By James Wells
SAN FRANCISCO: Narta managing director, Kay Spencer, told delegates at the buying group’s annual conference today that the control that retailers once enjoyed over consumers has changed dramatically.
“There are three major influences that have largely ended the control retailers once enjoyed over consumers,” Spencer said.
“First, the internet has triggered massive consumer behavioural freedoms. The internet has given consumers and indeed suppliers the liberty to change the way they do business.
“In preparation for two of our speakers, I provided them some retail internet sites. Their response: great site, but how do I buy? Without doubt manufacturers are using the net more strategically than most retailers.
“Most of the customer’s search is via manufacturer sites for pre-purchase information.
“Clever manufacturers have extended the online consumer experience to education and tutorials, prior to purchase. Think back to education and demonstration, which was once the role of traditional retailers, is now in the hands of manufacturers,” said Spencer.
Spencer used the example of Miele’s introduction of a new back to base service via the internet, pre-empting any service problems.
“Leading manufacturers continue to break with tradition taking more direct control of their brands which, some would argue, is in conflict with retailers.
“Others would counter argue: in partnership with the new creed – relationships are fine, but, control is better. And in part, that means by passing traditional retail channels and changing traditional distribution systems.”
Spencer used Apple as an example of this type of manufacturer-led control with its own stores, retail outlets, kiosks and now vending machines.
“In Australia and elsewhere, we begrudgingly support Apple knowing there is a great danger in losing our customer if we don’t.”
However, Spencer argued that the positives from this type of approach has taught retailers about the often forgotten importance of the add-on sale to improve margin.
“We can compete with online should we chose and find ways to partner with manufactures to satisfy and tighten brand control, but the third influence is more challenging – how do we compete with mass merchants as they battle with each other for market dominance?
“These non-traditional retailers are claiming share in all segments. Here in the United States the big six – Sears, Wal-Mart and Costco, as well as the two home improvement operators, Lowes and Home Depot, are in the top five sellers of our product.”
Spencer said that after meeting with Best Buy earlier this year, vice president David Berg claimed that he was unable to compete with the buying power of Wal-Mart and Sears and made a direct comparison with the local market.
“So what does this mean to Australasia? Same trends, different predators. We can almost guarantee that Woolworths and Wesfarmers, in one way or another, will become the Sears and Wal-Marts of our regions.
“The break-up of Coles is still unknown. Presuming Wesfarmers get their hands on Officeworks, watch them build the strength of consumer electronics into the offer. Or if Officeworks is sold off and Woolworths acquire it, strengthening buying power of the group. Throw in another scheduled 30 PowerHouse outlets and $300 plus million is taken out of the market.
“Who are the losers? Kmart and Target already have leading brand LCDs amongst the ladies clothing. The Wesfarmers/Gresham relationships could see them make a run on the Warehouse in NZ or Noel Leeming to give scale in electrical. Just one Costco store in Melbourne, Sydney and Brisbane would make an interesting dynamic.
“There are only two avenues open to retailers – get big so that suppliers cannot ignore your volume …or compete by owning the experience.”
Spencer used the $400 million Abt standalone store near Chicago as an example of an independent retailer that has managed the mix of creating its own culture while working with major brands looking to maximise brand presence such as Bose, B&O, Sub Zero, Apple and Sony.
To create its culture to compete with mass merchants, Abt pays its staff above average wages, empowers its staff to say yes to any reasonable request and treats the internet as a window to its soul. One sales staff member at Abt alone generates $60 million in sales for the business which sells across America and recently won a major contract for Trump Tower.
“Many Narta members have the Abt avenue open to them. We know the likes of Kmart, Target, or Warehouse will not be able to compete on culture, customer experience or product expertise.
“The question many of us should consider: do we need to keep opening stores for growth or do we focus on an Abt strategy?”