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Retail needs to compete on service not price

The Australian retail landscape is rapidly changing due to the exponential growth in online retailing, which now comprises of at least 7% of all local sales.

According to Forrester’s Research, online retailing is expected to grow by at least 1% per annum, with online local sales worth $33.3 billion by 2015, with approximately 40% of these sales with overseas based retailers.

The friction between traditional and online retailers has increased recently, with declining sales and profitability for many larger retail chains.

While some retailers have argued for the GST to be applied to all online purchases, this ignores the structural challenges facing the retail sector. Currently imported goods under $1,000 are not subject to the GST. While applying the GST would assist in leveling the playing field as far as taxation is concerned, it ignores the fact that comparable products at traditional retailers still cost more than this price difference.

For many years Australia’s big name retailers, such as Harvey Norman have been competing solely on price. As a result Australian consumers are increasingly conditioned to shop solely on price. This was an effective strategy, until the rise of online shopping, with products at lower prices than Australian counterparts.

It is clear that Australian retailers are unable to compete against online competitors solely on price. This is due to several factors, including the costs of overheads, such as utilities, staff and rent. These are largely fixed costs that while necessary for traditional retail, is not as imperative for online shopfronts.

If retailers are unable to compete on price then they need to compete effectively in other ways. While online shopping is largely transaction based with consumers focusing on price, traditional retailers can compete by creating a positive shopping experience.

There was a time when retailers such as Myer set the standard for customer service, this is no longer the case with costly customer service being reduced to focus solely on price.

Traditional retailers need to restore a focus on customer service and use this to focus on a creating a positive experience for consumers. Online retail is unable to offer a comparable service to that offered by one-on-one interaction at a store. Furthermore, there is a need to extend this experience into creating a retail presence that is unique and captivating. This could include sneak previews of new items for loyal customers and their friends or special gifts to celebrate birthdays. In addition, smaller retailers could complement each other through augmenting their service. This could include discounted or priority dry cleaning for specialty fashion stores, matching accessories with home wares or free installation and delivery for electrical equipment.

Shopping Centres certainly have a role in creating a retail experience and the valet services offered by Doncaster Shoppingtown are a good example of this. Local shopping precincts could create a sense of community through regular events and establish customer loyalty.

There will always be consumers that are motivated solely by price or who prefer online shopping and there is a need for Australian retailers to offer comparable online sites. In this regard, it is surprising how slowly some retailers, particularly larger businesses such as Myer, Harvey-Norman and JB Hi-Fi have been in exploring online shopping sites. While it may be difficult to compete solely on price, it does offer the ability to augment online transactions with a traditional retail store that can assist in delivering customer service.

The retail landscape is changing and Australian retailers need to adapt by creating a positive retail experience that can complement their products through investing in online shopfronts.

Alex Makin

Author Alex Makin

In a career spanning over fifteen years, Alex has been instrumental in transforming, reinvigorating and growing the capacity of businesses and not-for-profit organisations. He is a visionary who understands the big picture. Alex’s expertise is a Certified Practising Marketer and as Chair of the Victorian State Council of the Australian Marketing Institute. Alex is also an accomplished speaker, author and mentor and former Mayor and Councillor for the City of Maroondah.

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