Asset Impact

Pop Quiz: How Long Will it Take? Go Ahead and Take Your Best Guess

This article below brings up some very interesting considerations. It looks at a portion of Australia´s retail woes and talks about asset recovery online retailing, particularly overseas retailing, and how it is presents new challenges. We feel, or to put it more appropriately, we fear those challenges are far worse than the author may even realize. Our hopefully though provoking comments and questions are in bold. Truth be told, even we shudder at the conclusions.

The reality of online retail

Author: Brendan Lewis on 3 August 2011

I read today that Myer intends to do away with shipping and handling costs for its online store, to stop the leak to internet shopping. Apparently “Commonwealth Bank estimates that Australian consumers spent $9.5 billion online last year, with $4.2 billion going to overseas online retailers and the remaining $5.3 billion paid to domestic retailers.”

4% of all of Australia´s $240 billion in purchases were online and already 44% of the online purchases were made overseas. Which direction do you think both these percentages will move in the next 5 years and how fast?

Competing on price isn´t going to work, as the competition is always going to roll you. Here´s a real example.

This week I had my quarterly breakfast meeting with Scott Kilmartin of haul. haul is a highly successful multi-channel retailer that upcycles advertising billboards into laptop bags, iPad cases and promotional products for companies from their materials. Scott and I get together regularly to dissect our businesses and offer each other impartial advice. I value Scott´s insight into retail trends as he is a keen watcher of players in the market, a keen reader of analysis of retail trends and has bags of experience (excuse the pun).

Scott conducted a couple of experiments this week that have got him worried. He purchased two items off eBay that were shipped directly out of China. The first was a black sweater, XXL size, and in his words “well made, no loose threads or rough sewing/joins. It could be from Country Road”. The total cost – AUD$9.90 including shipping (but retailing in Australia for around $89.95). The second item was a fake leather iPad case, for AUD$10.45 (retailing in Australia for around $49.95). Both were delivered in 10 days in an Australia Post eParcel box. (Note Scott´s rate to send an empty eParcel box from Carlton to Fitzroy is a whopping $7.65 at the 1,000-5,000 pieces a year contract rate.)

So can Myer and big retail compete on:

  • Price? Not a chance.
  • Quality? Nope, goods are coming from the same factories.

The “goods are coming from the same factories”… Wow! Let me get this right… You´re telling me they are the same goods from the same factory and at a cheaper price? Yikes!

  • Delivery speed? Perhaps if they lift their game. Seven days delivery from local stocks is slow when you can get something from China in 10 days.

China is already ´only´ 3 days slower for deliveries than in-country online purchase for delivery. How long before China is equal to or maybe even better in delivery because of the purchasing volume generated from their far superior pricing?

  • Risk of fraud? Absolutely. The much lower buying from an Australian retailer and a fear campaign could work well.

EBay and other online services will continue to reduce this risk with more refined evaluation systems, review systems and policing efforts.

  • Impact of fraud? Nope. Almost everyone I know is happy to trial an order or two and write-off the $10 if it doesn´t work.
  • Range? Nope. Australian retailers can´t afford to stock all shapes and sizes, as most men in their 40s find out when they go to buy jeans.

Brick and mortar retailers cannot compete with online product range and unfortunately this gap will only widen… severely

The conundrum retailers face is an old one, not just in retail. On a number of occasions businesses I have worked for have had an agency for wholesaling electrical products that we practically built the market for. And when our sales were strong enough, the manufacturer decided to directly step into the market and we just couldn´t compete. This always happens.

Manufacturers will step into the market only now we predict in the future they will likely do this even cheaper online.

The solution though is not to compete on price, but to endlessly innovate and provide superior customer service.

Those “innovations and customer services improvements” MUST have a greater online component to them or it just will not matter to overcome the massive pricing differentials.

Cutting costs and only competing on price is a death spiral. Always has been, always will be.

So let´s look at this now and wrap it all up. ´Online China´ will have:

  • The same goods
  • The same factories
  • A cheaper price
  • A tightening on delivery variances that will soon enough be nearly negligible
  • Lower and lower risk of fraud that will also disappear
  • A wider range

So then the average brick and mortar retailer will then only be able to compete on service. OK then, first we´d ask… Didn´t we just list most of major the service elements and get our butts kicked?

So then what happens when China hires all those soon-to-be-out-of-work retailers in Australia and USA to serve as better customer service reps for their online megastores otherwise known as EBay, Amazon or whatever other online selling service arrives next on the scene?

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