An insight into the challenges and rising complexity facing the retail and wholesale sector

Transcription

1 Wholesale+retail+business Industry insights An insight into the challenges and rising complexity facing the retail and wholesale sector Retailers are currently facing a number of challenges, making it essential they have the correct technology in place to cope with this ever-changing industry. November 2012

2 Consumer confidence, customer loyalty and the replacement of ageing information technology systems are just a few of the issues facing retailers in the post global crisis era. While Australia s retailers weathered the storm caused by the global economic crisis, many businesses still face significant challenges to their operations. 02 The Australian retail landscape has changed significantly over the last few years, with businesses facing a number of hurdles to their continued success since the peak of the global economic crisis. On the whole, Australian retailers coped well with the problems posed by the downturn but industry growth remains sluggish on the back of reduced consumer confidence, ageing infrastructure and crippling supply chain costs. Companies must also deal with a strong Australian dollar, high rental prices for traditional bricks and mortar stores, difficulty in raising capital, Fair Work regulations and the creation of effective customer loyalty programs. One of the overarching issues retailers are finding difficult to overcome is the rising trend in online shopping, particularly remaining competitive against overseas sellers that are often able to offer the same products at a much reduced price. According to statistics, international retailers have as much as a 20 per cent advantage over domestic stores as they are able to bypass Goods and Services Tax (GST) and duties costs on items worth under $1,000. While some retailers are lobbying the government in an effort to change legislation so that this disparity is reduced, the success of this is uncertain and businesses should instead take a pro-active stance and attempt to allay some of these problems through organisational restructuring, cost management and the streamlining of processes.

3 Oakton While Australia s retailers weathered the storm caused by the global economic crisis, many businesses still face significant challenges to their operations. This combined with the other challenges mentioned above suggests that retailers are now at a crucial crossroads for the future of their operations, meaning they must maximise the efficiency of their current systems, while moving towards the implementation of new technologies. To ensure optimal performance, there are several areas in which retailers must concentrate their efforts to achieve their mid- to long-term goals: - Implementing new and improved information architecture programs that boost productivity and streamline functions - Boosting data gathering processes for customer buying patterns and enhance information analysis measures - Maximising the efficiency of supply chains through better management of inventory and logistics - Developing investment road maps to provide a clear and accurate set of guidelines for future growth - Enhancing online presence in order to compete with sophisticated international internet retailers, while still maintaining high-street stores for maximum exposure 03 KEY TRENDS Australia s retail sector is worth $240 billion and employs more than 1.2 million people, making it an increasingly competitive and ever-changing sector. Recent figures from the Australian Bureau of Statistics showed retail turnover in 2012 has improved over previous years, but industry bodies such as the Australian Retailers Association (ARA) have noted that the data, while promising, is far from the impressive growth seen in the past. While the federal government has been able to curb the worst effects of the global crisis through monetary policy changes, consumer confidence has still taken a significant hit, leading to a drop in discretionary spending and more people opting to save.

4 In a 2011 report, the ARA pointed to a number of issues that affect retailers, including globalisation, rising rents, fluctuations in the Australian dollar and advances in the digital economy. Retailers are also victims of the country s pluralistic frameworks brought about by a multijurisdictional society that sees them pay local, state and federal taxes - making doing business in Australia an expensive proposition. 04 The organisation reiterated these challenges in a 2012 submission on Fair Work regulations, showing that while the industry is constantly evolving, many businesses are struggling to overcome several core problems. Fair Work legislation itself has caused retailers some confusion, with the ARA highlighting that many are unsure how to comply with the regulations while also complaining of higher labour costs under modern awards and minimum wage fixation. Retailers are now, more than ever before, trying to understand consumer buying patterns and the tools that can help analyse this data. Furthermore, the comparative strength of the Australian dollar to the British pound and the US dollar has had an unforeseen impact on exporters and importers - the latter of which are benefiting from increased purchasing power in overseas markets, while the former has seen profits slump. Despite importing advantages, operating costs can still be pushed higher because of manufacturing prices being built in to the unit price, along with rising wages in manufacturing-based economies and other supply expenses. Indeed, firms are being put under increasing pressure to better manage their supply chain and logistics costs, in an effort to make them more efficient and effective to protect profit margins.

5 Oakton However, with banks tightening up on their lending criteria, businesses may find their intentions to expand on capital spending projects hampered. This has not only affected large retailers, but has seen the number of small and medium-sized enterprises dwindle, with businesses employing up to four people dropping from 529,000 in 2007 to 497,000 in 2010, according to the ARA. These problems have been underpinned by huge growth in online shopping, or etailing, giving consumers more choice and access to products than could have been foreseen ten years ago. This has caused a noticeable increase in customer expectation, with the sophistication of some internet retailers and auction sites, such as Amazon and ebay, meaning that people expect their goods quickly, in excellent condition and with a minimum of hassle. 05 The gradual roll out of the National Broadband Network, which will provide more and more households with high-speed internet, is only going to result in more people logging on. A rise in online shopping through international retailers has been extremely problematic for Australia-based firms. Retailers will be expected to keep abreast of these developments, while making their operations suitably well prepared for an increase in traffic and competition. A jump in customer expectations is compounded by unfavourable rates for domestic retailers, with international sellers gaining a ten per cent advantage on GST and between five and ten per cent on duties. While on the other hand, a slump in the property market, along with weakening yields from investments and rising rental prices is making it problematic for retailers to fulfil expansions plans, while making it increasingly difficult to maintain profit margins as a bricks and mortar store.

6 The ARA states that shopping centres are responsible for $84 billion in retail sales every year, with more than half a billion annual transactions - yet traditional shops that operate in this space are already beginning to struggle. According to the organisation, Australian retailers have to mark up their products by some 100 per cent to cover costs, compared with 75 per cent in the UK and 50 per cent in the US. 06 Yet when revenues are examined, Australian stores secure between two and eight per cent net profit on their earnings, which is relatively small when compared with other countries. Amid a challenging economic backdrop, many retailers may delay spending on capital projects - leading to ageing infrastructure and poor customer satisfaction. Companies must be flexible and open to change if they wish to remain competitive in this landscape; not only utilising their current systems to their uppermost potential but putting in place the foundations to upgrade effectively to next generation technologies. Many retailers are now examining their multichannel retailing strategies as a way of building their online presence and staying apace with international providers with large-scale Australian distribution centres. The more successful brands have evolved from a basic ecommerce site to more complex and personalised models that provide wider choice and boost the shopping experience, although this is often strengthened by maintaining a solid high-street presence. This focus on multichannel streams can be supported through well-designed and implemented customer loyalty programmes, which have been in operation for many years but are now much more sophisticated due to improvements on analysing spend.

7 Oakton These programmes are now considered key to a company s efforts to attract new consumers to their products, but a main barrier to an effective customer loyalty initiative is the segmenting of demographics through data analysis techniques and the acquisition of accurate buying information. It is important for retailers to approach these challenges with the correct strategies, ensuring strong communication between professionals, vendors and consultants to guarantee optimal performance. To succeed long term in this difficult environment it is essential to have the right technology, with research showing that consumers in Australia are increasingly using two or more devices to shop - whether it s buying goods online or checking prices via mobile. 07 Businesses that offer a high level of customisation and personalisation are likely to have an edge over their competitors and integrated systems can help to achieve this, along with improved operating performance and efficiencies across the supply chain. Stock overruns and consumer vagaries exist as core problems to many retail companies operations, which can result in lower profitability, a drop in reputation and market share, higher turnover for staff and management, increased costs and reduced productivity. By harnessing the power of data-gathering tools and information analysis on customer buying patterns it is possible for retailers to streamline their current processes while setting accurate road maps for future investment and development.

8 How Oakton Can Help Australia s retail sector is clearly transforming at a rapid pace and businesses that fail to adequately prepare for all eventualities could find themselves technologically and financially struggling. A significant increase in online shopping, combined with a strong domestic currency and rising rentals is creating significant pressure on many retailers, particularly those that do not have the technological capabilities to take advantage of current trends. 08 This is where Oakton can help, providing a range of services that retailers can use to tackle problems with getting goods to market more quickly and at a higher profit level. We have more than 20 years of experience in advising on strategic issues in the retail sector, working with many of the country s leading successful businesses and helping them to boost performance, increase operating efficiencies and improve organisational effectiveness. Offering insight into a variety of the top technology vendors, including Oracle, SAP and Microsoft, we can provide expert recommendations on the ideal systems integration for every working environment. Information management, customer relationship management, companywide transformation options, application design and implementation and the mapping of investment road maps are all areas in which Oakton can boost operational excellence in enterprises.

9 Oakton Oakton s experience can help businesses to achieve full value across their operations through careful cost management, innovative technology and sector-specific knowledge. Retailers from across the spectrum have benefited from the skills and expertise of our consultants, ensuring their business processes and IT platforms can fulfil a number of functions, including: - Making their operations more accountable - Re-engineering or replacing ageing or inefficient core systems - Effectively using business intelligence and customer analytics to gain a better understanding of target audiences - Fashioning a results-driven framework that allows for improved communication, both internally and externally 09 In the retail sphere, we can maximise supply chain efficiency by managing applications that enable organisations to monitor their inventories, control their distribution centres and improve the process by which goods move from point A to point B. Other retailing services include the formulation of strong customer loyalty programs, with our consultants able to facilitate access to data, while using sophisticated analysis tools to ascertain buying patterns and trends that can be aligned to long-term goals. We can guide struggling retailers to achieving multichannel success by supporting their shift towards online functions, helping them to navigate the evolving world of the internet. Oakton can also provide full systems support and maintenance, allowing clients to concentrate on the rest of their business with complete confidence that their technology is always running at maximum operational capacity.

10 Oakton 10 1 Australian Bureau of Statistics. Sourced from abs@.nsf/mf/ Australian Retailers Association, Tax Submission, September Sourced from pdf 3 Australian Retailers Association, Economic Structure and Performance of the Australian Retail Industry, May Sourced from Portals/0/Policy/PCRetailInquiryARA%20submission%20-%20FINAL.pdf 4 Australian Retailers Association, Fair Work Act Review Submission, February Documents/AustralianRetailersAssociation.pdf 5 Fair Imports Alliance, The Economic Structure and Performance of the Australian Retail Industry Submission to the Productivity Commission Inquiry. Sourced from data/assets/pdf_file/0011/109595/sub047.pdf

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