“It’s time for all folk, It’s time for moving, It’s time to give, Yes It’s time” – Whitlam Government political rally jingle.
There is no doubt we are undergoing a significant structural change globally in retailing.
According to Citibank’s ‘What’s In Store Report’, many Australian retailers are showing some very interesting and potentially imploding trends.
These trends include a decline in EBIT (earnings before interest and taxes), margin returns in cost savings, process engineering is not as available, and a weaker exchange rate continues to deteriorate margin position.
Overall organic growth in retail space is occupied, perhaps due to the many landlord incentives offered. Sales growth is occurring, driven by food and hospitality, and consumer confidence is showing which is pleasing.
Capex spend is still under invested in retail, although in the face of growing retail space, there is a consistent need for capital investment, particularly in preparation for the much needed omni-channel capability, such as business information systems.
When looking at the cause and effect of these levers, reflect on the increasing competitive intensity as global retail starts to take its share and you can see retailers delivering more of the same model that they know and possibly less of the solutions that will be required to increase sustainability and margin growth going forward.
Perhaps closer to reality is that we are by nature a reasonably risk adverse retail community. There is plenty of merit over the years in this approach, yet conversely innovation and risk go hand in hand in many situations. Caution and underinvestment won’t be likely to win this race easily.
We all grew up with the mantra that growth is everything, gross margin can be managed and increased through this growth, and EBIT is a direct consequence of trading volume growth that must be bettered in increasingly short term cycles, while capital spending is to be reduced.
These are often the ‘in the box’ solutions used for an increasingly ‘outside the box’ environment. More stores, more racks, more of the same?
While taxes and death are inevitable, so too is the rising costs of doing business, and in some cases these costs are growing faster than sales.
Today we have to question the way in which our retail brand and offer cuts through the noise.
Investment in capital spending is a retail necessity, often not paying its way in the short term, but is retail’s ‘hygiene factor’ and entry to the omni-channel club if you will.
Does today’s customer operate in lockstep with the in the box solutions that we are all familiar with? Unlikely, and in fact they are more like to be media connected.
They are mobile savvy, less tolerant, and less loyal, have an appetite for innovation, are seeking experiences of relevance in stores, and want loyalty programs that speak to them.
Retailers with information systems and consumer insights that drive an accelerated customer experience and corresponding spend with innovation of the customer experience at their heart who will win.
Doing the same each year at the altar of short term profit returns can only pave the way for new retailers to apply out of the box solutions to this great period of structural change in our industry.
Happy Fit retailing!