Retailing in the real world: the four inescapable truths
February is my favourite month. Not just because of the romance but because of a rodent. Being Canadian, Groundhog Day is not just a mediocre movie staring Bill Murray but a portend of how long winter has left to run. If our groundhog, Shubenacadie Sam, sees his shadow it's six more weeks of winter; if Sammy does not see his shadow, spring is closer than you think. He’s like our version of Victorian Premier Corona Dan, when you see him pop up wearing a suit you know lockdown is on the way.
Andrews is what you would call a lead indicator of the start of something or of things coming to an end. Much like GameStop investors’ gallant attempt to game the system, Eddie McGuire doing a dodge and weaving, and being able to use your super funds to get a super-sized tummy tuck, the ‘fairy tale’ Covid run for our traditional retailers is also coming to an end. It won’t be pretty either.
The Covid curve
The Australian Bureau of Statistics holds the record of how Australians spend our time and our cash. During Covid it showed that experiences broadly died and products thrived. During our periods of rolling lockdowns, to Covid-normal restrictions, and back to lockdown the general belief is that we are spending our way back to a level of normality but the numbers tell a different story. Through it all our consumption did not grow. It simply shifted away from experiences and back to things. This makes sense when a trip to your local Hammer Barn to the outdoor furniture section was as close to an all-inclusive cruise as any of us were going to get. We poured our cash into stuff, cracked a beer, fed the dog better food and bathed in the glory of a new 72-inch TV.
Welcome distractions
We all did things that on reflection were nothing more than a welcome distraction. How many of us are still spending our Saturdays making sourdough? How is your Spoonville going? My classic Covid story is our family bunny rabbits now live in a better house than I did growing up. Less drafts, better built, nicer paint job. Lockdown plus my underlying anxiety plus distraction seeking, equals bunnies who live the life of Riley, even if one is called Drummer Boy.
The point though is I am unlikely to do this again. It’s a blip in my behaviour rather than a pattern. If you sell wooden spoons you had a ripper few months but no more people are stirring things than they were in 2019. We are heading back to the true normal with an economy that is reliant on trade and immigration for its growth rather than government keeper payments and early access to your super cookie jar.
The last six months simply do not fit with the longer term trend lines of how and where consumers spend their money. This is more and more out of home, rather than in the home. The only conclusion to draw is when we can’t leave where we live, we ensure we survive and then get to fixing up our nest. Fixing up these days more than likely means upgrading not just our physical nest but our digital one as well. One run through JB Hi Fi’s recent results tells you all you need to know.
Don’t mistake a dot for a line
There is a betting term based on the fallacy theory: luck. Luck means our most recent experience is the one that we place weight on rather than looking at a longer pattern. The simple truth of gambling is unless you deal the cards or own the house, you always lose. Or put more bluntly, if you fail to look long, you always come up short. This applies to retailers more than anyone outside of miners.
It’s the definition of a long term game. The return on capital employed is low; the dynamics are hard; you make your money on how well you buy not just how well you sell and the cost to serve a customer is inflationary whereas the customer expects deflationary pricing and location makes or breaks you.
If you need a mental picture think of a town that was traditionally driven through on the way to somewhere. This is most retail. You are there so they come, they come because you are there. Then one day someone builds a bypass, they no longer come and in time you no longer exist. The future of retail is shaped by a new road of its own and it is no meandering country road. It is a super highway.
The long lanes of future retail
The truth of what is shaping future retail has very little to do with 2020 retail. Free money covers an awful lot of sins and people bought an awful lot of shit. If you look beyond the short term curve and back to the long term line you see a sector whose winners are being rapidly reshaped by demographics, technology and sustainability. I call this the Myer rule. Myer are the definition of mediocrity. They target everyone; they are digital laggards and their sourcing still relies on suppliers to do it for them. Even they did well in pandemic but if you look back to the line they are roadkill.
The fundamental trends are four fold. We are ageing. We are more digital. We are becoming more sustainable. We are more multicultural.
We are getting older
It’s not just me getting older. It’s you as well. Our population aged seventy-five or more years is expected to rise by 4 million from 2012 to 2060. In 20 years they will represent 14.4 % of the population. Most retailers spend more time focusing on appealing to Zoomers and families when the future money will be with ageing Boomers. Expect this to shift.
Best practice
Think like Walmart who have doubled down on health as a centre of excellence. Through prescription technology, health focused controlled brands, $4 scripts and health centres Walmart are focusing on taking the best care of the wealthiest generation in history. Health drives loyalty to the banner and Walmart are a 360-degree solution to your health needs.
We are getting more digital
We are beyond over stores in our country. We have more retail square footage per capita than anywhere outside of North America. 11.2 square feet per Australian is unsustainable in the long term. We simply don’t shop enough in the real world. Leading retailers recognise this and have moved their capital expenditure away from expanding a physical footprint to tripling down on building a digital one. They are doing this not because it is more profitable for them but because it is more efficient for their consumer.
Best practice
Think like Nike Ecosystem. Rather than build around the physical, Nike has built around the digital. The company has been pulling away from department stores and has invested in its own stores held together by one app that works across different types of Nike physical experiences. It is raising the margin and lowering their acquisition costs.
We are getting more sustainable
While our government still waivers, everyone else is acting on living more sustainably. We are holding our retailers to task consistent with our view that businesses and brands should be the ones most responsible for their impact on the environment, above individuals and governments. And with 71% of consumer and 77% of business respondents stating a willingness to pay a premium for environmentally sustainable products we are willing to back up our beliefs with our spending.
Best practice
Think like Aldi who have committed that by 2025 all of its product packaging will be recyclable, reusable, or compostable. It’s not just about doing the right thing it is also the more profitable thing to do.
We are becoming more multicultural
In a non-Covid year Australia adds between 200,000 and 300,000 people per year from overseas. According to the IMF this adds .5% to 1% of our annual GDP growth and it’s what helps us grow. Our resulting multicultural society has driven many things like the fast adoption of technology but has, as yet, failed to see us truly celebrate our fusion cuisine as Australian. With most of our immigration from parts of Asia there is also the hidden benefit of creating a healthier lifestyle for us all. On average we spend over 8% more on fresh food. It’s a shame that we don’t celebrate the cross over.
Best practice
Think like H.E.B Central Market from Texas who focus their made-in-store and fresh food offer on the ultimate fusion cuisine, Tex Mex. By celebrating the foods that join together a large multicultural community H.E.B has become America’s favourite grocery retailer.
The real winners beyond this year's dividend windfall will be those who use the short term cash boost to get back to winning the long term game of creating brands that deliver against the four things shaping our collective future.
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Be better to each other.
