By Claire Reilly (Follow me on Twitter)
Financial analysis firm Deloitte has issued a report outlining the five key areas that Australian retailers must focus on in order to succeed in online retail. The author of the report, Deloitte’s national leader of technology, media and telecommunications, Damien Tampling, argued that “many existing retailers are not moving quickly enough to capture this booming area of opportunity”.
“Almost all retailers should be focused on online for two key reasons: growth and superior margins,” said Tampling. “Online retailers tend to have higher margins than those with bricks-and-mortar stores because they don’t need to invest as much in infrastructure.
“This also makes it easier for online retailers to quickly scale up and – just as importantly – to reduce their size in line with sales and market conditions.”
“Despite these trends and advantages, many long-standing retailers do not appear to be doing enough to transact online – or if they are, they’re failing to communicate their plans to investors, customers and suppliers.”
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Tampling argued that Australian retailers need to “set a strategy to succeed” and take advantage of the opportunities in the sector before they disappear. In line with this, he suggested five core points of focus for retailers: “The need to move quickly and innovate constantly; The importance of a focused product strategy and roadmap; Managing inventory; Nurturing relationships with suppliers; and Marketing, the new way”.
“A hallmark of the world’s most successful online retailers is the way they continually innovate to meet customer demands,” he said. “Any would-be online retailer must structure its operations to build in this level of constant innovation and speed to market.”
In terms of product offering, Tampling argued that while the department store was traditionally the one-stop-shop, online shopping does not offer the same benefits because consumers can move between websites. As such, there are opportunities available for stores that focus on niche product areas.
According to Tampling, products “that look the same when they arrive at the customer’s home as they do on the website, such as books, IT equipment, DVDs and digital cameras” tend to be strong performers.
In addition to the traditional inventory models of pre-purchasing stock and taking stock as customers order it, Tampling also suggested a “Hybrid” model that would see retailers holding stock for regularly-ordered items, as well as a “Drop-shipping” model in which a retailer acts as a shopfront for other suppliers and retailers who fulfil the orders (a model employed by Westfield's online retail site).
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Regarding the supplier-retailer relationship, Tampling said “retailers that have company-owned or franchised physical stores may be reluctant to sell online for fear of upsetting or disintermediating their existing distribution channels.
“The situation is also complicated for online-only retailers. They need to decide between local and overseas suppliers and whether they sell branded or less-well-known products.”
Finally, retailers making the shift to online need to be savvy with their marketing and the way they use customer data to target individual shopping experiences. “Retailers need to be very clear about what data they have, would like to have and how they will or won’t use it,” said Tampling.
“Being smart about how to acquire new customers and leverage customer data to create targeted and relevant marketing campaigns that drive brand engagement, location-based engagement and ultimately transactions is at the core of any great online retailer. Unlike the physical world, the internet allows you to change your whole store layout and product set for every single visitor.
“As more Australians warm to online shopping, there’s a big opportunity for all retailers to take advantage of this growth. But they must move now, before the best opportunities have dried up.”