Pandemic prosperity: The four factors retailers need to thrive, not just survive
Electrical tape. Hard wearing, utilitarian, the defining visual symbol of the COVID-19 crisis. It’s everywhere these days; hanging out with its mates ‘caution tape’ and ‘orange safety buntings’. It’s all the rage. We will even have some in our office soon. Every time I see it, I think it’s ugly, that there has to be germs on it, and that it looks more like a symbol of the end of days rather than the beginning of something fresh and new. Not in a melancholic, sky is falling kind of way; just in the way that signifies change. This is what good old gaffer tape has come to represent to me. It is what marks a new type of space, the space in-between us, and it is jarring. The, ‘Will I have enough room in the shopping aisle for me and my trolley?’ space. The, ‘Will they have what I need in stock?’ space. The, ‘What do I do at the end of meetings instead of shake hands?’ space. And the, ‘Random drive through and push my kids out of the car at school drop off,’ space. The in-between space is a physical phenomenon that shapes the way we move, interact, experience and, now, build our relationships. 1.5 metres is a social protocol but, more than that, it is a signal.
What does the in-between space actually signal?
Much like a new year’s resolution, life doesn’t tend to operate on grand pronouncements, but it does operate on shifting patterns. This is the basis of any good approach to strategic choice. What could happen, what is likely to happen, what is the biggest gain for the least risk. Rather than make predictions (I will lose twenty pounds this year), I look more for responses (I started eating better and walk to work and so became lighter). Define the variables in the problem to frame the challenge you face. So, what is the tape on the floor part of? What pattern does it signal? For me it signals two things. Firstly, touching things and people just gained a price tag. This will play out over the years ahead in many ways, from the way we get through an airport, to how our public forums work, to the way we may no longer touch on and touch off on public transport to perhaps the death of physical cash. No more piggy banks and no more elevator buttons. And secondly, the tape signals your ability to respond in a modern context; not relying on historic strengths but your ability to respond as required right here right now. So, which retailers are responding to the signals in the right way? Some have had to open when many others have not. Here you see what the in-between space starts to look like.
We can see clearly that the four attributes retailers must have to thrive in this in-between space are: an ability to blend, adapt delivery method, modernise and have a focus on systematic execution. These four factors will also act as an accelerant for success in the years ahead.
The power of blending
In the same week Facebook brings out shops to help small local businesses extend themselves online, Amazon purchases the shell of JC Penny for pennies on the dollar, and Tarjay, much to Keith Urban’s dismay, gets a little less country. We see Walmart post record sales, with top line revenue up ten per cent, but online as a point of purchase up seventy-four per cent. Closer to home we have also seen Bunnings beat its sales forecasts through click and collect and pre-ordering, but they have also signalled there are rises to come from the added costs of ‘hygiene, health and safety’. What is clear, though, is those who are performing are those who can blend.
The road from ‘Shop & Select’ to ‘Click & Collect’
Integration of online and offline has many advantages over the pure play versions of either by themselves. Australia has had a poor track record when it comes to integrated retail. It’s often stated that this is due to our geographic vastness and the logistical challenges it presents but it is more truthful to say that there has been a lack of requirement and an overabundance of options. The lack of requirement is driven by both our built environment and our societal structure. Our style of cities (where 85% of us live) is quite unique in that they are uniform, are marked by a functioning suburban fringe, and they continue to grow. If you are a retailer, it’s been easier to follow the pockets of population growth with new store after new store as your sales per square foot grows right along with it.
With population growth via immigration being the main contributor to rising spending power this is much easier to execute against than figuring out how to meaningfully differentiate your offer while reducing your cost to serve each customer. The other societal factor that has held back blending is to do with our egalitarian nature. As an import myself I had never heard this term until moving here and it took me years to understand what it meant in practice. Part of what it means is that we are still happy to do our own stuff and were quite happy to spend Saturdays at the grocery store and Sundays at Hammer Barn.
This all started for real during the GFC as Australians put in some of the longest working hours in the world and global retailers came to seek out a sunny and prosperous vacation down under away from the blues of Cameron’s Austerity, Merkel’s stuttering Euro miracle and the still ongoing Chinese/American penis measuring contest. This meant consumer centric choice and convenient offers came with it and our leading retailers responded and found ways to offer something more. The truth of integrated retail is that it reduces overall profitability when it’s niche, so the cost needs to come out of somewhere till it becomes big enough to be margin positive.
The true measure of retail success is moving, and COVID-19 will only kick this up a notch. Cost to Serve per Customer is format agnostic while Sales per Square Foot hides your problem. If you did not address this years ago the pandemic just showed the world your skinny legs.
All in on modernisation
The digital world is feeling more native for all of us at the minute. Do you ever stop to think about how this all just got turned on in a matter of weeks? How Zoom went from a bit of a laugh to a business-critical tool and how Google Meets suddenly went from chat to camera. It’s because they have the back-end infrastructure to scale. Sure you could drive a semi-trailer through Zoom’s original security features (hmmm why is a c-grade celebrity popping up in our conference call again?) but the organisation responded quickly and swiftly.
The same thing is also happening to our institutions. The ones that have held up well have significant digital infrastructure. Think about the slickness of how the ATO system got you your peacemaker payment, whereas if you were in America you would likely have to wait at the mailbox for your cheque. The investment in the back- end system matters, yet this is not going to create jobs. This is the world of AI, Automation, and Autonomous Robots. In retail this plays out as back-end efficiency improvements and gives you margin to invest in extending your front end. My side hustle or what us old folks called my part time job in university was stacking grocery shelves for Coca Cola. Back then the back of the store was a wilderness of boxes. Today it is smaller and 100 per cent digital. I would foresee a day soon when it no longer exists at all as the resources ‘out back’ are 100 per cent pushed forward. Both Coles, via their partnership with Ocado, and Woolworths, with their partnership with Microsoft, are all in the modern back-end/flexible front end model and will reap the rewards for years to come.
As always, it’s your ability to execute
The investment advice that has stuck with me since high school is, ‘Cream always outperforms shit’. What this means is companies who execute rather than pontificate always win. Across the retail landscape you see this immediately via plexiglass, distance stickers replacing tape, additional security, secure collection points and format resets. Aldi have been clinical in their roll out of PPE for the retail worker and it even feels on-brand. All Germanic efficiency. They have experience though as Plexiglass shields are standard issue in many parts of the world for another type of worker protection. Amazon will build a protected supply chain to offer you a world free of health worries. One more point of difference to validate having a Prime Membership beyond being able to watch reruns of 'Family Ties'.
The other side of execution is to use the crisis to provide the cover of darkness to deal with the bodies hidden in the car boot. Certainly not many have wasted the opportunity.
One of the companies most devastated by COVID-19, Flight Centre, has bitten the bullet on the closure of fifty per cent of its global retail shopfronts and forty per cent of its retail shops in Australia – permanently. This was likely going to happen anyway but just shows the four truisms of retail still hold true: ‘the customer is always right,’ ‘follow and serve them,’ ‘differentiate however you can,’ and 'manage the details'.
As ever it’s the winning formula.
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Be better to each other.
