approach it with a new mindset and the necessary tools.

...shoppers are influenced by price and promotional mechanics, in-store point-of-sale, as well as in-aisle and off-location marketing.”

“

ACRD

insideretail.com.auferrierhodgson.com.auazurium.com.au

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Australian Retail Outlook 2019 · aldi’s ‘alternative’ trend-focus camilla: fashioning more growth 38 42 46 48 expert forecasts fortifying against digital attacks recipes for