Thursday, 23 November 2017

Australia: Driving retail towards an omnichannel environment

E-commerce is changing the retail model. What are your strategies?

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The upcoming arrival of Amazon in Australia highlights the need of omnichannel strategies. Treasurers, get ready for a changing business model.

Australia is getting ready for what is expected to be a landmark event for its retail industry – the arrival of e-commerce giant Amazon on local shores. Ever since the US company announced its expansion plans earlier this year, there has been much discussion over the impact it will have on traditional bricks and mortar retailers.

The issue is particularly pressing as Australian retailers have tight net profits, as high costs in the form of wages and rents eat into margins1. To counteract this local store owners have traditionally faced relatively little competition from foreign companies, as only 16 per cent of the world’s top largest retailers do business in the country, according to Deloitte data2. But the number of new arrivals is steadily rising, and Amazon is the largest entrant in an increasingly international market.

Growing competition from sophisticated international retailers adds to the pressure to innovate. Local retailers need to revaluate how they do business and consider adopting the latest techniques to improve the customer experience.

“Doing business in an increasingly global world means that technology and data are ever more crucial,” said Gayle Dickerson, Partner at KPMG. “You really have to tailor everything around the needs of the customer.”

E-commerce will be an integral part of any forward-thinking strategy, as previous examples of Amazon entering other markets suggest that there will be a significant boost to online retail sales. KPMG forecasts that Australian online retail sales will grow from AUD20.2 billion in 2017 to AUD27.1 billion in 20203, and although the consultancy also predicts that Amazon will grow faster than the overall market, it means that there will be a larger e-commerce space in Australia, creating opportunities for local retailers that can develop a stronger online offering.

A robust online presence is only part of the solution, as traditional retailers can still find value in their physical stores. The so-called ‘omnichannel approach’ aims to take advantage of the complementary strengths of offline and online sales channels, creating a seamless experience for customers that enhances every stage of the buying process.

Mobile technology in particular, is a key driver in realising this strategy as it simultaneously empowers the consumer with information, while at the same time providing the retailer with rich data that can be used to create customised services.

“The smartphone was a game changer, allowing you to browse 24 hours a day, seven days a week,” said Gareth Jude, Retail Industry Executive at Telstra. “Just being able to shop online was not much of a threat to traditional retailers because you had to go to a desktop computer.”

In addition to the omnichannel approach, Mr Jude highlights a number of areas where traditional retailers can improve the customer experience. The first is relatively straightforward: make the store a more customer friendly place. Free in-store Wi-Fi makes it easier to go online and have access to information about products, while data acquired from consumer movements can be used to optimise the store’s layout – cameras can monitor how customers move around the shop for example to discover the outlet’s hotspots where people spend the most time.

Another tactic is working with the consumer in the actual creation of the product, something that has been successfully implemented by companies in fast food, footwear, and even in the wine business. The customer is able to get a highly personalised product via information given on a website or a smartphone app.

“Getting the consumer involved in the creation of value makes them very sticky,” said Mr Jude.

The final strategy that Mr Jude mentioned was the intelligent use of data. This is especially true for traditional shops, which he says has a source of information that online stores lack – i.e. the foot traffic of shoppers in and around the outlet. Furthermore, data can be used to manage inventory across a retail network, ensuring that a shortage of a particular product in one shop can be efficiently alleviated by a moving surplus stock from another outlet.

The role of treasury

The drive towards a retail environment that meets the needs of the modern consumer requires contributions from every arm of the business. The IT and marketing departments will both play crucial roles in this transformation, but the treasury also has an important contribution to make.

“Treasurers have to ask themselves how well connected they are with the parts of the business where these new solutions are being managed,” said Hans van den Bosch, Global Sector Head Consumer Brands, Retail and Healthcare at HSBC. The new technology-driven business environment enhances collaboration between different parts of a business and provides new opportunities for internal partners to work together.

By working with the technology team, for example, a treasurer can make sure that customers have access to their preferred payment methods in both an offline and online environment. A company’s marketing efforts can be enhanced by integrating an electronic payment platform with a loyalty scheme, which again will require the input of the treasurer.

Furthermore, a treasurer has to become familiar with a growing range of payment systems beyond the traditional mix of cash and cards. Faster fund transfers between banks enable instant payment systems that are cheaper than credit cards. Digital wallets take advantage of this technology and are already popular in a number of markets. In Australia, the central bank is expected to launch the New Payments Platform in 2018, providing real-time settlement for low-value retail payments.

Treasurers looking to make the digital shift will also have to work closely with external partners. “As a retailer, you couldn’t expect to work with one partner that meets all of your needs,” said Mr van den Bosch. Banks, card acquirers, payment service providers and financial technology companies all need to work together in order to provide the holistic set of services that retailers need to move forward. Strong internal and external partnerships are therefore essential for any treasurer that wants to contribute to a company’s broader digitalisation.

The upcoming arrival of Amazon in Australia stresses the importance of having a genuine omnichannel strategy in place. But instead of seeing it as a threat, retailers and consumer brands should see technology as a tool that can take their business to the next level.

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