Why Australian retail is breaking under the weight of stock
I was always a kid trying to make a buck. I borrowed a dollar from my dad, went to the penny candy store, bought a dollar’s worth of candy, set up my booth, and sold candy for five cents apiece. Ate half my inventory, made $2.50, gave my dad back his dollar.
Recently, I wrote on LinkedIn as to the plight of retailers lamenting the rise and rise of discounting and the interest in the article was comparatively high.
Although – taking a step back it’s not hard to see why this plight of discounting is so relevant and increasingly the scourge of the retail proposition. Much of the transformation of the retail sector, is in part a dramatic adjustment to “too many retail channels having too much stuff”.
Or, as I recall hearing many years ago: “Excess inventory is the coefficient of insufficient information” and as we increasingly live in the world of information, perhaps the term lazy retail might just apply to those who order inventory with no reference to inventory history, including promotional, seasonal and any other form of statistical evidence.
Equally, perhaps those who recall the phrase are those who don’t learn from the past and doomed to repeat it.
And we have some retailers repeating this predicament recurrently, their discounting doesn’t start at the end point, rather months prior.
If we accept that our total retail sales (omnichannel), including online, are approximately $320 billion and if we hypothesise that an average cost of goods sold (COGS) is 50 per cent – leaving approximately $160bn in stock – then we start to see the sheer quantity of product available for sale to consumers. I also know that I am taking liberties here with categories such as food or professional services.
We are ranked third highest globally for retail shop density per capita behind the USA and Canada, with approximately 75,000 shops currently in Australia, 85 per cent of which are in our shopping centres. As I say, too many retail channels selling too much product.
Run the numbers against benchmark stock turns per category and we start to see the real impact of too much stock.
And here we see the effect of overstock at its greatest impact to retailers and the customer experience and the resultant response, which in too many cases is to discount.
Now I am avoiding the high-low pricing model of some retailers such as Kathmandu. For the sake of this discussion however, retailers must directly or indirectly educate the consumer that the first price is not the only buy price.
Now couple this dilemma of average overstock with enthusiast suppliers pushing and incentivising retailers with ‘special buys, rebates or indent orders’ or whatever short term incentive can be provided and we start to also see the retailers decision making prowess somewhat marginalised, especially when there is no science to support the buy.
Finally one other age old factor is the ability of retailers to create exclusivity or a point of differentiation, which is becoming notably more difficult as the overall ‘noise’ becomes even louder.
Have you noticed how transactional or functional some – if not many – retailers’ offer actually translates to? Products and ranges positioned on the basis of price can only lead to one negotiation and one result.
Where is the aspirational and emotional attributes to brand and product differentiation? How clearly understood is the customer profile, their emotional drives, and their often irrational buying decision making process?
A fit retailer invests in great customer insights, builds the right emotionally differentiated offer, supports it with remarkable retail and fulfillment models, great customer ‘tribe experience’ and precise data driven inventory management processes.
After all anything would be just discounting the brand away.
First published InsideRetail on April 20 2018