“It is always wise to look ahead, but difficult to look further than you can see.” – Winston Churchill
It is interesting to read through my colleagues predictions for the future of retail. While I agree with many of the predictions regarding technology, consumer behaviour, and global retail, I find myself in some contrast with the perspective that what we know as retail will change substantially in format, size and appearance.
Certainly brands will appear and disappear, and whether shopping centres will be same or similar, or more or less dominant than they are, is also the subject of some speculation.
One aspect for the future is every bit as certain as it is today, and that is that we human beings are predominantly social by instinct, and we want, in the vast majority of occurrences, the human experience in all our senses – that won’t change.
Retailers providing the most attractive offer in all dimensions will always be the most successful, and being brilliant in the basics will never change. The physical shopping experience will always be the jewel in the crown.
Despite this, two key trends in domestic retailing haven’t been commented upon in the commentary that I have read, and they are based on the speed and impact of technology intervention.
Technology intervention and acceleration is the single most powerful disrupter and enabler to all forms of communication, mobility, data distillation, aggregation, and speed. This revolution underpins retail ‘Darwinism’, and one trend we will regrettably see is that many smaller retail channels may well face the unenviable investment decisions that an omni-channel operation requires, and simply won’t have access to the capital required to build competitive information infrastructures.
By way of comparison, larger scale networks are pouring millions of dollars into omni-channel business models with the business case, in many examples, not being anywhere near breakeven over the next three to five years at least. In some cases, payback could be seven years plus.
The reality is that many of our leading retailers are currently sub-two per cent in online sales (despite the hype), with investment portfolios in business information systems required to underpin optimistic growth forecast to online sales to at least five to 10 per cent over the next three to five years.
The investment required far exceeds the revenue/margin return, over this period. No one would argue the need to make these investments, on the basis of consumer adaptation of technology, and this in itself raises the barrier to entry for competitors.
While these businesses have the pockets to find or raise the capital required, many don’t, so expect to see rationalisation, mergers, acquisitions of these players, as a consequence of the capital investment required, globalisation of retail, and one other factor, which is simply the changing of the guard. Some of our businesses in retail are now looking at a generational change as owners and managers (despite Mr Hockey’s alleged desire to have us work longer).
Looking at the issue of omni-channel investment, globalisation in retail, rising costs in rental and wages, margin degradation, and increased competition, and seeing the period between now and the next two to three years with some uncertainty, I believe you will see a higher level of sales of these businesses as they exit through either:
- Owner retirement,
- lack of capital investment required,
- lack of e-commerce skills/omni-channel understanding
- Reduced commercial performance for the reasons given.
- Exit options for vendors will include:
- Straight sale
- Earn out (partial dollars upfront then payment for certain KPI’s being met over an agreed time)
- Trade sale to competitors.
Some turbulence will occur, not so directly as a consequence of trading activity per se, rather the much heavier funding requirements as retail becomes increasingly hungry for capital to transform single and multiple channels to omni-channel retailing, and for some this will signal exit rather than putting more on the table..
Happy Fit Retailing
P.S Our next Fit for Business breakfast, featuring Myer CEO Bernie Brookes, will be held on June 17 and 18. For more information please visit www.retaildoctor.com.au