australian retail outlook 2017...reflected by all the retailers participat-ing in the australian...

| 1www.insideretail.com.au AUSTRALIAN RETAIL OUTLOOK 2017

AUSTRALIAN RETAIlOUTLOOK ® 2017

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EXPERT FORECASTS

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53 |

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68 |

72 |

73 |

Azurium: Delivering the ‘magic’

Azurium: Looking into the future

Azurium: Nothing changes if nothing changes

Michael Page: Always a challenge

Retail Doctor Group: Don’t be left behind

NORA: Back to basics

Deloitte: Disruption the new norm

GFK: It’s all about the experience

IbisWorld: Tough times ahead

Savills: Elephants and poachers

Mima Design: Keeping up appearances

CBRE: Thinking small

Neto: Keeping it all in the family

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EXECUTIVE PERSPECTIVES

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AZURIUM

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Welcome

Retail predictions: It’s time to buckle up for 2017.

2017 Retailer Survey: Results from Inside Retail’s latest reader survey.

Terry White Group: Just what the customer ordered...

Super Retail Group: Changing dynamics

Asian Restaurant Concepts: Boxing on

Lush: Change more than cosmetic

Oxfam Australia Trading: No exemption from turbulence

Disrupt Sports: Doing it their way

2016 Scorecard: Winners and losers

Trending in 2017: Food retail and the last mile

Economic update: No improvement in sight

11

22

38

CONTENTS

AUSTRALIANRETAIL

OUTLOOK2017

4 | www.insideretail.com.auAUSTRALIAN RETAIL OUTLOOK 2017

FROM THE EDITORWelcome to the 2017 Australian Retail Outlook, a joint effort between Octomedia, publisher of Inside Retail and Azurium.Last year wasn’t easy for retail with several major brands bowing out of the industry, including Payless Shoes, Dick Smith, Masters and Pumpkin Patch. Another wave of global retailers arrived again and we said hello to Debenhams, John Lewis and Decathlon, while the Chinese market continues to ramp up.In terms of online retail, Australians are increasingly shopping using their mobile devices and in response, retailers are picking up their game in the delivery space with the rise of click-and-collect. Perhaps in response, traditional bricks-and-mortar retailers are seeking creative ways to lure customers into their stores, through special events, in-store experiences and even one-off pop-up stores.Meanwhile, Amazon is hot on the heels of Australian retailers - it will be interesting to see how our local stores respond to the online giant’s interest in our shores.I hope you enjoy reading the latest Australian Retail Outlook and it offers you some food for thought for your business for the year.

Jo-Anne Hui-MillerEditor, Inside Retail

FOREWORD2016 certainly was a year that will stand out in recent history. Political upheavals, the passing of notable popular culture icons and a series of tragic world events left many grateful for its end. And whilst some retailers might also share this sentiment (as outlined in our ‘Winners and Losers’ scorecard), for many operating in the Australian market there are potentially tougher times ahead.The last 12 months were marked by the unfortunate demise of some iconic brands such as Dick Smith, Laura Ashley and Payless Shoes. It wasn’t all bad news though. The likes of Dominos, Kogan and JB Hi-Fi were shining examples of home grown retail successes.2016 could also be considered the year of the bricks-and-mortar revival. Whilst online retail is certainly providing a stronger growth trajectory for retail sales, local brands understand that brick-and-mortar stores still play an integral part in being able to deliver to the consumer a unique, exciting and seamless retail experience. Whilst the shopping centre of the future may look remarkably different, physical retail is still well and truly alive.The benchmark for Australian retail has now been set by big name international brands who have taken to the local market. This is set to continue with the anticipated arrival of Amazon this year. Rather than a threat, local retailers should consider this an opportunity to reassess their own business and strive to deliver a service and offering which matches the expectations of the now globally-minded Australian consumer.We wish all Australian retailers the very best for 2017.

James StewartPartner, Azurium

The Australian Retail Outlook is printed by Octomedia

HEAD OFFICELevel 3, 51-57 Pitt St Sydney, NSW 2000PO Box R217Royal Exchange NSW 1225Tel : +61 2 9901 1800Fax : +61 2 9901 1800

EDITORJo-Anne [email protected]

JOURNALISTZilla [email protected]

ADVERTISINGAmir [email protected] [email protected]

GRAPHIC DESIGNNguyen [email protected]

CEOOliver Ranck [email protected]

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views expressed in this publication reflect opinions of the

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AUSTRALIANRETAIL

OUTLOOK2017

RETAIL PREDICTIONS

IT’S TIME TO BUCKLE UP

FOR 2017


THE STATE OF PLAYBuckle up for 2017. With choppy trading conditions ahead and the possible entry of Amazon and other internationals into the market, Australian retailers will need to lift their eCommerce game and find their points of differentiation.

RETAIL PREDICTIONS



was a choppy year for Australia’s

retailers as different categories faced different trading conditions.

Despite a slowdown in growth early in the year, Australian Bureau of Statistics (ABS) figures show that retail turnover had a 3.5 per cent seasonally adjusted year-on-year rise in October.

According to Azurium’s James Stewart, 2016 had its share of retail winners and losers. Local brands who embraced digital (e.g. Dominos and JB Hi-Fi) saw healthy sales growth whilst some retailers who have failed to adapt their business models (e.g. Myer) have struggled. Geographically, retail spend-ing in the eastern states was buoyed by the housing boom, while WA and Queensland faltered amid the slow and steady mining bust.

This patchiness is reflected in the mixed responses to Inside Retail’s 2017 Retailer Survey (see p12). For example, 23.4 per cent of respondents to the an-nual poll described trading conditions over the past 12 months as solid, 20.7 per cent as ordinary and 25 per cent as challenging. Likewise, 37 per cent felt that the market was better than last year, 20.1 per cent said it was worse and a similar amount (20.7 per cent) said it was about the same.

Looking ahead, respondents were not overly bullish about the prospects for this year, with 35.9 per cent expect-ing trading conditions to remain the same and 45.7 per cent expecting them to improve a little. Only 4.3 per cent believed conditions would improve a lot, while 14.1 per cent said they would become a little worse.

This sluggishness, however, is not reflected by all the retailers participat-ing in the Australian Retail Outlook 2017’s executive perspectives, with most participants looking back on last year positively and embracing this year with optimism and enthusiasm.

Peter Birtles, group MD/CEO of Super Retail Group, is pleased with his group’s strong sales growth last year (see p24) and says its key focusses this year will be on understanding its customer, building its omni-channel capabilities, developing its supply chain and engaging its staff. “Looking ahead, we all know the dynamics of the retail industry are changing – cus-tomers have even more information at their fingertips as to who will best meet their needs, and they have more choices than ever before,” he says.

Similarly, Gary Elphick, CEO and founder of DisruptSports.com, says 2016 was a great year for his company,

which lets people design their own sports equipment. It smashed its tar-gets and grew its own retail presence (see p34). DisruptSports.com has lots of new projects planned for this year, including opening in Los Angeles and New York City. Elphick also expects to make waves with a game-changing B2B integration platform and some “really awesome” virtual reality custo-misation tools.

Mark Lincoln, a director of Lush Cosmetics Australia and New Zea-land, says 2016 was an exceptionally good year for his business too, with three stores launched in the region and other outlets undergoing refur-bishments (see p30). And despite ex-pecting a challenging retail environ-ment this year, he believes his group is well placed for strong growth. “The beauty category has always been an intensely competitive market. The challenge is to ensure we stay fo-cussed on delivering quality products and the best customer service experi-ence in the industry,” says Lincoln.

Meanwhile, Terry White Group CEO Anthony White admits the retail pharmacy market is tough, with phar-macists further hampered by severe cuts to the Pharmaceutical Benefits Scheme over the past year (see p22). But he says there are still opportuni-ties “if retailers can evolve and offer value to their customers – and that’s not only on price, but on service and knowledge as well”. White’s key focus this year, however, will be bedding down his group’s merger with Chem-mart, which has created a mega-chain of 500 pharmacies with $2 billion in annual turnover.

Julia Sumner, GM of Oxfam Austra-lia Trading, also describes last year’s retail environment as challenging (see p32). “With lower confidence in both the property market and household finances as well as low wage growth, we have seen a big impact on discre-tionary spend throughout the year.” She says it has been quite a tough year for retail in general, with some retailers going into liquidation in the lead-up to Christmas. “That said, our organisation has had quite an exciting year with the opening of two shops in Sydney, the launch of a new website and a successful year in our whole-sale channel off the back of increased distribution through independent supermarkets across Australia.”

Off the back of unstable economic indicators throughout the past 12 months, Sumner says she cannot make predictions for this year, but is confident consumers will continue to

support Oxfam’s fair and ethical retail business.

On the food side, Asian Restaurant Concepts hit its growth targets and now has 107 Noodle Box and Wok in a Box restaurants in Australia and four Noodle Box restaurants in Saudi Arabia (see p28). Acting GM Michael Standley says the group is targeting growth of 15 per cent this year and hopes to launch a third brand, still in the Asian space, with two restaurants by the end of the year.

THE INTERNATIONAL INVASIONThe continued arrival last year of in-ternational retailers in Australia was noted in Inside Retail’s 2017 Retailer Survey (see p12). An overwhelming 43.5 per cent of the participants listed international entrants as one of the biggest challenges facing the retail industry this year. A further 41.3 per cent said they were worried about these newcomers compared to 28.5 per cent last year, and those who were not worried slumped from 71.5 per cent last year to 58.7 per cent. However, many respondents wel-comed the heightened competition, some noting it will improve the retail mix and enhance the retail experi-ence for Aussie shoppers.

“International retailers force local retailers to improve their game,” said one, while others noted that more competition was needed in some of the retail categories that are dominat-ed by two large businesses.

In his commentary, Super Retail Group’s Birtles observed: “We have highlighted for many years the impact that international retailers will have on the Australian retail market, whether through rolling out a network of stores or through an online presence. We are now seeing international retailers come into our segments, and we welcome the chal-lenge that brings.

“We know we need to continue to lift the standard of our businesses, which has to be good for the cus-tomer. The strategies we have been implementing over the past few years have been developed with interna-tional competition in mind, so we don’t see any need to change our strategic focus at this time. We have the opportunity to turn our deeper understanding of the Australian marketplace, Australian conditions and the Australian customer to our advantage.”

2016

RETAIL PREDICTIONS


Deloitte’s David White expects the influx of international retailers to continue this year and beyond (see p60) on the back of Australia’s strong economic conditions, high consumer demand for international brands and relative proximity to Asia.

“One of the key differentiators international retailers have brought to Australia is in their store design and customer-experience model, lever-aging their experience from larger markets. However, we are seeing Australian retailers slowly starting to fight back, with investments rising in store design, and concept and flagship stores. So these new entrants will find Australian retailers better prepared and skilled to take on this new challenge compared to five years ago.”

Mark McConnell, design director at Mima Design, acknowledges that the internationals are bringing new store experiences for us to engage with (see p68). “Think what Apple did and now Tesla,” he says. But he

doesn’t believe he has seen anything revolutionary from any of the inter-national players. “Whatever we learn from the overseas brands’ influence on the local retail scene, one rule that never changes is that if you simply stand still and watch, you are going backwards,” he warns.

In response to the trends created by the overseas arrivals, he expects smaller, bespoke and more person-alised fashion brands to pop up, keen to offer something different that will not be found in the malls.

Zelman Ainsworth, head of retail brokerage leasing at CBRE Mel-bourne, says that if 2016 was the year of the international retailer, 2017 will be the year when domestic players rise to the challenge, with the emer-gence of micro-stores helping to even the playing field between local and offshore brands (see p72).

“This trend is good news for everyone,” he says. “Not only do micro-stores promote a more rich and diverse retail sector, characterised by boutique and independent stores, this concept also offers fiscal perks. These include lower capital outlay costs, lower overheads and the opportunity to have multiple tenancies in different locations – opposed to just one large store.”

ELEPHANT IN THE ROOMDeloitte’s David White says that if Amazon is not on the agenda at board meetings for Australian retailers, then it should be. “With the rumoured arrival of the US giant to Australia’s shores this year, the poten-

tial for major market disruptions is huge. We are already seeing retailers setting up task forces to assess the potential impact of an Amazon mar-ket entry, but it’s not yet clear what exactly the company has planned for Australia.

“What we do know is that where Amazon has entered new markets, the impact on local retailers has been seismic and has impacted almost all categories and channels. So retailers can’t afford to wait and see what Am-azon does – they need to be develop-ing strategies and taking action now.”

In his commentary, Azurium’s Stewart says Amazon is likely to be a game-changer in the Australian market and accelerate the pace of online growth. It could perhaps also be the catalyst that brings the Australian eCommerce economy up to international benchmarks. “We expect retailers in all sectors to invest heavily in securing their marketing channels in an attempt to fend off the American heavyweight, which is expected to undercut prices through cost efficiencies.”

POINT OF DIFFERENCETo withstand the many threats com-ing their way, retailers will need to work on standing out from the pack. As Anthony White notes, one of the biggest challenges for retailers – and also one of the biggest opportunities – in the coming year will be to have a clear point of difference and to be highly responsive to the ever-chang-ing needs of customers.

Similarly, Birtles says: “Our job is to ensure we stand out from the crowd with an offer that inspires and engages at a broader level than prod-uct and price. As long as we continue to provide the solutions and expe-riences that help our customers to make the most of their leisure time, we are confident we can continue to achieve growth.”

This theme is echoed by Brian Walker, founder and CEO of the Re-tail Doctor Group, who predicts that successful retailers this year will be heavily focussed on the uniqueness of their offerings and will increasing-ly turn to fields such as neuroscience to understand consumers with far more alacrity and accuracy (see p58).

To create a buzz with customers this year, Paul Greenberg, executive director of Nora.org.au, expects to see more retailers using new apps, trials, promotions and technolo-

"Retailers can’t afford to wait and see what Amazon does – they need to be developing

strategies and taking action now."

RETAIL PREDICTIONS


gy, “given that many shoppers are itching for innovation and change” (see p59).

“Myer and eBay’s virtual reality store last year was a fine example of this. Did it change the world? No, but it was a lot of fun for the teams of both businesses to develop, customers had a fantastic play, and the media went into meltdown with excitement. No losers here, and my prediction is that this could quite well develop to be a significant nee-dle mover.”

Similarly, in her forecast, Norrelle Goldring, APAC region shopper lead at GFK, advises retailers to focus on creating experiences, not just selling stuff. “Tell a story, provide a theme – for example, by apportioning a part of your store to themes and seasonal items. Ensure your experiential mar-keting activities are shareable, and that sharing is encouraged,” she says (see p62).

Our experts say that shopping centres also need to work on their points of difference. Azurium’s James Stewart and Denis Carruthers warn that while model innovation will be key for centre operators in the future, success will also rely on a trait that has never changed (see p53). “Every shopping centre needs to stand for something – it’s unique selling prop-osition needs to be clearly under-stood by customers in its main and secondary trade areas.”

Likewise, Leighton Hunziker, direc-

tor of retail services at Savills, forecasts that local malls will increasingly em-brace things that cannot be replicated online or delivered by drone.

“What we will we see be things that are experiential, personal, or of a service nature. The space will respond uniquely to the trade area demographic instead of the ‘one size fits all’ current model of shop-ping-centre leasing and develop-ment,” he says.

ONLINE GROWTHIn his commentary (see p38), Azuri-um’s Stewart discusses the exponen-tial growth of Australian retailers through online channels over the past five years, noting that this has been largely spurred on by the in-creased consumption of online media (music, movies, e-books and so on).

This growth was also picked up in the 2017 Retailer Survey (see p12). Here, 31.5 per cent said their sales from eCommerce grew over the past year as a percentage of overall revenue while 17.9 per cent expe-rienced no change. Interestingly, most retailers polled only earned up to a quarter of their total revenue from eCommerce. Only 10.3 per cent earned more than that with 3.8 per cent earning more than 50 per cent.

According to Azurium’s Stew-art, Australian retailers lag behind the rest of the world in adapting to omni-channel sales, and online

retail sales are still only marginal compared to those of traditional bricks-and-mortar sales. Analysis by Citibank suggests Australia’s 10 largest retailers derive not quite 6 per cent of all sales from online channels. That number is almost double in the US at 11 per cent.

Stewart from Azurium notes that the strong growth shown by the eCom-merce sector and the enormous shift in consumer behaviour in the US toward mobile eCommerce is a warning bell for Australian brick-and-mortar retailers.

Roy Morgan reveals that 16.5 mil-lion Australians (85 per cent) shopped at one or more shopping centres in an average four-week period in the financial year to June 2015. So while some people proclaim physical retail is dead, Stewart says these figures show that bricks-and-mortar are still truly alive and well.

However, Ryan Murtagh, CEO of Neto, says retailers need to stop fo-cussing on sales channels as separate businesses with separate strategies (see p73). Instead, they should recog-nise the value of all customer contact − in-store, online or mobile − as part of a continuous shopping flow. But he says that a key part of an effective omnichannel strategy is to rethink the bricks-and-mortar outlet.

“It’s not just a point of sale any more – it’s anything you want it to be. It’s a service base. It’s a user experience lounge. It’s a fulfilment

RETAIL PREDICTIONS


centre. It’s a pop-up shop that spends a month in each city around the coun-try. It’s a boutique mart. There’s no script to follow – it doesn’t even need to be in a shopping mall,” he says.

RENTALAgain, rental overheads emerged as the major issue keeping retail execu-tives up at night. In this year’s Retailer Survey, 44.6 per cent respondents cited it as among the biggest challenges fac-ing the retail industry – slightly down from 50.3 per cent last year.

In a similar vein, Leighton Hun-ziker, director of retail services at Savills, reckons it is not sustainable for landlords to keep driving specialty store rents at CPI + 2 per cent increases a year in an environment where sales growth has not kept pace (see p66).

“Investors’ desire for never-ending rental growth has meant that special-ty rental growth has outpaced sales growth, leading to a combination of retailer margin erosion, higher prod-uct prices and now, courtesy of access to information and macro-economic forces, customers reaching a point-of-purchase resistance.”

The result? “Retailers are stressed because they are being squeezed by unsustainable cost escalations on one end and tapering sales growth at the other end,” says Hunziker.

THE ECONOMYLooking ahead, the outlook for Aus-tralian retailers does not appear too rosy in the near term, but could im-prove later in the year. In its economic update (see p50), Azurium’s Stewart observes: “As the Australian economy remains sluggish, the expectation is that the retail sector will stay tough

in the short term with the longer-term outlook being uncertain.

“While interest rates are at re-cord lows, consumers continue to be impacted by some of the lowest levels of wages growth in recent times, even though unemployment continues to ease. Adding to wages pressure has been the continued domestic and glob-al economic uncertainty, particularly in the past 12 months.”

Most of the retailers in Inside Retail’s 2017 Retailer Survey expect trading conditions to either stay the same this year (35.9 per cent) or improve a little (45.7 per cent). A far smaller group (14.1 per cent) expected things to become a little worse. Yet in its 2016 Retailers Christmas Survey (see p60), Deloitte found that 64 per cent of respondents expected their earnings to increase by 5 per cent or more this year, with levels of optimism at their highest since it started this survey five years ago.

“We can expect a steady improve-ment in retail sales through this year, which is likely to coincide with a mod-est improvement in wage growth over time,” says Deloitte’s David White. “As we head into 2017, prospects for

Australian retailers remain relatively positive while many are expecting to be able to grow and expand their businesses. However, competition will be fiercer than ever and, even if Amazon doesn’t enter the market this year, Australian retailers need to be planning for change - disruption is now the norm, not the exception.”

However, White says the wealth factor created by rising house prices in New South Wales will slow down as house price growth is expected to moderate. “Therefore, retail sales growth in 2017 in New South Wales will more likely match rather than exceed the national average.”

He says potential over-building of apartments and the closure of car manufacturers could slow down growth in Victoria this year. Western Australia continues to feel pressure from the downturn in the mining sector, and trading conditions are expected to be challenging there this year. Queensland has a more positive outlook, with its retailers expected to benefit from a rise in tourists and students across the state, thanks to a lower Australian dollar.

"As the Australian economy remains sluggish, the expectation is that the retail sector will stay tough in the short term with the longer-term outlook being uncertain."

RETAIL PREDICTIONS

RETAILER SURVEY 2017

| 1 1www.insideretail.com.au AUSTRALIAN RETAIL OUTLOOK 2017

“The ‘Who’s who’ of Australian Retail”

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2016-2017 EDITION Published by


Q.2

T here is good news in Inside Retail’s 2017 retailer survey - trading condi-tions are reportedly not as tough as they were last year.Here is an overview of the results from the 15-question survey.

HOW DID YOUR FULL YEAR COMPARE TO 2015?

47.5 per cent of respondents believe they will have done better last year than in 2015. Last year, 47.6 per cent believed they had turned in a better performance than in 2014. However, only 25.9 per cent of retailers expect to have fared worse last year, down from the 27.15 per cent who predicted a drop in earnings in last year’s survey.

47.5 %

25.9 %

26.6 %

BETTER THAN

2015

WORSE THAN

2015

ABOUT THE

SAME

Q.1HOW WOULD YOU DESCRIBE TRADING CONDITIONS IN THE PAST 12 MONTHS?

Fewer respondents to the survey describe trading conditions as “challenging” than they did last year – 30.9 per cent compared to 31.8 per cent. Yet only 28.9 per cent saw the market as solid, compared with 25.8 per cent in last year’s survey. That said, there has been a rise in the number who say the market is the worst they have experienced – 8.1 per cent versus 3.97 per cent last year.

BE

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I HA

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EX

PE

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NC

ED

3.4

%

SO

LID

28

.9%

OR

DIN

AR

Y2

5.5

%

PO

OR

3.4

%

CH

AL

LE

NG

ING

30

.9%

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T I H

AV

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XP

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.1%


NOT SO TOUGHTrading conditions are less tough now than last year, according to our annual retailer survey. However, higher rents and inflexible landlords are listed as the main grievances.

Respondents to this question only includes retailers



14.1 %GET A LITTLE WORSE

Q.3IN THE YEAR AHEAD, HOW DO YOU EXPECT TRADING CONDITIONS TO CHANGE?

On a brighter note, most of the retailers polled expected trad-ing conditions to either stay the same this year (35.9 per cent) or improve a little (45.7 per cent). Only 14.1 per cent expected things to become a little worse.

Q.4WHAT ARE THE BIGGEST

CHALLENGES FACING THE RETAIL INDUSTRY THIS YEAR?

Just like last year, rental overheads emerged as the major is-sue keeping retail executives up at night. In notable swings this year, concern among retailers about international en-trants, offshore online retailers and global economic trouble was higher than last year, but anxiety about the value of the Australian dollar and high labour costs eased.

Some of the other worries retailers listed were a drop in Chinese tourism dollars, political incompetence at both state and federal levels, and higher energy costs.

One retailer bemoaned the trend for landlords to in-crease the food/retail tenancy mix, therefore diluting that sector and decreasing turnover on a store-by-store basis.

Another worried about the upsurge of selling on a pleth-ora of Facebook sites by individuals rather than businesses, while yet another fretted about the growing number of Australian online sales, such as Black Friday, where suppli-ers were undercutting retailers.

Grocery deflation and the duopoly of the supermarkets driving down pricing were also seen as causes for concern.

35.9 %REMAIN

THE SAME

45.7 %IMPROVE A LITTLE

4.3 %IMPROVE

A LOT

INTERNATIONAL ENTRANTS

RENTAL OVERHEADS

LOW CONSUMER CONFIDENCE

GLOBAL ECONOMIC TROUBLE

TAXES AND OVERHEADS

OFFSHORE ONLINE RETAILERS

ENDEMIC DISCOUNTING

HIGH LABOUR COSTS

VALUE OF THE AUSTRALIAN DOLLAR

THE RISE OF PRIVATE LABELS

GOV. RESTRICTIONS

NO CONCERNS

OTHER

44.6%43.5%41 .8%41 .8%41 .3%41 .3%28.3%27.7%16.8%14.7%10.3%

8.7%

1 .6%




42.5% – Add more stores

Like last year, the top priority of respon-dents by a long shot was increasing sales, followed by improving margins and raising stock turnover.

The percentages of those wanting to prioritise new markets, expand their store networks, build an eCommerce presence or implement an omni-channel structure all dropped from last year’s survey.

No respondents expected to focus on rebranding, compared to nearly 6 per cent last year. Only 1.9 per cent saw closing stores as an important activity this year, down from 9.93 per cent last year.

Other priorities listed included inter-national expansion, improving the supply chain, finding new distribution channels, running a more efficient business and reducing store locations and size.

Q.5WHAT WILL BE

THE TOP PRIORITY OF YOUR RETAIL

BUSINESS THIS YEAR?

9.2% – Reduce store numbers

47.1 % – Maintain store numbers

1.1% – Pure-play retailer

30.5 %INCREASING SALES

12.4 %INCREASING MARGIN

10.5 %INCREASING STOCK TURNOVER

9.5 %BUILDING AN ECOMMERCE PRESENCE

9.5 %IMPLEMENTING AN OMNI-CHANNEL STRUCTURE

1.0%REDUCING PRODUCT RANGE

0.0 %REBRANDING

8.6 %EXPANDING THE STORE NETWORK

7.6 %OTHERS

1.9 %CLOSING STORES

2.9 %EXPANDING PRODUCT RANGE

5.7 %NEW MARKETS

Q.6DO YOU PLAN TO CHANGE YOUR NUMBER OF STORES THIS YEAR?

As with last year, most retailers polled intended to maintain store numbers at last year’s levels. More planned to add stores (42.5 per cent compared to last year’s 17.2 per cent) and far fewer expected to reduce store numbers (9.2 per cent compared to a whopping 11.26 per cent the year before).


Respondents to this question only includes retailersRespondents to this question only includes retailers


Q.8HOW DO

YOU BELIEVE THE AUSTRALIAN RETAIL

MARKET IS PLACED COMPARED TO OTHER

INTERNATIONAL MARKETS?

Q.7DOES THE INFLUX OF INTERNATIONAL RETAILERS TO AUSTRALIAN SHORES WORRY YOU?

With international retailers increas-ingly eyeing the lucrative Austra-

lian market, there has been a surge in concern about their

presence. This year, 41.3 per cent said they were wor-

ried compared to 28.48 per cent last year. And the number who were not worried slumped from 71.52 per cent last year to 58.7 per cent.However, many respondents welcomed the heightened competi-

tion. Some said it would improve competition and

enhance the retail expe-rience and mix for Aussie

shoppers.

POSITIVE COMMENTS INCLUDED:• "More variety and competition can

expose new customers to other offerings"

• "The market needs competition. Some categories are owned by two large businesses"

• "This cuts both ways. There is no reason why Australian retailers should not compete internationally"

• "International retailers force local retailers to improve their game"

• "Locals who can"t compete should not be operating to begin with"

• "This will challenge local retailers

to be better - the best retailers (local or international) will continue to prosper"

• "The competition provided by international retailers with a global perspective, who are constantly evolving the use of technology to improve their business and engage-ment with consumers, will push those Australian retailers who have not felt the need to improve their businesses as rapidly."

• "International retailers give shop-pers diversity and put pressure on Australian retailers to deliver the experience shoppers expect and that shoppers in other markets already enjoy"

• "As a shopfitter, I welcome it."

NEGATIVE COMMENTS INCLUDED:• "They take shoppers away from

other areas"• "The influx creates a skills shortage

with big-box retailers paying more for the talent pool. The recruitment of good people is difficult"

• "It leads to margin pressure"• "Customers flock to what"s new,

abandoning retailers who, in our case, have indented stock six to nine months prior"

• "It has a potential impact on local retailers and the Australian econo-my – locals pay adequate taxes."

41.3 %

58.7 %

SAID THEY WERE

WORRIED

SAID THEY WERE NOT WORRIED

Like last year, opinion was closely split on how the Australian retail market is placed compared to other international markets – 26.1 per cent saw it as better placed, 26.6 per cent said it was the same, and 25 per cent said it was worse placed. With opinions being so closely divided, it’s probably not surprising that 22.3 per cent were not sure.

Some respondents noted that Australia’s small population was a limiting factor. “Most of our suppliers say we are negligible, maybe 2 per cent of the global market,” said one.

Others noted that higher rents, la-bour and other costs of business limit

Australia’s competitiveness.

TOP COMMENTS INCLUDED:• It’s very expensive to buy pretty

much anything when compared to London, where I lived previ-ously. Retailers rely on higher margins at the expense of volume. Offshore and online retailers will change that dynamic with Aus-tralian retailers having to rely on higher volume at lower margins to compete.

• Australia is the second most retailed market after the US.



68.1%NO, LANDLORDS DID

NOT OFFER MORE FLEXIBILITY OR HELP

25.3%YES, LANDLORDS WERE MORE HELPFUL Q.9

DID YOU FIND THAT YOU RECEIVED MORE FLEXIBILITY AND HELP FROM LANDLORDS LAST YEAR?

Like last year, most retailers (68.1 per cent of respondents) said their landlords did not offer more flexibility or help over the past year. Only 25.3 per cent found that their landlords were more helpful. A few noted that they owned their premises.

TOP COMMENTS INCLUDED:• "Our landlord is totally inflexible, refusing to

acknowledge the difficulties we face at this time."• "Most landlords are not cognisant of industry or

government pressure."

25%WORSE

6.6%I AM AN ONLINE

RETAILER

26.6%THE SAME

22.3%UNSURE

There is too much floor space. As eCommerce increases and retailers invest in technology and in in-store experience, we will see a shrinking of retail stores in favour of a better outcome for shoppers and retailers. This is not a particularly good situation for landlords, who need to catch up by remixing and improving their customer proposition for both retailers and shoppers. Australia is effectively two to three years behind other major markets such as the UK, US, Singapore, France, the UAE and South Korea.

26.1%BETTER

AUSTRALIAN RETAIL OUTLOOK 2017



HOW DO YOU EXPECT LEASING TERMS TO CHANGE THIS YEAR?Moving into 2017, only 9.6 per cent of retailers expect leasing terms to change for the better – down from 12.58 per cent last year. While 25 per cent say leasing terms will become more challenging, that is lower than the 21.85 per cent who said so last year. “We try to re-main positive, but don’t have our fingers crossed,” one respondent observed.

Q.109.6%

GET BETTER

25.0%GET WORSE

65.4%STAY THE SAME


"If a retailer is seeing decking online sales at this point, it's because there

is a problem with its eCommerce infrastructure and marketing."



Q.12HOW HAS YOUR REVENUE FROM

ECOMMERCE CHANGED IN THE PAST 12 MONTHS?

Respondents’ sales from eCommerce grew 31.5 per cent over the past year, as a percentage of overall revenue. Only 2.7 per cent of retailers experienced a drop, which is a better outcome than last year when 6.62 per cent saw sales from eCommerce fall.“There is a clear trend in consumer behaviour with a pro-pensity to buy online for convenience,” said one survey participant. “If a retailer is seeing decking online sales at this point, it’s because there is a problem with its eCom-merce infrastructure and marketing.”

Almost half of the retailers surveyed, 47.8 per cent, believe fluctuations in the value of the Australian dollar will have no discernible impact on their business this year. In contrast, 39.2 per cent expected to be hurt by the value of the Australian dollar. That is a big improvement from last year when 58.28 per cent said the impact would be negative.

TOP COMMENTS• "I expect the Australian dollar to

fall further, which will help tour-ism in particular"

• "I buy in US dollars from overseas suppliers, so a lower Australian dollar hurts my margin big time"

• "We are an importer, so any drop in the Australian dollar will affect

our margins"• "A mixed bag. Retailers who import

will have to pay more to buy stock. Locally made stock will be cheaper"

• "A declining Australian dollar tends to see our eCommerce in-crease, which we interpret to mean it’s more expensive to source from our overseas competitors"

• "Current conditions favour Austra-lian-made"

• "It depends on which way it goes. For retailers who mainly import their finished product from China, a rise in the dollar will be good and a decline will be bad"

• "As our products are from overseas this changes the costings per prod-uct, which depend on the Aussie dollar being competitive."

HOW WILL THE VALUE OF THE AUSTRALIAN DOLLAR IMPACT YOUR BUSINESS THIS YEAR?

Q.11

39.2%NEGATIVELY

17.9%NO

CHANGE

2.7%SALES FROM ECOMMERCE

ARE DOWN AS A PERCENTAGE

OF OVERALL REVENUE

42.9%I DO NOT SELL

ONLINE

4.9%I AM A PURE-

PLAY RETAILER

31.5%SALES FROM ECOMMERCE ARE UP AS A PERCENTAGE OF OVERALL

REVENUE

13%POSITIVELY

47.8%NO DISCERN-IBLE IMPACT



Q.13WHAT PERCENTAGE OF YOUR TOTAL REVENUE COMES FROM YOUR ECOMMERCE CHANNEL?

Australian retailers continue to lag behind the rest of the world in adopting eCommerce, with online retail sales remaining only marginal compared to those of traditional bricks-and-mortar sales. Almost nine out of 10 retailers polled earned a quarter or less of their total revenue from eCommerce. Only 10.3 per cent earned more than that, with 3.8 per cent earning more than 50 per cent. The expected arrival of Amazon, however, is likely to shake things up and accelerate the growth in eCommerce.

0-25 per cent: 89.7 per cent25-50 per cent: 6.5 per centMore than 50 per cent: 3.8 per cent

Q.15WHICH ARE THE MOST EFFECTIVE SOCIAL MEDIA CHANNELS YOUR RETAIL BUSINESS USES?

Yet again, Facebook emerged as the most effective social-media channel, used by 70.1 per cent of retailers. Instagram was a poor second, used by 43.5 per cent, followed by LinkedIn with 19 per cent. Twitter tied with online blogs in effectiveness. Only 1.6 per cent of retailers used Pinterest, compared to 13.25 per cent in last year’s survey. And surprisingly, given how vital and cost-effective social media is in retail marketing, 15.2 per cent didn’t use it at all.

Australia’s top brands:

BUNNINGSALDICOLES/KMARTCOTTON ON/JB HI-FI/MYERWOOLWORTHS DAVID JONES/PRICELINE AESOP/CHEMIST WAREHOUSE/CUE/DAN MURPHY’S/SMIGGLE

Q.14WHAT IS THE BEST AUSTRALIAN RETAIL BRAND FOR 2016?

Wesfarmers has emerged as the owner of three of Australia’s four top brands: Bunnings, Coles and

Kmart. But Target, a strong performer last year, didn’t get a look in this year.

Bunnings rose from third place last year to scoop our

top slot as Australia’s best brand. Aldi was voted the second most popular, while Coles slipped from last year’s top spot to equal Kmart in third place and, like last year, outstrip Woolworths.

Myer, which did not feature strongly last year, made a huge leap to overtake David Jones this year.

70.1% — FACEBOOK

43.5% — INSTAGRAM

19% — LINKEDIN

11.4% — TWITTER

11.4% — ONLINE BLOG

1.6% — PINTEREST

15.2% — DON’T USE SOCIAL MEDIA

6.5%25-50 PER CENT

3.8%MORE THAN 50 PER CENT

89.7%0-25 PER CENT



EXECUTIVE PERSPECTIVE


WAS 2016 A GOOD YEAR FOR YOUR RETAIL BUSINESS?

It was a great year for our company, both operationally and financially. It was the most significant in our almost 60-year history, and through our merger with Chemmart, we have more than doubled in size and now work as 500-strong group of commu-nity pharmacies. We also announced our new brand, TerryWhite Chem-mart, which has already started roll-ing out across our national network.

WHAT WERE YOUR BIGGEST CHALLENGES?

Over the next decade, the pharmacy and pharmaceutical sectors are set to deliver more than $20 billion in savings via reforms to the Pharma-ceutical Benefits Scheme (PBS). Last year our industry was impacted by the most severe round of funding cuts to the PBS ever. This placed significant pressure on our pharmacy owners.

As an organisation though, we have invested significantly in develop-

ing a highly sophisticated retail model to provide our pharmacy owners with a solid, diversified revenue stream to help offset the impact of the ongoing reforms. As a result, we reported an above-market increase in like-for-like retail sales across the pharmacies within our network last year.

DID YOU GROW OR CONSOLIDATE YOUR RETAIL PRESENCE?

We completed our merger with Chem-mart during the year, which provided us with a truly comprehensive national footprint and significant scale. This fur-ther increased the competitiveness of all of our pharmacies within the retail marketplace. We are now Australia’s largest pharmacy network. WHAT STRATEGIES DID YOU USE TO GROW OR MAINTAIN YOUR BUSINESS?

Over the past 12 months we contin-ued to execute our growth strategy to achieve a more competitive market proposition for our pharmacy own-

ers, and significant scale advantages. We were also focussed on ensuring we had a highly competitive retail pharmacy business model through systems that increased in-pharmacy efficiencies, freeing up our phar-macists to spend more time with customers. This enabled the group to achieve strong financial performance, above-market sales growth and a strengthened market position.

HAVE YOU NOTICED ANY INTERESTING SHIFTS IN CONSUMER BEHAVIOUR OVER THE PAST YEAR?

Much has been said about the growth of online shopping, but what I have found interesting is the move by online stores to start opening up bricks-and-mortar shopfronts, be it a pop-up or a permanent shop. This shows that consumers are still looking for a traditional retail experience, but in a 21st-century environment. This has never been more true than now for pharmacies, as customers increasingly look to

JUST WHAT THE CUSTOMER ORDERED...

Anthony WhiteChief Executive OfficerTerry White Group

After more than doubling in size through its merger with Chemmart and enduring severe cuts to the PBS, community pharmacy group TerryWhite has had a big year. Now it hopes its extensive marketing plans and ambitious growth strategy will further cement it as a household name in Australia.

EXECUTIVE PERSPECTIVE: TERRY WHITE GROUP


pharmacists to provide trusted health advice and patient-centred healthcare services in a highly accessible way.

HOW DO YOU BELIEVE THE RETAIL MARKET WILL PERFORM THIS YEAR COMPARED TO LAST?

There's no hiding the fact that the re-tail market is tough, but there are still opportunities if retailers can evolve and offer value to their customers – and that's not only on price, but on service and knowledge as well. In the pharmacy space, that has never been more accurate. People are living longer and looking to lead healthier lives, and these factors, combined with the expansion of chronic health conditions and an ageing population, are contributing to the strength of the sector and offer prospects for future growth and industry expansion. WHAT DO YOU EXPECT TO BE THE BIGGEST CHALLENGES FOR RETAILERS OVER THE NEXT 12 TO 18 MONTHS?

As retailers, we need to have a clear point of difference and be highly re-sponsive to the ever-changing needs of our customers. Consumers are very savvy – they want more from their shopping experience. In my view, one of the biggest challenges for retailers, and one of the biggest opportunities, will be tapping into that sentiment and providing that experience.

We have designed our pharmacies to ensure the pharmacist is front and centre, and highly accessible. Also, in response to increased customer demand for the delivery of frontline health services, by far most of the pharmacies within our network have a clinic room, which has been a great success in supporting the delivery of preventative health services, includ-ing heart health, asthma, weight management and flu vaccinations.

HOW DO YOU EXPECT TO CHANGE YOUR BUSINESS STRATEGY TO STAY AHEAD THIS YEAR?

Knowing where we want to go, and why, is what inspires us every day and drives us as a company. We have a really ambitious growth strategy and want to continue to aggressively increase our network size and market share. The scale we achieved last year will allow us to significantly increase our investment in above-the-line

marketing and let us be much more competitive.

Our new brand, TerryWhite Chem-mart, stands for value and health, and we will be pushing hard into further expanding the important role our pharmacists play in the delivery of frontline health services to consumers, to deliver a really strong and differ-entiated value proposition within our industry. We will roll out our new brand and concept stores this year.

ARE YOU FACING ANY THREATS FROM NEW MARKET ENTRANTS, AND IF SO, HOW DO YOU PLAN TO FIGHT BACK?

Community pharmacy is highly competitive and fragmented. We have competing banner groups and competition from both supermarkets and new market entrants. Given the already high levels of competition within our industry, any new en-trants will need to have an incredibly strong offer to be able to compete with the established groups. We are focussed on supporting our members to achieve success by having a highly competitive and differentiated offer

to consumers. That’s how we manage to consistently stay ahead.

WHAT IS YOUR TOP OVERALL PRIORITY AS A RETAIL BUSINESS THIS YEAR?

We will continue to focus on integrat-ing the two businesses following our merger with Chemmart, and rolling out our new brand across about 500 pharmacies to ensure we have strong brand recognition, supported by a significant investment in above-the-line marketing. We will continue to pursue consolidation with like-mind-ed pharmacy groups as we work to-ward continuing to grow our national footprint.

WHERE DO YOU HOPE YOUR BUSINESS TO BE THIS TIME NEXT YEAR?

Twelve months from now, we’d like to see TerryWhite Chemmart as a household name with high levels of brand recognition and a national net-work of pharmacies that has contin-ued to grow.

"We were focussed on ensuring we had a highly competitive retail pharmacy business model through systems that increased in-pharmacy efficiencies, freeing up our pharmacists to spend more time with customers. "

EXECUTIVE PERSPECTIVE: TERRY WHITE GROUP


CHANGING DYNAMICS

Peter BirtlesGroup MD/CEOSuper Retail Group

WAS 2016 A GOOD YEAR FOR YOUR RETAIL BUSINESS?

We have been pleased with our per-formance through the year. We have generated strong like-for-like sales growth across all our retail business-es and have made good progress with our key strategic initiatives: building our omni-channel offer, developing our supply chain, reinvigorating our leisure business, which includes the BCF Boating Camping Fishing and Rays brands, and seeing real progress in building customer-centricity and safety awareness across our team. WHAT WERE YOUR BIGGEST CHALLENGES OVER THE YEAR?

We started the year recognising that we needed to reinvigorate the perfor-mance of the two businesses in our leisure division: BCF Boating Camp-ing Fishing and Ray’s Outdoors. We accelerated the major transformation underway for the division, which included a significant repositioning and refurbishment program for the old Ray’s Outdoors business. This meant accelerating the roll-out of the

new Rays brand and store format, at the same time as converting some Ray’s Outdoors stores to BCF Boating Camping Fishing Stores.

At the same time, BCF has been working to broaden its customer base from passionate fishermen to a much wider cross-section of participants in outdoor leisure activities. So far so good with the new-format Rays stores attracting tremendous feedback from customers, and both businesses gen-erating good underlying like-for-like growth and improved profitability.

Looking ahead, we all know the dynamics of the retail industry are changing – customers have even more information at their fingertips as to who will best meet their needs and they have more choices than ever before. Our job is to ensure we stand out from the crowd with an offer that inspires and engages at a broader level than product and price. As long as we continue to provide the solu-tions and experiences that help our customers to make the most of their leisure time, we are confident we can continue to achieve growth both this year and beyond. DID YOU GROW OR CONSOLIDATE YOUR RETAIL

PRESENCE, AND WHAT FACTORS PLAYED A ROLE IN THIS?

We are always looking for ways to optimise our store portfolio and strengthen the group’s overall foot-print. This year we grew the network of stores in our Amart Sports, BCF Boating Camping Fishing, Rebel and Supercheap Auto businesses. Notably, that included extending our brands into new geographies, such as launch-ing BCF Boating Camping Fishing in Tasmania and Amart Sports in Western Australia. At the same time, we achieved strong growth in online sales across all brands.

We continue to see opportunity to open stores across all our brands, as there are many areas in the country in which not all of our brands are present. There are many oppor-tunities for retail space growth in large-format retail locations that suit many of our businesses.

DID ANYTHING SURPRISE YOU ABOUT YOUR BUSINESS OR THE RETAIL LANDSCAPE LAST YEAR?

Across the retail landscape there

After strong sales growth last year, Super Retail Group will this year focus on understanding its customer, building its omni-channel capabilities, devel-oping its supply chain and engaging is staff.

EXECUTIVE PERSPECTIVE: SUPER RETAIL GROUP


was nothing necessarily surprising. However, you have to be impressed with the way retail businesses are adopting advances in technology to provide a better customer experience. It is a challenge for all of us to de-termine how, where and when – but more particularly why – we will use technology. It is important to never be complacent about the market or cus-tomer expectations. The only constant in retail is constant change, and the key to success in retail is being able to identify and respond to market changes and new developments as they occur.

Within our group, I have been very surprised at the strong growth we have generated in the sales of car audio products, despite the declin-ing market. This just shows what can be done when you have a great merchandise team that really un-derstands the customers and builds strong relationships with tremendous trade partners.

WHAT DID YOUR BUSINESS DO REALLY WELL LAST YEAR?

I always take the biggest pride in our team, and in the past year it has

really embraced our focus in two areas: safety and customer-centricity. We have seen a significant reduction in our lost-time injury frequency rate, but, as importantly, the team has recognised the importance of being safety aware and we have seen an exponential increase in our reporting of near misses. We have also seen our net promoter score for all our brands improve through the year, and we were particularly pleased that every brand recorded a score of more than 50 toward the end of the year.

WHAT STRATEGIES DID YOU USE TO GROW OR MAINTAIN YOUR BUSINESS LAST YEAR, AND WHAT WERE YOUR KEY AREAS OF FOCUS?

The core focus across each of our businesses is to move from being a product provider to a solution provider. This means engaging and inspiring our customers around their passions, whether that be tuning the performance or maintaining the look of their Monaro, catching the biggest “barra” of their life or beating their lifetime best for the half-marathon. This underpins our strategic focus,

which is based around understand-ing the customer, building a great omni-channel experience, developing a highly effective supply chain and building strong operating founda-tions.

Each of our brands has a clear pathway to growth ahead – our strategic focus continues to be in realising the potential for profitable growth across the group. Our brands have a range of growth levers at their disposal, including our continued ex-pansion into “Do It For Me” services, optimising our online channels, and expanding our private labels, exclu-sive partnerships and so on.

In Australia, the sectors we work in are still highly fragmented in many cases. We see significant po-tential to bring to bear our scale and maturity, and the advantages that of-fers in terms of supply chain, capital resources and marketing, to continue to grow our business. HAVE YOU NOTICED ANY INTERESTING SHIFTS IN CONSUMER BEHAVIOUR OVER THE PAST YEAR?

As I go around the stores, I sense that customers are becoming ever more



“mission focussed”. They have al-ready made their mind up about what they want to buy, they know what they are prepared to pay for it and have generally chosen where they are going to buy it. I think the amount of time spent browsing is going to keep reducing, and retailers are going to see even less footfall – but a contin-ued increase in average customer spend per visit. Our challenge as retailers is to engage the customer when they are deciding what to buy and where to buy it – before they come to our stores.

HOW DO YOU BELIEVE THE RETAIL MARKET WILL PERFORM THIS YEAR?

Consumer sentiment appears to be generally positive across Australia, but what we’re focussed on as a business is continuing to work hard to better inspire and engage our cus-tomers. At the end of the day, it’s our relationships and connection with our customers that will drive our success as a retail business.

WHAT DO YOU EXPECT TO BE THE BIGGEST CHALLENGES FOR RETAILERS OVER THE NEXT 12 TO 18 MONTHS?

I see the biggest challenge being the need to evolve the traditional retail business model to accommodate the full impact of digital across all areas of the organisation, and to evolve the traditional retail culture from being predominantly product-centric to be truly customer-centric.

HOW DO YOU EXPECT TO CHANGE YOUR BUSINESS STRATEGY TO STAY AHEAD?

We have a clear vision set out for the business and we are not anticipating any significant changes to our strate-gy this year. Our focus will continue to be on understanding our customer, building our omni-channel capabil-ities, developing our supply chain, and engaging our team to be able to deliver inspiring and engaging solu-tions for our customers.

As we head into a period of low inflation, it will be our ability to embrace the changing dynamics of the retail industry that will enable us to outpace the markets in which we work. The macro trend toward solu-tions and services leaves our business well-placed to capture the revenue, customer and margin growth offered by the shift from products toward the solutions-centric offering that is already well underway across the group.

ARE THERE ANY EXTERNAL FACTORS STRAINING YOUR BUSINESS, SUCH AS STAFF COSTS, THE AUSTRALIAN DOLLAR, TAX, RENT, AVAILABILITY OF SUITABLE LOCATIONS?

As a major importer, we have seen the cost of our products increase as the Australian dollar has weakened against the US dollar. However, through a combination of our hedg-ing programs and fine-tuning our pricing and promotions strategies, we have been able to manage the impact on our business. We are not seeing other factors have a signifi-cant impact on our business – it’s all about connecting with customers and meeting or exceeding their expecta-tions. As long as we are continuing to provide the solutions and experiences that help them make the most of their

leisure time, we are confident we can continue to achieve growth across our business.

ARE YOU FACING ANY THREATS FROM NEW MARKET ENTRANTS, AND IF SO HOW DO YOU PLAN TO FIGHT BACK?

We have highlighted for many years the impact international retailers will have on the Australian retail market, whether through rolling out a network of stores or online. We are now seeing international retailers coming into our segments, and we welcome the challenge that brings. We know we need to continue to lift the standard of our businesses, which has to be good for the cus-tomer.

The strategies we have been imple-menting over the past few years have been developed with international competition in mind, so we don’t see any need to change our strategic focus at this time. We have the op-portunity to capitalise on our deeper understanding of the Australian

"We as retailers must earn the right to be invited by our customer to fulfil one of

their needs how, when and where it best suits them, and unless we can do this well, our customers have plenty of other choices."



marketplace, Australian conditions and the Australian customer.

We still see plenty of potential for continued growth across our brands. At a macro level, revenues are expected to continue to benefit from a greater focus on healthier, more active, outdoor lifestyles, and the strong results from across our business is reflective of that. The Australian market remains relatively fragmented, and we still see signif-icant potential to bring to bear our scale and maturity, and the advan-tages that offers in terms of our deep local knowledge, supply chain, capital resources and marketing, to continue to grow and strengthen our national network.

HOW DOES SOCIAL MEDIA FIT INTO YOUR MARKETING STRATEGY?

We are very excited about the oppor-tunity that digital and social pro-vides. We see our relationship with our customers moving to a whole new level as we use digital to develop social communities that share similar

leisure passions. We have a really exciting app we will be launching around Easter in one of our business-es – stay tuned for more on that later in the year.

HOW ARE YOU EVOLVING YOUR IN-STORE LAYOUT, SERVICES, PAYMENT OPTIONS AND SO ON TO ENHANCE YOUR CUSTOMER EXPERIENCE?

In the digital retail reality of today, we as retailers must earn the right to be invited by our customer to fulfil one of their needs how, when and where it best suits them, and unless we can do this well, our customers have plenty of other choices. That means being wherever the customer is and offering a seamless, frictionless service solu-tion, regardless of how they prefer to research, purchase or pay. For us, it’s not about the bricks-and-mortar experience versus the online experi-ence - it’s about starting first with the customer and what their expectations are, then working tirelessly to deliver on that.

Over the past few years, we have been continuing to update our stores to create a more engaging and inspir-ing experience for our customers. It is a continual process of evolution that will continue this year. We are par-ticularly excited by the next iteration of Supercheap Auto stores, which we will test this year. We see the pro-vision of services and information becoming increasingly important, and we continue to look to merchandise our products to provide customer solutions, rather than basing them on category hierarchies.

ARE YOU EYEING ANY INTERNATIONAL EXPANSION?

Our priority is growing our business-es within Australia and New Zealand. As a matter of course, we actively consider all opportunities to grow our business, be it organic or otherwise. However, our immediate focus is on realising the upside potential we see ahead of each of our core brands and achieving profitable growth through the strategic priorities we have set out for the group.

WHAT IS YOUR TOP OVERALL PRIORITY AS A RETAIL BUSINESS MOVING AHEAD?

Digital will remain an ongoing focus for the business this year, as well as continuing to build on our long his-tory of digital innovation. We were one of the first retailers in Australia to offer click-and-collect, and our lat-est innovations include a 90-minute click-and-collect guarantee in our Su-percheap Auto business, and offering Apple Pay in some brands. Online sales continue to grow strongly – we achieved 84 per cent growth in auto and more than 60 per cent growth in sports this financial year, and there is significant potential for further growth. We will continue to invest in being able to deliver a seamless omni-channel experience for our customers and what they want.

WHERE DO YOU HOPE YOUR BUSINESS TO BE BY THE END OF THE YEAR?

Delivering great outcomes for our customers, our team and our share-holders, and continuing to grow our business through providing the solutions and engaging experiences that enable our customers to make the most of their leisure time.



WAS 2016 A GOOD YEAR FOR YOUR BUSINESS?

It was indeed a good year for Asian Restaurant Concepts. We added the Wok in a Box brand and divested our own Noodle Box restaurants, becom-ing a 100% franchise business. We hit our growth target and now have 107 Noodle Box and Wok in a Box restau-rants in Australia, and four Noodle Box restaurants in Saudi Arabia.

WHAT WERE YOUR BIGGEST CHALLENGES OVER THE YEAR?

Integrating the Wok in a Box brand was a big challenge – it was a lot of hard work, but ultimately very rewarding.

DID YOU GROW OR CONSOLIDATE YOUR RETAIL PRESENCE?

We opened five restaurants for Noo-dle Box last year and three Wok in a Box restaurants.

DID ANYTHING SURPRISE YOU ABOUT YOUR BUSINESS

OR THE RETAIL LANDSCAPE DURING THE YEAR?

Something that really surprised us throughout the Wok in a Box inte-gration journey was the passion our franchise partners have for their busi-nesses and the brand. We were really impressed with their abilities, love and pride, and how protective they are of Wok in a Box. It is a strong and active-ly growing brand, and we’re looking to continue this path this year.


We were really happy with all of our restaurant openings and overall growth last year. We achieved econo-mies of scale by bringing in the Wok in a Box brand and its franchisors, and there’s a great synergy across our network of restaurants. We success-fully worked with our Wok in a Box franchisors to implement our ARC systems and streamline across all restaurants. We’re really proud of the new products we developed last year, including a new range of sides as part of our menu.

WHAT STRATEGIES DID YOU USE TO GROW OR MAINTAIN YOUR BUSINESS LAST YEAR? WHAT WERE YOUR KEY AREAS OF FOCUS?

We put our greenfield acceleration program into action, which was aimed at driving restaurant openings in new markets. The program gave incentives for people already in our networks – managers, chefs and other employees – and encouraged them to invest in their own franchise. We’ve also been using new training infra-structure platforms to bring Wok in a Box franchisors and employees up to date with Noodle Box.


We noticed that customers are looking for a consistent and good-quality offering, and are still very much inter-ested in transparent cooking – being able to see the ingredients and the food as it’s being made. There has cer-tainly been an increase in consumer demand for more convenient options,

BOXING ONAsian Restaurant Concepts had a big year in 2016, integrating competitor Wok in a Box, which Noodle Box acquired in October 2015, then taking the franchise route. This year is shaping up to be equally as big with the group set to launch a third brand and embrace the demand for delivery.

EXECUTIVE PERSPECTIVE: ASIAN RESTAURANT CONCEPTS

Michael StandleyActing GMAsian Restaurant Concepts


and delivery is growing through third-party aggregators like Delivery Hero and Uber Eats. We’re seeing more people looking for a more con-venient way to access restaurant-qual-ity food, and this is an area that will continue to grow.

We give our customers the oppor-tunity to rate our restaurant in store, and are receiving 90 per cent positive feedback. Customers who are order-ing deliveries also can rate us through the third party’s websites, and we’re seeing similar levels of positive feed-back there as well.


We are expecting positive things for Asian Restaurant Concepts this year with a target of 15 per cent growth.

WHAT DO YOU EXPECT WILL BE THE BIGGEST CHALLENGES FOR RETAILERS OVER THE NEXT 12 TO 18 MONTHS?

Mining tapering off in Western Australia will impact the north and south corridors in Perth and affect restaurants in those ar-eas. The increase in consumers demand-ing delivery is a welcome challenge. QSR is competitive, and you have to work to stay ahead and meet the consumer demand for good-quality food.


We’re looking to leverage our technol-ogy, like improving the self-ordering kiosks in our restaurants and integrat-ing these into Wok in a Box. We’re looking to make all touch points, in-restaurant and online, as seamless and streamlined as possible, and we’ll certainly be embracing the convenience factor consumers want and demand.

WHAT EXTERNAL FACTORS ARE STRAINING YOUR BUSINESS, SUCH AS STAFF COSTS, THE AUSTRALIAN DOLLAR, TAX, RENT, AVAILABILITY OF SUITABLE LOCATIONS?

We are facing a challenge with the availability of chefs following the restrictions on 457 visas. The chefs we hire are specialists, and these changes have hit hard and are making it hard

to find chefs who already have the right skills. We’re looking at training programs and giving employees the chance to upskill.


Noodle Box is the leading noo-dle-based QSR in the market, and Wok in a Box is second. For us, it is about al-ways enhancing the guest experience.


Social media is an area of focus for us this year, and our marketing team, lead by group marketing manager Pooja Marathoo, is looking to im-prove our existing channels. As we increasingly work with third-party aggregators in the delivery space, we’re noticing a real need for quality content, and that’s something we can push through our social media.

HOW ARE YOU EVOLVING YOUR IN-STORE LAYOUT, SERVICES AND PAYMENT OPTIONS TO ENHANCE YOUR CUSTOMER EXPERIENCE?

We’re bringing in a new generation of self-ordering kiosks and looking at where they are positioned in the restaurants. We’re also hoping to increase the theatre of our restaurants and are looking at ways to include our chefs in the customer experience.

ARE YOU EYEING INTERNATIONAL EXPANSION?

We have a master franchise agreement in Saudi Arabia, with four Noodle

Box restaurants open there and plans to double this number this year. We’re also looking at signing a new market entry for Noodle Box in Asia toward the end of the year. It’s a big market we can do really well in, and it is well suited to our product.

WHAT IS YOUR TOP OVERALL PRIORITY AS A RETAIL BUSINESS THIS YEAR?

We’re working on developing a third brand, still in the Asian space, and hoping to finalise these developments and open two restaurants by the end of the year. We’ll also be focussing on enhancing our technology and em-bracing the demand for delivery.


We’re looking to have developed our third brand and launched two restau-rants, and we’re looking at having seven new restaurants open across Noodle Box and Wok in a Box.

"We’re also hoping to increase the theatre of our restaurants and are looking at ways to include our chefs in the customer experience."

EXECUTIVE PERSPECTIVE: ASIAN RESTAURANT CONCEPTS


WAS 2016 A GOOD YEAR FOR LUSH?

It was an exceptionally good year for the business. The focus on building strong teams throughout the business and a continued use of social media channels alongside more traditional forms of marketing achieved strong engagement with customers. This resulted in an increase in visitor numbers of more than 30 per cent year on year. WHAT WERE YOUR BIGGEST CHALLENGES?

The biggest challenge last year was managing the supply chain. In-creased international demand and poor harvests caused shortages in key materials. Staying true to our eth-ical-sourcing policy meant we were unable to produce several products. Our success has also caused growing pains that some sectors of the busi-ness struggled to cope with.

DID YOU GROW OR CONSOLIDATE YOUR RETAIL PRESENCE, AND WHAT FACTORS PLAYED A ROLE IN THIS?

An extra three stores were added in the region. The business also em-barked on a refurbishment program as well as relocating key sites, which included our stores in QVB in Syd-ney, Rundle Mall in Adelaide and the Perth CBD. The bespoke design elements and layout of these larg-er-format stores has enhanced the customer experience. DID ANYTHING SURPRISE YOU ABOUT YOUR BUSINESS OR THE RETAIL LANDSCAPE LAST YEAR?

We continue to be surprised by the positive response and support we receive from our customer base when we campaign on difficult issues. This year we campaigned to the Austra-

lian government on the issues of people seeking asylum, as well as protection for the Great Barrier Reef. WHAT DID YOUR BUSINESS DO REALLY WELL LAST YEAR?

We are extremely proud of the success of the campaigns we ran during the year. Whether it be LGBTI equality, people seeking asylum, environmental issues or supporting hard-working not-for-profit organisations, our teams have been instrumental in using our business as a tool to affect the change we all want to see in the world. WHAT STRATEGIES DID YOU USE TO GROW OR MAINTAIN YOUR BUSINESS, AND WHAT WERE YOUR KEY AREAS OF FOCUS?

There were a number of facets to the business strategy last year, the key being the focus on the customer and

CHANGE MORE THAN COSMETICWith 30 stores across Australia, Lush Cosmetics is part of a new breed of companies championing corporate activism. After adding three stores last year, it plans to continue refurbishing the stores in its portfolio, improve its in-store customer experience, and campaign on marriage equality and asy-lum seekers in Australia.

EXECUTIVE PERSPECTIVE: LUSH

Mark LincolnDirectorLush Cosmetics Australia and New Zealand


ensuring that customer service and products exceed expectations. HAVE YOU NOTICED ANY INTERESTING SHIFTS IN CONSUMER BEHAVIOUR OVER THE PAST YEAR?

We continue to see awareness growing among consumers about the importance of understanding the story behind where their products come from and how they are sourced. The number of customers willing to buy products and services from busi-nesses committed to social change continues to grow and is becoming an important consideration in the purchasing decision. HOW DO YOU BELIEVE THE RETAIL MARKET WILL PERFORM THIS YEAR?

The challenging retail envi-ronment will continue this year. However, we believe we are well placed to continue the strong growth we have experienced over the past 24 months. Retailers who focus on a strong customer experience, whether it be online or in store, will negate the impact of uncertainty caused by economic, social or political factors. WHAT DO YOU EXPECT TO BE THE BIGGEST CHALLENGES FOR RETAILERS OVER THE NEXT 12 TO 18 MONTHS?

Political events in the past 12 months, including the local election, the Brexit vote and the US presidential election, have created considerable uncertain-ty domestically and globally. These events may have an impact on con-sumer confidence, and retailers will need to be able to adjust their strategy and campaigns quickly to maintain growth and profitability. HOW DO YOU EXPECT TO CHANGE YOUR BUSINESS STRATEGY TO STAY AHEAD?

Every January, all aspects of the business in the previous 12 months are reviewed. From this review the strategy is adjusted to meet market

conditions and maximise opportuni-ties identified in the review process. The key to this process is ensuring we listen to the feedback provided by staff and customers. WHAT EXTERNAL FACTORS ARE STRAINING YOUR BUSINESS, SUCH AS STAFF COSTS, THE AUSTRALIAN DOLLAR, TAX, RENT, AVAILABILITY OF SUITABLE LOCATIONS?

The availability of the raw materi-als we need to make our products provides constant strain on the business, especially as the demand for our products continues to grow at a breakneck speed.


The beauty category has always been intensely competitive. The challenge is to ensure we stay focussed on de-livering quality products and the best customer service experience. HOW DOES SOCIAL MEDIA FIT INTO YOUR MARKETING STRATEGY?

Social media is an integral part of our communication with our customers. It is fast becoming the main point of contact, especially through the use of Facebook and Twitter. The use of

photographic and video content has enabled us to showcase our products and manufacturing processes in a new and engaging way, highlighting the handmade nature of our products. We have started to see a shift to platforms such as Instagram and Snapchat, with customers engaging with us multiple times a day on these channels. HOW ARE YOU EVOLVING YOUR IN-STORE LAYOUT, SERVICES, PAYMENT OPTIONS TO ENHANCE YOUR CUSTOMER EXPERIENCE?

This year will see the brand continue refurbishing its stores as part of a strategy to improve the customer experience. There

will also be a focus on improving the customer experience at checkout. Technology options will be comprehensively reviewed to ensure we meet expectations. ARE YOU EYEING ANY INTERNATIONAL EXPANSION?

Lush globally continues to look for new markets and opportunities. December saw the brand open its first store in Thailand. WHAT IS YOUR TOP OVERALL PRIORITY AS A RETAIL BUSINESS THIS YEAR?

Our top priority this year is to harness the energy of the passionate individuals within the business and, by working alongside like-minded experts, use our business to affect real social, environmental and polit-ical change. With the support of our customers we hope to achieve real influence and help shape the world into a better place for all. WHERE DO YOU HOPE YOUR BUSINESS TO BE THIS TIME NEXT YEAR?

We hope to continue to grow the business and meet the expectations of our staff and customers, and be celebrating real change on the issues of marriage equality and asylum seekers in Australia.

"Retailers who focus on a strong customer experience, whether it be online or in store, will negate the impact of uncertainty caused by economic, social or political factors."

EXECUTIVE PERSPECTIVE: LUSH


WHAT INSIGHTS CAN YOU SHARE ABOUT TRENDS AND CHANGES IN THE NOT-FOR-PROFIT RETAIL MARKET?

Retail in general has had a challeng-ing year, and ethical and not-for-prof-it retailers are not exempt from this turbulence. Consumer confidence is falling, and November saw the CSI index drop from 1.1 to 101.3 per cent. With lower confidence in both the property market and household finances, as well as low wage growth, we have seen a big impact on discre-tionary spend throughout the year.

One of the trends that we have noticed, though, has been the ev-er-growing importance of an integrat-ed digital strategy.

WAS LAST YEAR GOOD FOR YOUR BUSINESS?

It was quite a tough year for retail in general, with some retailers going into liquidation in the lead-up to Christmas. That said, our organisa-

tion had quite an exciting year with the opening of two more shops in Sydney, the launch of a new website and a successful year in our whole-sale channel off the back of increased distribution through independent supermarkets across Australia.

DID ANYTHING SURPRISE YOU ABOUT YOUR BUSINESS OR THE RETAIL LANDSCAPE LAST YEAR?

We continue to be surprised by the steady increase of retailers using ethical messaging to sell a product or service when the organisation itself is not necessarily ethical. We have competitors in both our retail and wholesale channels who are aligning themselves with other not-for-profit organisations as a selling point, without looking into the ethi-cal qualifications of their own supply chains.

This “ethical washing” has had a big impact on the retail landscape, as consumers can be under the mistak-

en impression they are supporting an ethical brand.


Each of our physical shops have be-come real hubs for public engagement throughout the past 12 months, with staff attending markets in the lead-ups to Easter, Mother’s Day and Christmas. Our network of retail volunteers be-comes stronger throughout the year.

During the past 12 months, our Adelaide-based warehouse volunteers packed more than 20,000 boxes for our online shop alone, and 524 volun-teers from our shops and warehouse selflessly gave our organisation 38,492 hours of work. That is the equivalent to 22.9 full-time employees.

As well as selling our range of handcrafted ethical products, our shops have also raised $901,325 in do-nations to support Oxfam’s life-sav-ing work around the world.

HOW DO YOU EXPECT THIS

NO EXEMPTION FROM TURBULENCEOxfam shops have undergone many changes since the first one was opened in Gay’s Arcade in Adelaide in 1965 after the arrival of a tea-chest of products from India. Its outlets now help thousands of artisans, farmers and their communities lift themselves out of poverty, but there are still continuing challenges.

Photo: Lara McKinley/OxfamAUS

EXECUTIVE PERSPECTIVE: OXFAM

Julia SumnerGeneral ManagerOxfam Australia Trading


YEAR TO BE?

Off the back of unstable economic indicators throughout the past 12 months, we believe this year will be unpredictable. However, with the opening of two more Oxfam shops in Sydney and a new website, we’re confident consumers will continue to support Oxfam’s fair and ethical retail business - whether it be in store, online or through Australian supermarkets with the purchase of coffee, tea and chocolate from our Oxfam range.

WHAT WERE YOUR BIGGEST CHALLENGES LAST YEAR?

We have seen lower-than-expected retail spending throughout the three months leading into retail’s busiest time of the year. This is a reflection of increasing consumer caution as wage growth hits record lows. This has led to a high proportion of retailers leveraging discounts to increase foot traffic into their stores. This seems to be leading to a trend where con-sumers are becoming conditioned to discounts, and actively seek them out.

While this may be a short-term fix for many retailers, we do not see heavy and frequent discounts as a sustainable business practice. Instead, we prefer to promote the value that each and every one of our products provides. While we understand that discounting is necessary at times, we try to keep our sale and discount periods to a minimum.

Value is about more than just price.

It takes into account an artisan’s skills, techniques, culture, histo-ry, quality, raw materials, and the personal stories that are part of the creation of each of our products.

WHAT DO YOU EXPECT YOUR BIGGEST CHALLENGES TO BE THIS YEAR?

We are expecting the instability we have seen in the retail market to con-tinue throughout the year, which will be our biggest challenge.

IN GENERAL, HOW WILL RETAILERS IN THE ETHICAL MARKET PERFORM THIS YEAR?

As consumers become more savvy about marketing tactics in regards to “ethical washing” we are expecting consumers to start questioning the ethical credentials of retailers and to start seeking out those that provide transparency and accountability throughout their entire supply chain.

WHAT DO YOU EXPECT TO BE THEIR BIGGEST CHALLENGES?

Living wages are becoming a big is-sue within in the ethical market, with organisations such as Oxfam, the World Fair Trade Organisation and Fairtrade Labelling Organisation all calling for organisations to start mov-ing to pay living wages as opposed to minimum wages.


As we are a not-for-profit organi-sation with a limited advertising budget, social media and digital advertising play a huge part in our marketing strategies. Not only is so-cial media a great way to let people know about new products and pro-motions, but it also allows us to tell the beautiful stories of our producer partners from around the world cost effectively.

Live video is a growing trend we’ve seen emerge, and something we’ll be looking to use to start conversations around issues that are important to our customers. It’s a trend we will be looking to capi-talise on this year. We hope to use social media to drive conversations and increase awareness on issues such as ethical washing and living wages, and as a way to provide an extra point of connection between our producer partners and Australian consumers, while also driving sales for our retail channels.


This time next year we hope to see our organisation flourishing – pro-viding not only financial support, but product development, marketing and export help to the producers we work with around the world.

EXECUTIVE PERSPECTIVE: OXFAM


WAS 2016 A GOOD YEAR FOR YOUR RETAIL BUSI-NESS?

We had a great year. We smashed our targets. It felt like consumer confi-dence was good internationally. Ex-ports were easier, and there was more awareness around customisation and where goods are coming from (ours are made locally).

WHAT WERE YOUR BIG-GEST CHALLENGES?

We’re a new proposition. We let people design their own sports equipment. It takes time for our retail partners to understand what we do and the advantages of “on-demand” manufac-turing. That’s just part of the process, and being early to market. But as the market matures, it gets better and better each year.

We’ve also seen an increase in demand from our UK office, which services Europe. As a result, keeping up with time zones and managing the increase in production has been “interesting”.

DID YOU GROW OR CON-SOLIDATE YOUR RETAIL

PRESENCE, AND WHAT FACTORS PLAYED A ROLE IN THIS?

We grew our own retail presence. We operate via a concession model in oth-er people’s stores, as well as own over Christmas. We are seeing an increase in demand from our partners, espe-cially as they realise the advantage of not having to hold stock, and the available stock-keeping units (SKUs) we offer with a small footprint.

DID ANYTHING SURPRISE YOU ABOUT YOUR BUSI-NESS OR THE RETAIL LAND-SCAPE THIS YEAR?

Yes - that doing business in Australia is expensive and the wage bill can put a strain on a business. We learnt that not only were we solving challenges for end customers but also for eCom-merce retailers, traditional retailers and brands such as Coca-Cola, Her-mes, Red Bull and Rockstar, which all crave high-quality custom-designed sports equipment. For eCommerce, it’s about increasing their offering while not increasing their ranging risks. We’re going to see a lot more in these areas over the coming year.


Our team members have really come into their own. They run a lot of the business, fail fast and are always learn-ing, often freeing me up to spend more time on our strategic growth planning.

WHAT STRATEGIES DID YOU EMPLOY TO GROW OR MAINTAIN YOUR BUSINESS, AND WHAT WERE YOUR KEY AREAS OF FOCUS?

Last year we focussed on increasing our customised product offering, opening up internationally and increasing the capacity of our produc-tion through new systems.


Many more people are asking about product origins and materials, and more people are getting involved in the maker movement and up-cycling. All seem to be on trend.

DOING IT THEIR WAYLaunched at Sydney’s Bondi Beach in late 2014, DisruptSports.com aimed to enable mass customising options for sports equipment. It has expanded its product line from surf to skate and now yoga and snow, and has plenty of projects planned for this year.

EXECUTIVE PERSPECTIVE: DISRUPTSPORTS.COM

Gary ElphickCEO/founderDisruptSports.com



It really depends on how you define the retail market. I believe retail is going through a significant shift. Of course, there is talk of Amazon and other same-day/low-quantity super-fast retailers coming to Australia that will change people’s expectations about convenience, both from online and bricks-and-mortar retailers.

I also believe we’re going to see a lot being spent on “retail as an experience” rather than just a transaction, as well as on virtual retail, customisation, hybrid community and retail space… I am sure there are many others.

WHAT DO YOU EXPECT TO BE THE BIGGEST CHAL-LENGES FOR RETAILERS OVER THE NEXT 12 TO 18 MONTHS?

Adapting to the above. Many retailers will have to tread lightly with new concepts and technology. They haven’t been forced to move that fast in the past, and it’s about to shift.


We have many new projects coming up, but we’re also focussed on our long-term strategy. We are looking to open in both Los Angeles and New York City by the end of the year. We also have a game-changing B2B integration platform that is going to let many others access our on-demand manufacturing in a very simple “plug-and-play” approach.

In the research and development space, we’ve developed some really awesome virtual-reality customisa-tion. This allows customers to design in virtual reality and meet the person making their equipment, as well as a few other things we are keeping up our sleeve.

WHAT EXTERNAL FACTORS ARE STRAINING YOUR BUSI-NESS, SUCH AS STAFF COSTS, THE AUSTRALIAN DOLLAR, TAX, RENT, AVAILABILITY OF SUITABLE LOCATIONS?

All of the above. This coming year will be about cash flow as well as fuelling and maintaining both sales growth and equally production.

ARE YOU FACING ANY THREATS FROM NEW MAR-KET ENTRANTS, AND IF SO, HOW DO YOU PLAN TO FIGHT BACK?

There are a few, and I’m sure we’ll see more over the year. We always keep an eye out for new entrants, but we don’t let it distract us. It’s all about staying focussed.


Social media can take on a number of roles. We use social media not only as customer proof of things they have designed, but also to interact with customers and to show them how and where things are made. It’s about be-ing less “we are over here and you are over there” and more about “let’s join together and create some awesome sports gear”.

HOW ARE YOU EVOLVING YOUR SERVICES, PAYMENT OPTIONS AND OTHER SYS-TEMS TO ENHANCE YOUR CUSTOMER EXPERIENCE?

We are forever trying to remove fric-tion, automate processes, de-risk the purchase decision and then back it all up with incredible guarantee policies and customer service.

ARE YOU EYEING ANY FUR-THER INTERNATIONAL EX-PANSION?

Yes, into the US. The aim is to hedge currencies and grow a bigger custom-er base. Plus, we already have strong demand for our products.

WHAT IS YOUR TOP OVER-ALL PRIORITY AS A RETAIL BUSINESS THIS YEAR?

To achieve sustainable, explosive growth.

We have a game-changing B2B integration platform that is going to let many others access our on-demand manufacturing in a very simple “plug-and-play” approach.

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Azurium’s James Stewart, Dr Ian Tho, Neeraj Sharma, Mark Tippet, Denis Carruthers and Ben Kite look back

at the winners and losers of 2016 and predict the big trends of 2017.

James StewartPartner, Retail Practice Leader

Neeraj SharmaPartner

Mark TippetBusiness Consultant

Dr Ian ThoExecutive DirectorAzurium Analytics

Denis CarruthersRetail Property Specialist

Ben KiteBusiness Consultant


MYER — THE IRON SHIP ENDURESWe likened Myer last year to an “iron-hulled sailing vessel” struggling to keep up with a turning tide. But in the space of 12 months, CEO Richard Umbers is proving to be the lifeline the department store needed to bring it up to speed.

After a year into the brand’s five-year transformational journey, customers seem to be getting on board and embracing the greater focus on customer service and training. Sales grew by almost 3 per cent to $3.2 bil-lion in FY16, while Q1 results for FY17 continue to improve with comparable store sales up 1.6 per cent.

Myer’s renewed strategy was launched in September 2015 - a $600 million investment to deliver four stra-tegic priorities: an optimised customer offer, experience-led destinations, a stronger omni-channel presence and a review of the store portfolio.

Competitor David Jones, two years after acquiring Woolworths, has consolidated its market position, recording profits of $168 million in FY16. The year was not without its tri-als, however. An unseasonably warm winter hit sales and left DJs with excess stock. The closure of the Dick Smith concession stores also hurt the top line.

With David Jones now in a strong financial position, Woolworths chief executive Ian Moir has announced further transformation plans and warned of an upcoming period of “substantial losses” as the brand looks to develop the “best top-end food business in Australia”, centered around the Elizabeth Street store in Sydney which will house a restaurant

by celebrity chef Neil Perry.We are cautiously optimistic about

Myer’s return to brand excellence and anticipate big things from David Jones’ foray into food.

TEMPLE & WEBSTER – WHAT GOES UP MUST COME DOWNWhen Temple & Webster, Australia’s largest furniture and homewares eCommerce site, made its IPO in De-cember 2015, its share price went only one way – down.

Just two months after listing, full-year revenue targets were downward-ly revised, and Temple & Webster’s share price was sitting 82.3 per cent lower than its listing price of $1.10 at just $0.195. By the time the reporting season for FY16 had wrapped up, the group reported losses including signif-icant write-downs of intangible assets acquired with the Milan Direct and

Zizo (previously Wayfair) purchases shortly before the IPO.

What went wrong? Some commen-tators believe the business model of selling items online that consumers typically want to touch and explore in store may not be sustainable. This scared off many investors. As well as that, the corporate structure was overweight and spending was out of control.

In a bid to turn things around, original co-founder Mark Coulter has returned to the business as CEO to lead the execution of a revised business plan, along with Mark Taylor as new CFO. The management team is confident it has rectified the issues that led to the massive cost blowouts and revenue shortfalls of last year, forecast-ing a return to profit by 2018.

Early signs for the first half of the current financial year show that sales have rebounded and some major cost-cutting has taken place. The com-

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pany is also considering a move into physical retail with the newly acquired Milan Direct Brand after some show-room testing last year.

Although the wind has well and truly been knocked from its sails, Temple & Webster has swallowed the bitter pill, acknowledged its missteps and appears fully focussed on a turn-around.

GODFREY’S GROUP – SOMETIMES RETAIL SUCKSTainted by downgraded earnings fore-casts and replacing a second CEO in 12 months, the board of Godfreys Group has recognised the need to restore the business.

The shock departure of Kathy Co-covski, who cited personal reasons for her resignation just five months after taking over the CEO role, raised signif-icant concerns. She had taken over at a time when the group’s trading per-formance was bogged down under the direction of former CEO and owner

Tom Krulis.John Hardy, a former CEO of the

group, has stepped back into the role to get the business back on track. His recent involvement with Fusion Retail, Barbeques Galore and Super A-mart plus his previous experience inside the business suggests he has the track record to lead a turnaround.

In FY16 sales flat-lined and net profit fell by 20 per cent to $9.2 million. The underperformance is linked to the brand’s failure to identify the market shift from barrel vacuum cleaners to stick vacuums, and keep up with changing consumer shopping behaviours.

The plan? Shift the business toward a franchise model and convert up to 60 corporate stores to franchise stores over a three-year period. Cash gener-ated from this restructure is expected to improve EBITDA and the balance sheet position of the group. Upon completion of the restructure, 62 per cent of the current store portfolio will be franchisee owned.

Results from this restructure are not expected in the near future, with

earnings guidance for FY17 NPAT between $6 million and $6.6 million.

It all sounds neat, but let’s not forget the electronics retailing heavyweight who has taken a liking to the whitegoods market and could be poised to further erode Godfrey’s already diminishing market share.

JB Hi-Fi – HOME APPLIANCE BOOM Everything but the kitchen sink - but they’ll sell that, too! JB Hi-Fi has continued its expansion into the home-appliance and white-goods market, now running 59 JB Hi-Fi Home Superstores.

This follows its $870 million acqui-sition of the white-goods giant The Good Guys in September – a strategic move to strengthen its presence in the home-appliance market and take on rival Harvey Norman.

While The Goods Guys continues as an individual brand with an execu-tive management team, the acquisition means the JB Group now has a greater market share than Harvey Norman.

The unfortunate demise of the iconic Dick Smith stores has also been a windfall gain for JB, and sharehold-ers continue to reap the benefits of continued growth and dividends, with total dividends in FY16 of 100 cents a share. Recorded sales growth of 8.3 per cent saw sales reach $3.95 billion in FY16, with net profit after tax of $152.2 million.

JB looks to be on a winning strategy in what is now almost a duopolis-tic market, and the only potential competitive upset could be a move from an international online or brick-and-mortar retailer into the domestic market. So watch out for Amazon – it


would likely be a game-changer in the Australian market.

ALDI – THE PRICE WARS CONTINUEAmid the duopoly of the supermarket price wars, Aldi remains the quiet achiever. With 444 stores nationwide, Aldi has spread to South Australia and Western Australia, and has plans to open further stores.

While it commands about 8 per cent of the supermarket market, its go-forward plan is to open 25 stores a year, aiming to hit 120 outlets in SA and WA.

With its low overhead structure and employee costs, Aldi continues to win the low-price race against the majors. But the race to the bottom must end somewhere as it becomes increasingly hard to source products at competitive prices locally. Also, the supermarket industry cannot escape criticism for forcing prices down and hurting Auss-ie farmers.

Again, Aldi’s success may be upset only by the entry of another interna-

tional low-price retailer such as Lidl or Kaufland (also German), plus there is the threatened entry of Amazon.

The traditional duopoly is coming to an end.

HARVEY NORMAN – A SHOW OF FORCEHarvey Norman’s FY16 financial results show that the brand can flex its muscles, with sales revenue and profits before tax increasing by 11 and 30.6 per cent respectively.

This success in an underwhelming environment has been credited to its integrated retail, franchise, property and digital strategy. Basically, along with a consolidating omni-channel of-fering, owning the property on which franchises operate allows Harvey Nor-man to chose a complementary tenant mix to increase traffic to stores.

Growth is expected to continue this year with seven stores set to open, and results remain strong. Expertise, service and products are at the top of its strategic priorities.

Harvey Norman has, however, been the subject of some negative media attention lately for the way it chooses to present its group financial accounts. The contested issue lies in the group’s Australian operations, where all stores are franchised. There is concern that the support for some franchisees is not traditional, lending an opaque view of the performance of individual franchisees.

One thing is certain: Harvey Nor-man and JB Hi-Fi are on a collision course and also face increasing com-petition from the local (Kogan) and international (Alibaba and Amazon) online players.

DOMINO’S – POWERING ON

Domino’s continues to show off its panache for technology and has deliv-ered strong financial results, reporting an EBITDA increase in FY16 of 23.6 per cent to $91.6 million.

Continued investment in digital technologies demonstrates the busi-ness’s innovative culture and desire to stay ahead of the game. Innovations lately have included:• The “more than just pizza” cam-

paign – Domino’s dropped “Pizza” from its name last year in an effort to be recognised as more than just that

• Project 3-10 – a trial around baking and delivery-time efficiencies (pizza ready to take away in three minutes or delivery in less than 10 minutes).

• Domino’s robotic unit – testing autonomous delivery methods such as drones and robots to deliver hot food and cold drinks directly to the customer’s door.Frankly, Domino’s doesn’t sound

like a fast-food chain.International growth also appears

to be on the agenda, with the acqui-sition of Germany’s largest pizza deliv-ery chain, 212 Joey’s Pizza, for $120 million early last year. In the mean-time, the brand continues to fend off take-away food-delivery services such as Deliveroo, Foodora and UberEats.

7-ELEVEN – FAIR SUCK OF THE SAUCE BOTTLEAt the forefront of a wage scandal, compliance failures left 7-Eleven red faced last year. The convenience-store chain that is a feature of many city street corners has been the subject of an investigation by the Fair Work Ombudsman into ongoing reports of underpaid wages. Since the investiga-tions started, $26 million in back pay has been repaid to past and present workers, with further claims still under review. Also, 7-Eleven has estab-lished a “wage repayment program” to help with any wage concerns and encourage claimants to come forward.

How could this happen? The fran-chisee model and poor store perfor-mance is blamed for creating cash-flow pressures for struggling franchisees, with employees being underpaid to cover costs. There are clear compli-ance failures in play here that have let down employees and tarnished the brand. Underpaid employees include international students who allegedly received threats of deportation should they report underpayment to the authorities.

In a bid to mitigate further repu-tational damage, 7-Eleven has estab-


lished a strategic reform program to ensure the franchisee model is in-dustry competitive, with franchisees’ profit share increasing and minimum profit guarantees in place. Technology initiatives have been introduced to record and monitor employee atten-dance records.

The wages scandal has been a major blow to 7-Eleven’s image, which is typically associated with quirky and fun promotions such as its infamous “BYO Slurpee Cup” day. It remains to be seen how much of a financial impact this will have.

DICK SMITH – THE END OF AN ERA In an unfortunate ending to an iconic Australian brand, the last Dick Smith Electronics store closed its doors for the final time on April 30 last year.

A trading halt in the first days of the New Year were troublesome signs for Dick Smith. As administrators and then receivers and managers were appointed over the group. Despite Dick Smith representing 9 per cent of the Australian consumer electronics market, the administrator’s report and subsequent public examinations suggested much deeper issues at play than simply a tough retail market.

The collapse has been linked to issues around corporate governance, inventory management, buying prac-tices/treatment of rebates, cash-flow constraints and restrictive supply arrangements.

KOGAN.COM – WHEN ONE DOOR CLOSES… When one door closes, another opens, it is said. Following Dick Smith’s demise, Kogan acquired its IP and online business and wasted no time in capitalising on the hole left in the market. Kogan launched a renewed site on May 4 and has leveraged a growing customer database to expand its market share and buying power.

By June 30, Kogan reported having more than 3.7 million active subscrib-ers, and after its IPO debut reported revenue exceeding its prospectus fore-casts by 5 per cent. Kogan is expecting to continue strong sales growth by building on its private-label offering and third-party domestic product divisions, which make up about 37 per cent of gross sales.

Success will ultimately come down to maintaining active subscribers and finding more while competing against any new entrants to the Australian

online market. Amazon remains a potential “great white shark”.

ALIBABA – PRODUCE ON OFFERAlibaba is seriously big, with online platforms that provide B2B, B2C and C2C commerce. It generated nearly $20 billion last year. To put this in per-spective, Forbes says Alibaba’s latest Singles Day, which is likened to Black Friday in the US, generated more sales than Brazil’s total projected eCom-merce sales for the entire year.

Reports suggest that Alibaba met with Austrade, the Australian gov-ernment trade commission, last year to talk about promoting Australian meat, dairy, seafood and other fresh food in the Chinese consumer market through its online trading platforms. What does this mean for Australia? Potentially, Alibaba is great news for Australian brands, opening online trading opportunities with more than 434 million online shoppers in China.

Expansion opportunities should further become available upon the signing of the Australia China Free Trade Agreement. No doubt many domestic producers are waiting with bated breath.

SURFSTITCH.COM – TREADING WATERLike many other retail IPOs of recent times, Surfstitch has fallen short of the mark, failing to meet its ambitious growth targets and floundering a $154.7 million loss for FY16.

Expenses shot up by 33 per cent in FY16, many of which were attributable to business acquisitions including online surf-forecasting site Magic Seaweed, Stab Magazine, adventure sports-film li-brary Garage Entertainment and online

surf shop Surf Hardware.The disastrous unwinding of the

business has been met with a degree of antagonism from major sharehold-ers. One, Crown Financial, which previously made a takeover bid of 20 cents a share), posed pointed questions to the Surfstitch board ahead of the AGM in a “please explain” moment.

At the time of writing, the way out for Surfstitch seemed unclear and the brand was in a stand-off with share-holders as it refuses to accept takeover bids, and shareholders have rejected the company’s remuneration report. The surf forecast looks choppy.

WOOLWORTHS – NOT THE MASTERS OF ITS DOMAINBrick by brick, Woolworths has unrav-elled its interests in the home-improve-ment industry with the Home Timber & Hardware Group sold off to Metcash early last year, followed by the Masters Home Improvement business closing its doors at the end of the year.

No surprises here though - as we predicted last year, Masters was unable to gain a competitive market share and produce the necessary profits to keep its local and overseas investors happy.

The realisation of inventory during the controlled closure of Masters is expected to recover proceeds well north of $500 million, but this will provide little compensation against the combined losses from discontin-ued operations, which exceeded $2038 million last year.

Woolworths finally emancipated itself from the ball and chain weigh-ing it down with promising results expected in the coming year, only to discover another one on the other foot – Big W.



TREND 1:FOOD RETAIL AND THE LAST MILE

Subject to significant disruption, the delivery of food is gaining a lot of in-terest in the media as well as traction from investors. And rightfully so.

Before the current saturation of delivery services, providing meals for consumers was the sole domain of suburban take-away shops. How quickly things can change. In the space of 12 months, multi-national companies such as Deliveroo, Foodora and Uber have all set their sights on capturing the imagination of Austra-lian “foodies”.

In Melbourne, Australia’s top foodie destination, hundreds of restaurants such as Jimmy Grants, Kong, Supernormal and even Gelato Messina have jumped on the food-de-livery bandwagon.

Restaurant and Catering Australia chief executive John Hart sums it up perfectly when he says consumers now have more sophisticated tastes and are seeking opportunities to enjoy restaurant-quality takeaways at their own convenience. This senti-ment is evidenced by a Menulog.com.au survey of 2000 Australians in which 51 per cent of respondents disliked eating out as it entails too much effort.

This is where the notion of the last mile comes into play. Simply put, the last mile is a term that describes the last leg of a product’s journey before it reaches its final destination. Typically, this leg is also fairly costly, accounting

for about 30 per cent of the total pur-chase costs. Therefore, to succeed in this market, businesses need to create platforms that will enhance the po-tential for economies of scale as well as being cost efficient and transparent with consumers. All these factors come with time and exposure within the marketplace, but if improvements in technology, such as digitisation, are slow or not user friendly, businesses may struggle to stay viable in this highly competitive environment.

Here are the four brands at the forefront of last-mile food delivery services in Australia.

UBEREATS – THE WEALTHY POSTER BOYAs described in last year’s Retail Outlook, Uber is the rock star of the show in this space. It has diversified beyond its core business of transpor-tation, with UberEats launching last April. No doubt this move was made possible by the large amounts of ven-ture capital funding at its disposal. This allowed Uber to offer promo-tional codes for free initial meals, or discounts based on user’s ability to refer contacts to the service. How-ever, Uber cannot shield users from the real costs of delivery forever, and in early November it attached a $5 fixed fee for each delivery in order to maintain margins. How this will be

received is yet to play out. However, a major advantage for

Uber is the ease of use of its smart-phone app. The interface is simple yet logical, and the real-time element is a game-changer that has kept custom-ers returning. In Richmond, Victoria, Hugh Hindle of Homeslice Pizza notes that he has had to hire more staff as “50 to 60” orders a day are attributed to UberEats clientele while other food-delivery services manage only about three or four orders a day.

DOMINO’S – TO INFINITY AND BEYONDSimilarly, it is not the first time the Domino’s pizza chain has been commended for its innovation in food retail. Its share price has risen by about 60 per cent over the past 12 months, and its store expansions and innovations should boost its value.

It is not new to the delivery scene, and is credited as being the first Australian pizza maker to offer home delivery, in 2005. Since then, CEO Don Meij and his team have been at the forefront of retail technology through programs such as the GPS Driver Tracker, which aims to give customers peace-of-mind over the whereabouts of their orders.

Meij constantly preaches about ef-ficiency, saying “time is the enemy of food”. He has made it his mission to create a model around reducing pe-

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riods of inactivity in order to deliver a superior product. A new service called On-Time Cooking means pizzas will start cooking only once the customer is en route to pick up their order.

Furthermore, the use of robotics is the expansion into the artificial intelli-gence space that Domino’s is longing for, and will feature heavily in its “transformative phase”. Drone delivery has also been trialled in New Zealand and will most likely be pitched toward more rural customers, if regulations allow for it. If successful, Domino’s will yet again be first to capitalise on this foray into aerial delivery.

Finally, with Project 3/10 (the ability to deliver in less than 10 minutes) to provide the “biggest long-term growth”, it seems like time will remain the focal point in any discussions re-garding innovation at Domino’s.

DELIVEROO, FOODO-RA – NEW KIDS ON THE BLOCK Both Deliveroo and Foodora are relatively new to the Australian market, and are at a smaller scale to UberEats, having a presence only in Brisbane, Melbourne and Sydney. Most noticeable are their couriers in their distinctive and bold turquoise or pink clothing as they race their bicycles through innercity streets. This creates public awareness and intrigue, and is in stark contrast to the autonomous nature of the average Uber driver. However, cycling is far more labour-intensive, demanding on the employee and time consuming, and if the order is not delivered promptly the result can be an unsatisfyingly cold meal.

Recognising this, Deliveroo is creating a niche in the market, deliver-ing to busy, time-poor city corporates. Through the use of their smartphone

app and the help of data analytics, Deliveroo gathered insights into topics such as popular lunch times and days. This approach has helped the company refine its service and ensure its resourc-es are used efficiently at peak times. It realised that people start ordering at midday, and that professionals in the financial and technology sectors make up around 40 per cent of their corpo-rate orders. “Deliveroo for Business” provides food options for busy profes-sionals around lunch or dinner time, or who want catering for client meetings.

Whereas Deliveroo was able to secure $275 million in its latest funding round, Foodora (meaning “food now”) is quite secretive with its management yet to reveal any revenues generated or details about its customer base. What is known is that as at March last year it had struck partnerships with about 700 selectively curated food retailers throughout Melbourne and Sydney. More recently, Foodora Australia chief executive Toon Gyssels has claimed not to be fazed by Uber’s arrival in the mar-ket, saying food delivery is “very differ-ent” to the transportation of people.

Ultimately, a commonality between Deliveroo and Foodora is the nega-tive publicity surrounding the wages of its employees, many of whom are university students. If this issue can be resolved, it would go a long way in forging positive loyalties from employ-ees and customers alike.

NEW MODELSWhere to from here? Economics 101 suggests that as markets become more competitive, prices will begin to ease as consumers, spoilt for choice, find it harder to distinguish one firm from the next. This offers opportunities for mar-ket leaders to branch out and develop ways to disrupt the market.

Firms competing in the last-mile food-delivery market may extend their services to delivering freight such as parcels and even pharmaceuticals. Uber has already introduced UberRush in Manhattan, New York City. Messen-gers pick up parcels and deliver them promptly for a base fare of $3 plus $4 a mile (1.6 km). As messengers are on bike or foot, parcels can weigh no more than 30 pounds (13.6 kg). Listed as prohibited items are animals, alcohol, fragile and expensive items, and dan-gerous and stolen goods.

Last-mile freight companies such as DHL, Fastway and Startrack are all successful in the market as they focus on goods that would typically be delivered overnight or within a few days. They do not deliver on bikes. However, if Uber can find a way to deliver large parcels on a same-day basis, there is a huge op-portunity to reinvent the last-mile game.

A McKinsey & Company survey on the future of last mile, published in September, says it would be unwise to neglect the same-day delivery segment as “27 per cent of respondents claim they prefer not to buy items online because of long delivery times”. They note that fast delivery is relevant for products such as groceries and med-ication. As Australia is considered an aging population, delivering medica-tions to the elderly may present a new opportunity that may prove profitable in the not-too-distant future.

However, before companies can move ahead of the pack, it is crucial their strategy suits the environment as well as plays to their brand strengths. All this will ensure that the future of last-mile delivery services remains un-predictable as incumbents, eCommerce players and dynamic start-ups all fight to influence and capture consumer preferences for fast delivery.

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Across virtually every retail seg-ment, online retailing has materially disrupted the activities of tradition-al bricks-and-mortar outlets. NAB data shows that in the 12 months to September, Australians spent an es-timated $20.8 billion on online retail (including groceries, which represent around 17 per cent of online spend-ing). This was an 18 per cent increase on the previous year. This level is equivalent to around 7 per cent of spending at traditional retailers, or 5.8 per cent excluding grocery spending.

But these statistics can be mis-leading. On a category analysis, we often see a much higher proportion of online sales to store sales. Our advice: ignore online at your peril.

The strength of online retail well and truly shone through on Black Friday in the US. According to data collected by Adobe, online sales on the day reached US$3.34 billion - a whopping 21.6 per cent growth year on year. The importance of online to any retail model is no longer a secret.

Lately we have seen a raft of pure-play eCommerce businesses emerge. Helped by the emergence of social media (Facebook, Instagram, Snap-chat, Twitter and YouTube), smaller players and start-ups are using the low barriers to entry associated with eCommerce to propel their innovative ideas to the world. Here are the sto-ries of a few Australian eCommerce pure-play disruptors.

STYLERUNNERStylerunner is an online store offering high-fashion activewear for women. It aims to set a new standard for workout style across the globe. The business was founded in late 2012 by Sydney sisters Julie and Sali Stevanja after they identified a lack of choice and variety of activewear for women in one place.

Four years later, the business boasts an annual turnover of around $10 million. Social media has un-doubtedly helped Stylerunner in its rapid rise to success, with the compa-ny racking up more than 500,000 fol-lowers on Instagram alone. Interest-ingly, Stylerunner has partnered with fellow online disruptor Mon Purse to open a concept store, Stylerunner Lit, in the form of a pop-up in the Sydney suburb of Paddington.

FRANK BODYSimilarly, Frank Body has harnessed the power of online to become a $20 million-a-year business in only three years. The three founders - Bree John-son, Erika Geraerts and Jess Hatzis - began their business with a strategy to be “open, honest and direct with the customers: to be ‘Frank’”.

Leveraging organic conversations through social media from the outset, Frank Body now sells a packet of its coffee-grind body scrub every 40 sec-onds, with about 150,000 tags of users applying the product.

MON PURSEIn 2014, Mon Purse founder Lana Hopkins saw a gap in the luxury leather bag market. Wanting to create a custom bag from premium mate-rials, she realised she was not alone in her pursuit for personalised bags. Since launching online in September 2014, the company has grown sub-stantially and now expects a turnover exceeding $10 million.

Expanding into physical retail, Mon Purse has opened a boutique in Sydney as well as concessions in Myer stores nationwide. While no longer a pure-play eCommerce retailer, more than half its sales continue to come from online.

SHOES OF PREYFounded in 2009 by Jodie Fox, Mi-chael Fox and Mike Knapp, Shoes of Prey was the world’s first website where women could design their own shoes. It is now a multi-million-dollar international business. Following its success online, Shoes of Prey made an attempt to get “phy-gital” (physical digital) in late 2014, opening some standalone stores as well as conces-sions in David Jones in Australia and

Nordstrom in the US.While the move into physical

retail made sense from a strategic perspective (enabling customers to touch, feel and experience the brand and its products), the execution was flawed. The company decided late last year to discontinue its brick-and-mortar stores and return to its roots as a pure-play online offering. Despite the store closures and resul-tant loss of sales, the company says its total group sales continue to grow month on month.

So what does this all mean? Pure-play online retailers are nimble and innovative. They have an unwavering ability to exploit niches that larger retailers cannot service. There is no question that when it comes to retail business models, the structural barri-ers are coming down and everyone is empowered to disrupt. Anyone with a great product or idea has access to the online marketplace, and can leverage the power of social media overnight to build a customer community that once would have taken traditional brands years to achieve.

However, despite the prevalence of online retail, the predicted death of physical stores has not materialised. In fact, the growing consensus is that online and physical retail are com-plementary rather than competing strategies. According to a Common-wealth Bank Retail Insights Report, 18 per cent of online-only retailers are planning to establish a physical outlet in the year ahead.

Online retailers such as Mon Purse and Shoes of Prey have tried to make the move from clicks to bricks, and with the right strategy and execution this can add value to the consumer and brand alike. While eCommerce offers great convenience, it is physical stores that support brand engagement and the customer experience.

TREND 2: PUREPLAY DISRUPTORS

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"However, despite the prevalence of online retail, the predicted death of physical stores has not materialised."


Australian retail has experienced exponential growth through online channels over the past five years, with an estimated $20.1 billion of online spending last year, according to NAB. Online sales growth still vastly outpac-es physical retail.

Online retailing in Australia has largely been spurred on by the growing use of online media (music, movies, e-books), which had a 16.5 per cent share of total online spending and grew 23.3 per cent year-on-year as at June last. In the subscription media market, last year saw subscription video on-demand customers outnum-ber traditional pay TV subscribers for the first time in Australia. Research by Roy Morgan shows no slowing of this meteoric growth.

TRENDS IN ONLINE AND OMNI-CHANNEL RETAILThe explosive impact of food-delivery platforms such as Deliveroo, Foodora Menulog and UberEats have boosted online spend on food by 56.1 per cent year-on-year as at the end of June last year. We attribute the spectacular success of the last-mile food deliv-ery industry to creative promotional schemes, including Deliveroo’s Qantas Frequent Flyer points offering and UberEats’ thoughtful free delivery of smashed avocado on toast for millen-nials.

Traditional fast-food chain Domino’s

still controls a significant portion of the food-delivery market because of its pre-emptive adoption of a standardised online ordering platform complete with GPS tracking of individual drivers along with the ability to view their per-sonal biography including their favou-rite song and sports team. Similar to its younger competitors, Domino’s has taken big strides to remain relevant in a

technologically focussed world, such as completing the first pizza delivery by drone in New Zealand.

Despite this impressive growth, Australian retailers are significantly lagging behind the rest of the world in adapting to omni-channel sales, and online retail sales are still only mar-ginal compared to those of traditional bricks-and-mortar store sales.

TREND 3: ONLINE VS BRICKS-AND-MORTAR

Graph : Potential impact on sales from Amazon's entrySource: Citi research estimates

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-5.5%

-1.7% -2%

-1.5%

0%

Harvey NormanJB Hi-Fi Myer

Premier Investments RCGSuper Retail

-3.9% -4%


Analysis by Citibank suggests Australia’s 10 largest retailers derive not quite 6 per cent of all sales from online channels, whereas that number is almost double at 11 per cent in the US. The possible entry of Amazon into Australia may be the catalyst that brings our eCommerce economy up to international benchmarks.

We expect retailers in all sectors to invest heavily in securing their marketing channels as they try to fend off the American heavyweight, which is expected to undercut prices through cost efficiencies.

A notable example of excellence in online retail is Best Buy, which executed an impressive turnaround in 2012 at a time when the company faced immense competition from online disruptors, mainly Amazon.

Best Buy CEO Hubert Joly can be credited with stopping the bleeding at Best Buy through tough restructuring decisions including redundancies, closing stores and divesting foreign out-lets. Best Buy also developed its online presence, where sales are growing at 24 per cent year-on-year.

Australia’s largest department stores, David Jones and Myer, have both made the strengthening of their om-ni-channel propositions a core aspect of corporate strategy. However, they lag far behind international peers in terms of online penetration.

At a point in time when online retail channels continue to demonstrate exponential volume growth despite discouraging local GDP growth, David Jones’ and Myer’s online adoption is a crucial plank to their future success. Best-practice department stores such as Nordstrom’s (US) and John Lewis (UK) have embraced the convergence of physical and digital retail completely. DJs and Myer both know the interna-tional benchmarks have been set, and in a market where Amazon will make

the playing field even more competitive, they need to be at the top of their game.

BLACK FRIDAY, CYBER MONDAY Major US retailers broke from tradition during the silly retail season last year, offering most in-store deals online. JC Penny, Kohl's, Staples, Target, Walmart and many others announced that on-line deals would start early, and that all Black Friday deals would be available online as well as in store. Most stores even offered free delivery.

This was a game-changer – data from a National Retail Federation consumer survey found that online consumers last year surpassed in-store consumers for the first time by number during the US holiday period.

Adobe Digital Insights says Black Friday eCommerce sales grew 21.6 per cent year-on-year to US$3.34 billion, while Cyber Monday sales grew 12.1 per cent to US$3.45 billion. In compar-ison, total US retail sales increased 3.6 per cent year-on-year.

Mobile sales generated $1.2 billion in sales on Black Friday, surpassing the US$1 billion mark for the first time. Further, ChannelAdvisor reported that smartphones accounted for nearly 70 per cent of all Thanksgiving Day traffic online. The strong growth in the eCommerce sector and the enormous shift in consumer behaviour in the US toward mobile eCommerce is a warning bell for Australian brick-and-mortar retailers.

SINGLES DAYSingles Day in China was a holiday launched in 1993, derived from the student practice of “singles” buying each other gifts. Fast forward to the 2000s, and Alibaba, China’s response to Amazon, has commercialised the

event to become the largest eCom-merce trading day in the world. Aliba-ba had the equivalent of US$17.8 billion in sales during Single’s Day last year, marking a 32 per cent increase from the previous record, set in 2015.

Cyber Monday, the largest retail trading day in the US with a turnover of US$3.45 billion, is eclipsed by the volume and propensity of eCommerce transactions and digital uptake in China.

eMarketer and KPMG research sug-gests that more than half of last year’s eCommerce sales in China were made via smartphone, and surveys suggest that more than 90 per cent of Chinese consumers have used a smartphone to make a purchase in the past 12 months, again eclipsing the UK (75 per cent), US (74 per cent) and the global average (70 per cent). KPMG expects that 24 per cent of all Chinese retail sales will be processed by smartphones by 2019.

The rise of eCommerce in Chi-na can be attributed not only to the increased affordability and accessi-bility of smartphones and technol-ogy generally, but also to China’s booming middle class. McKinsey & Co. expects the upper middle class to continue to grow and become the main demographic of the country. The online behaviour of this demographic reveals itself through some interesting trends, such as Australian products including multivitamins and cereal selling in masses and at premium prices through Chinese grey markets, where local shoppers ship the items to consumers in China.

When set against the world stage, Australian eCommerce remains relatively small despite strong growth. We believe the entry of international online mass retailers such as Ama-zon will accelerate the pace as well as further shake up the domestic retail landscape.

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US retailer Everlane is changing the game on price and product transpar-ency. This six-year-old retail business is rapidly becoming the epitome of a new age of retailers winning the hearts of customers with its offering of high-quality affordable clothes, savvy online channels, socially responsible values, and a level of price transparen-cy that is truly a “wow” moment.

Founded in 2010, Everlane sells men’s and women’s modern clothing basics and boasts “radical transparen-cy” to customers through its mantra “Know your factories. Know your costs. Always ask why”.

This mantra has made Everlane famous and a potential retail star. Ever-lane’s team of employees cut their teeth at places like American Apparel, Gap,

Goldman Sachs, Google and Marc Ja-cobs. They are pushing boundaries and challenging retail conventions. Founder Michael Preysman has envisioned Everlane as “the look of Céline and the ethics of Patagonia”.

For each of Everlane’s stocked items of sweaters, t-shirts, pants, coats, shoes and bags, customers can view the production costs broken down by materials, hardware, labour, duties and transport. The Everlane retail price (production cost plus mark-up) is also compared to the retail price of a “tradi-tional retailer”.

A great example of this transpar-ency in action was a recent move to reduce the price of cashmere products when the price of raw fibres dropped. A cashmere sweater that cost US$125 in

November 2012 now costs US$100. The brand’s response was applauded by customers, who are developing a strong affinity for its honesty.

Everlane has also broken traditional retail conventions with the openness in which it talks about its factories. Details such as location, owner, products made, materials used and employee condi-tions are shared online and made vis-ible through photos of the factory and staff in action. Many retailers source ethical factories, but few broadcast the importance and integrity like Everlane.

Everlane is not alone in this move-ment of digital-first, high-quality, socially responsible retailers. DSTLD, a Los Angeles-based denim brand, pro-motes its “moral fibre” as not having sweat shops, and offering eco-friendly fabrics and ethical pricing. For each item, it also shows the retail price next to what a designer brand might charge. Again, the focus is on clothing staples, not passing trends.

Can this transparent and socially re-sponsible approach result in sustainable profitability? DSTLD and Everlane are connecting brilliantly with customers by building trust and brand integrity through a whole new level of trans-parency. Both brands have built their business based on inherent beliefs of product quality, social good and brand honesty. They reflect a structural shift in which informed customers, largely driven by millennials, want to know where their product is coming from and what the actual cost is.

According to a report from Nielsen (2015):• 66 per cent of global consumers say

they are willing to pay more for sustainable brands – up 55 per cent from the previous year

• 73 per cent of global millennials are willing to pay extra for sustainable offerings – up from 50 per cent.We believe the focus on transparen-

cy and social responsibility by retailers will translate to sustainable profitabil-ity, provided the DNA of each brand remains true to its business model. What DSTLD and Everlane are doing is driving a shift in customer expec-tations to a new norm. For traditional retailers, it is now a matter of how will they respond, especially where millen-nials are involved.

TREND 4: PRICE TRANSPARENCY – A GAME-CHANGER

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There is immense competitive pressure from pure-play online and fast-fashion retailers like H&M, Uniqlo and Zara that have effectively done away with the traditional “four-season” apparel calendar by introducing weekly cloth-ing drops in stores. These competitive forces have proven too strong for the likes of Abercrombie & Finch, Amer-ican Apparel, Quicksilver, Sports Au-thority and The Gap in the US, which have all resorted to filing for bankrupt-cy protection.

Unfortunately, US teen apparel retailer Aeropostale found itself in the same circumstance in May, filing for Chapter 11 protection under the US bankruptcy provisions. However, its story differs in the way in which it is set to emerge from Chapter 11 - as a refined and restructured ongoing business owned by shopping cen-tre landlords. This successful, albeit unusual, restructuring of Aeropostale potentially sets a precedent for the future of retail restructuring in the US, and perhaps even Australia.

A company that files for Chapter 11 bankruptcy protection and retains the power to run and restructure a business is known as a “debtor in possession” (DIP). In the US, filing for bankruptcy protection is a voluntary process. While it is not a viable long-term solution, it does give a business time to restructure, for example, focus-sing on becoming a leaner entity with a smaller base of profitable stores and a reduced cost base.

The DIP process is loosely compa-rable to a Voluntary Administration (VA) in Australia. However, the marked difference relates to the powers of com-pany directors. In Australia, directors’ powers stop when voluntary admin-istrators are appointed, and a formal corporate restructure is typically com-pleted by a professional who is wholly responsible for reorganising and/or reducing operations.

In Chapter 11 (DIP), directors retain the power to continue running the business. For Aeropostale, the direc-tors continued running the business while it was restructured and sold as a going concern. The unlikely saviours of Aeropostale were their major landlords, Simon Property Group and General Growth Properties, along with brand

curators Authentic Brands Group and stock liquidators Gordon Brothers Retail Partners and Hilco Merchant Re-sources. The consortium’s 11th-hour bid of US$243 million in August - almost four months after Aeropostale filed for protection - saved the retailer from likely liquidation.

The reason this restructure should be considered momentous is that it represents a significant shift in approach by major retail landlords on an international stage. In a liquidation scenario, retail landlords are usually a large unsecured creditor, exposed to outstanding pre-appointment rent, lost future rental income and costs associ-ated with de-fitting and re-letting the vacant premises.

Simon Property Group held leases for 160 Aeropostale stores at the time of the bankruptcy filing. Had these stores closed, there was clear scope for lost revenue stream for Simon, which had already been impacted by Macy’s

announcement that it was closing 100 outlets within its portfolio.

Attracting and keeping long-term tenants is proving crucial for retail landlords in a market where digital disruption and online sales represent the new norm. As retailers feel the pressure of the growing preference by consumers for eCommerce, landlords are as equally burdened as retailers are forced to question and reconsider their physical footprint and the experience offered to the consumer.

Right-sizing Aeropostale’s store footprint has been a crucial component in the brand’s restructure. Of its 800 stores at the time of the bankruptcy filing, at least 229 are being retained, and its eCommerce business expanded. Ultimately, thousands of jobs will be saved. Aeropostale’s restructure shows that key stakeholders can work togeth-er to save a distressed retailer when their interests are aligned.

TREND 5: RESTRUCTURING CASE STUDY: AEROPOSTALE

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The gears have shifted in Australia’s economy, with the slow and steady bust of the mining boom weighing heavily on the western states, while the highs of Aus-tralia’s housing and construction boom continue to keep the east coast afloat.

Historically low interest rates support the economy as a whole, yet consumer and business confidence remains low. Retail spending has stayed moderate yet stable, impacted by the di-chotomy of low interest rates and slow wages growth. As the Australian econ-omy remains sluggish, the expectation is that the retail sector will not improve in the short term, with the longer-term outlook being uncertain.

EXCHANGE RATESAt the time of writing, the Australian dollar was sitting around 75 cents US. This is a relatively high exchange rate given the headwinds potentially facing the Australian economy.

The anticipated effects of China’s debt problems, the need for the US Reserve to raise interest rates and the likelihood that commodities prices could drop on the back of this all points to a potentially tough time for the AUD going forward. Long-term risks to the currency seem to be to the downside.

A weakening of the AUD will place added pressure on retailers - especial-

ly those unable to pass on the rising costs of imported goods to consumers - and profit margins will be squeezed. However, a depreciating AUD has the potential to boost domestic online sales as international online products become relatively more expensive.

HOUSING MARKETIt comes as no surprise that Australia’s average house price has increased over the past year, according to data from the ABS (from $604,700 in 2015 to $623,000 last year). However, the housing market is running at different speeds around the nation. Major cities along the east coast are in a period of unprecedented growth. Conversely, the north and west-ern states have had a downturn in prices as the benefits of the mining boom start to taper. For example, the average price in Western Australian has fallen from $583,500 in 2015 to $546,200 last year. While housing is expensive, the cost of money is still cheap, keeping consump-tion afloat.

CONSUMER CONFI-DENCE AND SPENDINGRetail spending was around $299 billion in the year to the end of September, representing a 2.8 per cent rise on the preceding year. Despite the pickup, the growth in retail sales is relatively lack-

lustre when viewed historically, and has been in decline since mid-2014.

While interest rates are at record lows, consumers continue to be impacted by some of the lowest levels of wages growth in recent times, even though unemployment continues to ease. Adding to wages pressure has been continued domestic and global economic uncertainty, particularly in the past 12 months surrounding the federal government election last year and then the US election.

UNEMPLOYMENTAustralia’s unemployment rate fell from 6.1 per cent in 2015 to 5.6 per cent last year (seasonally adjusted). A healthy level of unemployment means more dol-lars in consumers’ pockets and stronger sales for retailers. Notwithstanding this, underemployment has risen, meaning that of the people who have recently found work, many would like to work more hours than what is available to them. This indicates the economy is still operating below capacity to some extent.

The bottom line is that Australia’s retail environment is relatively benign. Conditions for retailers are likely to remain tough as the steady stream of international pure-play eCommerce (Amazon) and brick-and-mortar retailers continues to broaden.

UNCERTAIN TIMESNo improvement is in sight yet for the retail sector as the gears shift in a sluggish Australian economy.

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EXPERT FORECAST


The ability of machines to learn, just as humans do, is not new. In fact, we are exposed to machine learning regularly, albeit in its most fundamen-tal and basic forms - when Facebook suggests people you may know, when Google Mail places spam in the appropriate folder, when Siri responds to queries, and when our phone au-to-completes words as we type.

All of these examples provide some utility, but we have really only scratched the surface of what intelligent machines can do. Consider a scenario where you are on your way to work when you receive a message on your phone from your fridge at home advising that you are likely to use the last of your milk tomorrow, “and cereal is on sale for $3.19 - would you like to pick up an order from Coles near work for a total of $4.19?”. You simply reply “yes”, and the order is ready for you to pick up on the way to the train station.

We are entering the era of “predictive commerce”. In retail, this involves inspiring consumers in different contexts before, during and after a purchase. Your smart device recognises that it is your mum’s birthday tomorrow, based on your calendar entry and validated by data from your contacts list, and suggests it makes an order for her favourite flowers.

Fingerprint recognition (biometric

sensors) as a phone login can further recognise that you have just been to the gym and suggests you buy an isotonic drink on the way home, based on its reading of your hydration levels. These context-specific recommendations are time sensitive and based on your specific situation.

BETTER DEALSMany successful retailers are now leveraging customer analytics or customer-identified purchase data, demographic information and other attributes to power customer-centric initiatives. There is no longer a question mark surrounding the benefit of these programs. Retailers like Medibank, Myer, Wesfarmers, Woolworth’s (owner of the Country Road Group and David Jones) and Uniqlo, as well as most of our major banks, are using fresh data-driven customer insights to deliver better deals.

With traditional advanced analytics, humans create mathematical models based on statistics and an understanding of how things work. These let us predict how customers will behave in response to changes in price, product assortment, marketing stimulus and individual offers or deals.

Machine learning takes things to the next level — it is customer analytics on steroids. But whereas humans can develop one or two

models a week, machine learning can create thousands in the same time period, allowing for an even greater capability to deliver more accurate and reliable views of the future.

DEEPER UNDERSTANDINGThe iterative aspect of machine learning is important, but the turning point with machine learning is the ability of computers to independently adapt as predictive models are exposed to new data. Machines can learn from previous computations to produce reliable, repeatable decisions and results more accurately and more quickly than previously possible. Today’s machine learning abilities deliver gains in the form of providing a deeper understanding of every individual customer over time, without being explicitly programmed or instructed to do so.

Large online retailers such as Alibaba and Amazon are recognised for carrying inventory with “endless aisles”, but in truth this is not really the case. These businesses use machine learning to scour millions of web pages and billions of customer interactions to deliver to an individual customer a shortlist of items and pages.

But what does this all mean for retailers? This predictive technology converts your aggregated customer base of millions into a virtual world of “one”. It is as though you have only

DELIVERING THE ‘MAGIC’Intelligent machines are ushering in the era of “predictive commerce”, which will put retailers one step ahead of their customers — but in a beneficial way for all concerned. It is something retailers need to embrace.

EXPERT FORECAST

Dr. Ian ThoExecutive director, Analytics


Retail has undergone a major trans-formation since the introduction of the smartphone. Online and digital disruption has shifted power from the retailer to the customer.

Roy Morgan research finds that in the financial year to June 2015, 16.5 million Australians (85 per cent) shopped at one or more shopping centres in an average four-week period. Chadstone in Victoria was the top destination, with 396,000 Austra-lians a month dropping dollars there, just ahead of Westfield Parramatta in New South Wales with 385,000.

Also making the top five shopping centres by their average four-week customer volume were Melbourne Central (307,000), Westfield Cherm-side in Brisbane (303,000) and − just 15km north of Chadstone − Westfield Doncaster (290,000).

While some people proclaim physical retail is dead, these figures show it is still alive and well. In fact, retailers who have embraced the dig-ital world are actually growing sales in amid all this doom and gloom. Great examples are John Lewis in the UK, Apple in the US and Smiggle in Australia.

How can shopping centres re-spond to the changing behaviour of the connected consumer in this digi-tal age? That question is perhaps best answered by firstly examining the shopping centres of the future now being built before considering how further technology may change the shopping centre model. Chadstone Shopping Centre, Sydney Central Park Mall and Westfield World Trade Centre in the US are great examples. Chadstone has been redeveloped several times over to adapt and keep ahead of the constantly changing and increasingly complex needs of its con-sumers; Sydney Central represents a new way of blending the retail ex-perience with the modern consumer lifestyle; and Westfield demonstrates leading-edge design.

WESTFIELD WORLD TRADE CENTRE Opened in August, the US$1.4 billion Westfield World Trade Centre was developed by Australian-listed shop-ping-centre heavyweight Westfield and is set to create a whole new standard for retail in New York City. It is inside the Oculus, a $4 billion

one customer, and you know them very well. Targeting is achieved at a true “segment-of-one” level – that is, the individual customer – by leveraging massive amounts of purchase data, calculated brand loyalty, discount propensity, purchase frequency and categorical trends to suggest the right promotion to the right customer at the right time.

These AI (artificial intelligence) platforms make use of machine learning to automatically “learn” from each promotion sent to a customer, and use that learning in the next iteration. Marketing powered by AI or machine learning is poised to disrupt decades of mass promotion and shopper marketing initiatives as systems gain innate intelligence to power strategic personalisation around pricing and promotional offerings.

MERCHANDISING IMPLICATIONSThere are also potential implications for retail merchandising. The opportunities for optimum product assortments delivers an ability, at every store, to reduce out-of-stocks, increase sales and deliver an improved in-store experience. Analytics on a model-by-model basis can now be done by machines – machines that not only ingest all existing customer intelligence (segments, buying habits, discounting propensities) the retailer may have, but also factors based on extensive knowledge of in-store and out-of-store promotional activity to optimise product assortment within each store. Further, inexpensive cloud-based technology means this is no longer the realm of only the largest retailers with significant marketing spend.

Does it all sound too intrusive? Many of us are inclined to only share our personal information for experiences that are magical and valuable, provided we know our information is respected and managed appropriately. The ability to deliver this “magic” has arrived. Retailers need to create experiences that make this magic and value apparent to customers. As shoppers expect faster and more intelligent service, and as expectations shift from on-demand to predictive commerce, retailers failing to embrace this will inevitably fall behind.

LOOKING INTO THE FUTUREShopping centres will need to embrace new technology, adapt to consumer behaviour and differentiate in order to survive and thrive.

EXPERT FORECAST

James Stewart Denis CarruthersAzurium Azurium


space-age transportation hub in lower Manhattan. Designed by Spanish ar-chitect Santiago Calatrava to resemble a winged dove, the site is dominated by a 48.7m-high superstructure that has been likened to anything from a stegosaurus to the rib cage of a giant beast.

The 111,252m concourse of dining and shopping spaces features more than 100 global brands and is expected to see footfall from 60,000 residents and 300,000 commuters each day, generating annual revenues of $US1 billion. The stark white interior of the mall is accented with giant media panels displaying signs, information and advertising for retail tenants.

Interestingly, rather than a tra-ditional flagship department store, Westfield chose Eataly as its anchor tenant, an Italian cafe and food mar-ketplace offering quality small goods and fresh produce along with a full restaurant experience. The idea is to appeal to time-poor commuters who can grab a tasty meal on the go.

CHADSTONE SHOPPING CENTRE In the south-eastern Melbourne sub-urb of Malvern East, Chadstone Shop-ping Centre has just had a $660 mil-lion expansion by the Gandel Group and Vicinity. Housing 600 retailers in a 200,000 sqm area, Chadstone has become the largest shopping centre in Australia.

The expansion is accentuated by a 31m-high glass atrium, with the centre welcoming 60 new retailers in-cluding international retailers H&M, Sephora and Uniqlo. The staged opening will also see a Legoland amusement centre come on line soon. As well as the extension, there are plans for an on-site hotel which could be completed as early as 2020. A new Dining Terrace offers tailored dining experiences and features such eater-ies as Fonda Mexican and Neil Perry’s Burger Project.

Showing it is intent on delivering a modern shopping experience, the centre has extended its shopping

hours (to 9pm on Saturday and 7pm on Sunday) and has even been experi-menting with robotic cleaners.

What both these shopping centre developments share is a desire to make physical retail more experien-tial for the consumer. Indeed, Chad-stone aims to become the “experience capital”. The goal for shopping centre owners is to increase the frequency of visits and dwell time once a cus-tomer enters their centre. This is no small feat at a time when the average consumer is time poor and is moving increasingly to online shopping.

Westfield New York and Chad-stone both hope to counter this trend by offering what online retail cannot – a physically engaging experience. This is demonstrated by the deliber-ate choice by both centres to incor-porate experiential food offerings. Taking things one step further, West-field has deployed guides armed with tablet computers who can direct and help visitors throughout the complex – a special touch that personalises the shopping experience.

SYDNEY CENTRAL PARK MALLNew retail environments are not limited to shopping centres alone. Open-air retail precincts or hubs are becoming more popular, particularly in high-density metropolitan areas where space for shopping centres is limited. Sydney’s new Central Park Mall, in the eco-friendly Central Park development south of the Sydney CBD, is a case in point. The multi-lev-el “vertical mall” is an architectural marvel, open to the elements and combining retail, dining, technology and performance spaces. One of the main features is super-sized interac-tive digital wall, created by lighting designer Bruce Ramus. Other interac-tive features include gallery spaces, workspaces for visual artists, events spaces and performance spaces.

Each of these centres can be considered successful in offering something new to the shopper that goes beyond the traditional mall or

shopping centre. But in a world of rapid change, what comes next?

SHOPPING CENTRES OF THE FUTURETo look to the future, let’s start with the past: a shopping centre was traditionally a complex of shops that was a hub of activity and social life. It served a logistical purpose to bring people to one place. Now, centres are a complex of shops, with food anchors often replacing department stores, plus transport hubs, accommodation offerings and theme parks. They still serve a logistical purpose, but now compete by offering new channels to purchase and new places to enjoy.

Moving to the future, shopping centres will be impacted by disrup-tive forces like every other industry. They will need to adapt and evolve to remain desired destinations, and retail will become only a part of a multi-purpose, multi-activity space.

Business model innovation will be key for centre owners, but success will also rely on a trait that has never changed: every shopping centre needs to stand for something - it's unique selling proposition needs to be clearly understood by customers in its main and secondary trade areas.

"The future mix of a shopping centre is a combination of retail,

social, work, transport and leisure spaces. This is already happening,

but will be accelerated."

EXPERT FORECAST


THE FUTURE RETAIL TENANT As the role of the physical store shifts to a multi-use hub, retailers and retail property owners are being forced to re-examine the financial sustain-ability of physical stores. The retail store of the future will be a delivery hub that acts as a fulfilment centre, a service hub with advisors rather than sales people, a showroom to deliver the brand experience and a commer-cial hub that acts as an endless aisle where customers can buy items not available in-store.

As more stores become experimen-tal centres, there will be a shift from ownership to access. Pop-up shops have taught companies that they do not always need to invest capital in stores.

“The most valuable customers of the future will be the ones who shop in stores and online, and this is where shopping centres, with a blend of leisure, retail and lifestyle, have an advantage over many high streets or traditional retail parks,” says Nielsen UK head of retailer and business insight Mike Watkins.

Shopping centres will provide visitor intelligence through real-time footfall analytics and insights to tenants that can be used for deci-sion making and to drive traffic. As

centres become a blend of the digital and physical world, their business model will need to change. Retailers and centre management will need a joint physical and digital revenue model or derive some form of charge for data services provided, such as intelligence about visitors.

A MULTI-PURPOSE SPACE OF EVERYTHINGThe future mix of a centre is a combination of retail, social, work, transport and leisure spaces. This is already happening, but will be accelerated.

Along with technology use, cen-tres must embrace modern consumer living. This includes building a sense of experience, convenience for the ev-er-busy consumer at transport nodes (for example, London Heathrow’s T5 or Westfield World Trade Centre) and blurring the boundaries between retail and leisure activities (work/life balance).

Centre owners will also become more selective about the tenants they choose in order to achieve the right mix. This is where poor-performing centres will struggle as they will not be able to be selective with their tenants and offer quality.

CHALLENGING LEGACY INFRASTRUCTURETechnologies such as drones, driv-erless cars, artificial intelligence, virtual and augmented reality, the internet of things and 3D printing are undergoing exponential growth. That is, growth whose rate becomes ever more rapid in proportion to the growing total number or size. These technologies will challenge legacy in-frastructure such as shopping centres like never before.

It is not known what the impact will be, but it has the potential to be profound. For example, when driverless cars and drones eventually reach mass adoption - likely sooner than we think - car parks will need to be replaced by charging stations or drop-off/pick-up zones. This is a huge change for shopping cen-tres where car parks account for a significant portion of land space and infrastructure.

Another example is 3D printing – potentially the next wave of online shopping that will see consumers printing goods at home rather than buying in-store. To fight back, stores and shopping centres will likely focus on last-mile manufacturing that allows hyper-customisation of prod-ucts through advanced 3D printers. This could be a click-and-collect style adaptation.

These technologies will challenge business models. As a result, centres and their tenants need to be aware of these changes so they can adapt, especially given their disadvantage of slow-moving legacy infrastructure.

ADAPT, EVOLVE, SURVIVEThe future of a shopping centre is an entirely different experience, one that constantly changes to keep people returning, one that is a hub for move-ment, a one-stop shop for everything, a blend of the physical and digital worlds.

However, this transformation could be hard for many traditional shopping centres because of profit dilution of their business model, capital-intensive legacy infrastruc-ture and exponential growth of technology advancing the speed of change.

We believe that shopping centres that embrace new technology, adapt to consumer behaviour and differen-tiate will survive and thrive. These centres will be loved by customers and remain a destination for many years to come.

EXPERT FORECAST


The lifespan of large companies is becoming shorter and shorter. A study by Innosight has found that the 33-year average tenure of companies listed on the S&P 500 in the US in 1965 narrowed to 20 years in 1990, and is forecast to shrink to 14 years by 2026.

As we all know, the speed of change in the retail industry – driven primar-ily by technology, digitisation and the changing behaviour of tech-savvy consumers – is accelerating at a rate never before seen. Some retailers have adapted, and are winning by quickly pivoting their strategy to deal with potentially disruptive threats.

Best Buy in the US, for example, has seen its share price rise 60 per cent this year on the back its successful turn-around strategy, “Renew Blue”. Forbes says the company’s gross margins fell from 25 to 22 per cent between 2011

and 2014. During a period of low eco-nomic activity and increasing online consumer activity, its management launched the Renew Blue initiative, aimed squarely at realigning the company’s strategy with the change occurring within the US retail sector. The program focussed on accelerating online growth and improving and optimising store footprint and layout. This focus entailed a change across all aspects of Best Buy’s business.

STILL STRUGGLINGIn today’s world, retailers need to be agile to deal with disruptive forces like advancements in technology and digitisation, the market entry of international retailers and changes in consumer preferences. However, many Australian retailers are still struggling to deal with the reality of a changing market. Specifically, their strategies and brand execution are not evolving at the rate required to stay relevant to their customers.

In our experience, many retailers:• are distracted by day-to-day activ-

ities and do not dedicate appro-priate time to develop a coherent vision of the future

• confuse a digital strategy with a technology play. Digital is not just about technology but about how a retailer fundamentally redesigns its business model to deliver truly customer-centric experience

• have great ideas but are unable to execute them. They struggle to understand how to prioritise investments to maximise value, for example to turn sales growth from new and existing channels into profitable growth. Their culture often becomes an impediment to successful execution of good ideas.A retailer’s business strategy needs

to begin with its vision and a mission – this provides the direction for the

company. The clarity with which they can communicate the vision gives people purpose and constraints as to why the initiative they are taking part in matters.

Further, the traditional retail busi-ness model premised on brick-and-mortar stores needs to be reconsid-ered, and based on “customer pull” (what customers want) rather than “product push” (what we can make). In other words, the new retail business model is one that provides a seamless omnichannel experience to custom-ers across both digital and physical worlds, and leverages deep insights derived from analysing customer and product data to constantly tailor the experience for each individual.

Just as importantly, retailers need to create robust governance around executing their strategies. This in-volves:1. formalising strategy implementa-

tion as a program2. providing top-level executive spon-

sorship to the program3. taking a disciplined and structured

approach to execution4. thinking big but delivering outcomes

early by focussing on quick wins5. dedicating appropriate resources to

implement the changes6. changing the corporate culture (win-

ning the hearts and minds is key)7. measuring and rewarding achieve-

ments.Change is not easy, but it is also no

longer optional. Change is critical to counter the constant and ever-grow-ing threat of disruption. Under-standing these guidelines and being mindful of the common roadblocks to change is a good first step in prepar-ing your business for dealing with change.

Ultimately, what is a threat to some will become an opportunity for others.

NOTHING CHANGES IF NOTHING CHANGES

With the constant and ever-growing threat of disruption, it is vital to formulate a retail strategy that puts the customer first. It starts with a vision and a mission...

Neeraj SharmaAzurium

Ben KiteAzurium

EXPERT FORECAST


WILL IT BE EASIER OR HARDER TO FIND RETAIL STAFF THIS YEAR?It is hard to say either way. However, we do know that retail is, and is likely to always be, a candidate-short market because of the relatively niche skills required. Therefore, talent recruitment will always have its challenges. We have seen European retailers, such as John Lewis, recently enter the Australian market, with Debenhams and Decathlon following in their steps. With this, there will be more opportunities for retail candidates.

WHICH ROLES WILL BE HARDER OR EASIER TO FULFIL?The junior to mid-management market (for example, at the assistant store manager or store manager level) is traditionally the toughest. This is where there are the fewest candidates, so they are constantly in high demand. Also, it is difficult for retailers to retain them because they are often headhunted for new opportunities that usually promise a salary increase as well as other incentives, including career progression. This is usually the main contributor to attrition in the retail environment at mid-management level.

WHAT WILL BE THE BIGGEST CHALLENGES FOR RETAILERS WHEN IT COMES TO RECRUITMENT?Administration and workload will be their largest challenges. There is a lot of pressure on hiring managers and HR departments to manage the recruitment process along with their core responsibilities. Many of them are time-pressed and do not have the capacity to handle the workload. Some retailers do not even have a specialised HR department or the internal resources to manage recruitment processes, and in those cases, it will fall on the store managers (and above) themselves to take on the extra responsibility, without appropriate training or qualification.

HOW WILL RETAIL SALARIES PERFORM THIS YEAR?Not much change is anticipated, but there will always be pressure on retailers to reduce their costs because of ongoing margin constraints. There is also pressure from the candidates to have their salaries increased, as this is a candidate-led market, and retailers often comply when buying back their staff because they want to retain their talent. However, the growth in SME businesses might see a shift with basic salaries reducing but other incentives growing. For example, SMEs might choose to offer new employees competitive shares in the business to make up for the lower salary. Entrepreneurial employees see this as an investment, and want to have more involvement in the business they work for.

WHAT FACTORS WILL AFFECT THE RETAIL RECRUITMENT ENVIRONMENT, AND WHY?The growth of SMEs: Businesses

are seeking experts in their field to help drive the growth of SMEs in Australia.

International expansion: European retailers entering the Australian market will create job opportunities.

Technology advancements: These will put pressure on operational staff. For example, the demand from customers for faster delivery processes will require an investment from retailers in their inventory control and process management to meet expectations.

Social media presence: This is creating new roles for digital-marketing specialists. Most big-box retailers with an online presence have created specialised digital teams. Those without a digital footprint will be under pressure to launch efforts.

Online retail: This will continue to grow, and if not so already, will become any multi-channel retailer’s biggest “store” in terms of sales revenue.

WHAT ADVICE WOULD YOU GIVE RETAILERS TO HELP THEM BETTER RECRUIT STAFF THIS YEAR?

Establish strong working relationships with key recruitment partners who are specialists in their field. They are often very informed and prominent within the retail industry, and can be on hand when needed. Reputable recruiters can deliver on speed and accuracy as well as relevance with their candidates.

The key focus for retailers should be on staff retention – by offering ongoing training and development, and providing employees with succession planning. This way employees will be less inclined to pursue other opportunities presented to them through headhunting.

ALWAYS A CHALLENGE

David KhadiRegional DirectorMichael Page Australia

How easy will it be for retailers to find staff this year? There will always be challenges, according to a recruitment agency expert, who offers insights into the state of the market.

EXPERT FORECAST


This year is set to be similar to last year, but the rate of structural change to retail will be faster. Time and speed will drive the retail agenda.

Consumers will have more choice than ever before, and increased digi-tisation will allow them to shop in-stantly, wherever and whenever they want. Customers will be far more “promiscuous” and less loyal. Their behaviour will be more about “me”, singular and community focussed. They will be better researched, less location-dependent and more concerned about speed, time and convenience. And there will be a clearer division between functional shopping and experience seeking.

This will also be the year when

retailers increasingly invest in digitalisation, business informa-tion systems and having a business platform that can communicate with customers 24/7 and provide a point of difference. Retailers will not only use digital to enhance the customer experience and the frontend of their businesses, but also to improve their backend fulfillment processes – that is, to get products to the customer faster than ever before, and to bolster their logistics.

MORE FOCUSSEDExpect to see retailers far more focussed this year on the in-store experience they provide, and on differentiating their brand experi-ence. They will be far less absorbed with expansion just for expansion’s sake (quality over scale). This will, of course, shake the marginalised retailers out of the market.

Those who won’t thrive include the non-differentiated, middle-class retailers with too much of the same stock in the same marketplace, as well as undercapitalised mid-market, long-established fashion retailers who traditionally rely on location and an aging customer.

There will also be fewer shops

within department and DDS net-works, and pure-play online retailers who do not open physical shops or aggregate for scale.

The retailers who will thrive this year will be those who focus on:• The differentiation and unique-

ness of their offerings• Customisation and personalisa-

tion driven by data• Building communities rather than

just building retail networks• Evolving the “omni channel” into

the retail “ecosystem”• Predicting consumer behaviour

through the use of big data• Understanding consumers with

far more alacrity and accuracy, using fields such as neuroscience (which will begin replacing tradi-tional customer research)

• Enhancing the physical experi-ence to drive traffic

• Technology that advances aug-mented reality (although it is still early days in this sphere)

• The smart use of space and brand – for example, pop-ups that are actually brand beacons

• Providing more information and communication to customers about their products

• Providing greater transparency around the origin and pricing of their products

• Enabling more in-store interactiv-ity, especially via digital innova-tions such as smart mirrors

• Investing more in areas such as radio-frequency identification

• Providing greater levels of customer entertainment and convenience

• Getting close to the basics.On a global scale, it is possible the

new Trump administration in the US and its attitudes to trade with China could be bad news for the Australian economy, dampening local consumer confidence and spending. Expect cash rates to stay low.

DON’T BE LEFT BEHIND

Change will happen faster this year, leaving retailers who don’t invest in technology or focus on their points of difference and customer experience way behind.

Brian WalkerFounder/CEORetail Doctor Group

"This will also be the year when retailers increasingly

invest in digitalisation, business information systems and having

a business platform that can communicate with customers

24/7 and provide a point of difference."

EXPERT FORECAST: RETAIL DOCTOR GROUP


Predicting retail trends is a challenging business as the tides of fortune in this vibrant sector change quickly.

As an example, Professor Scott Gallo-way, an American technology and retail trends expert, predicted at the outset of last year that the shopping arm of Ama-zon.com would not be sustainable with-out a strong partnership or ownership of a business like US Postal Services. As the year closed, in a commendable and unashamed pivot on that view, he claimed that Amazon could well be the first business in history with a market capitalisation of more than US$1 trillion.

So, rather than focus on the “big shifts” underpinning the sector – con-vergence, artificial intelligence, bots, drones, big data and so on - I am look-ing at going back to basics, reframing traditional retail principles for contem-porary times.

PARADOX OF CHOICEAs retailers build their ranging strat-egies, there is a tendency to go wider. Customers tell retailers they like choice and variety, and retailers respond by growing their SKU counts. But recent years have shown that less can be more, and the age-old adage of “preselection”, where good retailers build a tighter range and do the “choosing” for the customer, is paying dividends.

Perhaps this is best reflected in the turnaround of Kmart under Guy Russo. Tightening up range, dramatically, has paid off handsomely. In truth, real long-tail business models have be-come the domain of large eCommerce

players like Amazon and eBay, where SKU counts are in the tens of millions. Real-world retailers are responding by going tighter, not wider.

Expect to see more of this approach this year. Businesses like Apple, Mic-rosoft (retail), Pandora, Samsung and Swarovski are showing us the way.

DISINTERMEDIATIONLeading on from this, another “oldie but a goodie” long spruiked by retail commentators is the force of disinter-mediation. Increasingly, we will see the retail landscape being led by retailers who own the brands in their store - an end-to-end retail system where the in-tellectual property and the margin are owned wholly and solely by the retailer.

Of course, good “aggregators” like department stores and speciality retailers will have their place in the sun, but as futurist Howard Saunders notes: “Retailers must understand that if they don’t offer us a unique experience or sense of belonging, then we will order it online.” This will challenge the so-called “middlemen” of retail further, and their response must be a vastly improved customer experience. This is already happening with brands like JB Hi-Fi and Myer.

A COMEBACK BY CREATIVITYIn the face of the big-data buzz over the past few years, I have long argued

that retail at its core is a deeply creative endeavour. And while good retailers have always understood their business dashboards and customer insights, mixed in with this must be a good amount of chutzpah, creativity and adventure. This has underpinned many of our successful online retail entre-preneurs and brands, with Catch of the Day being a fine example.

I think we will see more of this “playfulness” with our largest retailers having a go at building buzz with their customers via apps, trials, promotions and technology. A bit of style over sub-stance is fine by me and many shoppers who are itching for innovation and change. A fine example was eBay and Myer’s virtual reality store earlier last year. Did it change the world? No, but it was a lot of fun for the teams of both businesses to develop. Customers had a fantastic play, and the media went into meltdown with excitement. No losers here, and my prediction is that this could quite well develop to be a significant needle mover.

Retailers in challenging times could be forgiven for not wanting to adopt some of these innovative projects, but good leadership in the sector is recognising that small failures are the stepping stones to success. Inactivity is still the biggest risk.

I look forward to another milestone year for the industry - onward and upward.

BACK TO BASICSDespite convergence, artificial intelligence, bots, drones, big data and so on, some traditional retail basics still count in modern times.

Paul GreenbergExecutive directorNora.org.au

Increasingly, we will see the retail land-scape being led by retailers who own the brands in their store - an end-to-end retail system where the intellectu-al property and the margin are owned wholly and solely by the retailer.

EXPERT FORECAST: NORA


EXPERT FORECAST: DELOITTE

Retailers have just had a relatively positive year, with the feel-good factor from the continued growth in house prices in New South Wales and Victoria undoubtedly helping discretionary spending, as did low levels of interest rates and unemployment.

So what will this bring for Austra-lian retailers? When we asked retailers this question in our 2016 Retailers Christmas Survey, the overwhelming response was positive. About 64 per cent of respondents are expecting their earnings to increase by 5 per cent or more this year, with such levels of opti-mism at their highest since we started this survey five years ago.

We can expect a steady improvement in retail sales throughout this year, which is likely to coincide with a modest improvement in wage growth over time.

NOMINAL AND REAL AUSTRALIAN RETAIL TURNOVERDeloitte Access Economics is expecting total retail sales in Australia to grow by 2.9 per cent in FY17, with the largest growth expected across the catered food (6.1 per cent) and apparel (4.4 per cent) sectors.

While the overall market for apparel was strong last year, it has become increasingly competitive. In particular, the influx of international brands into Australia continues to put pressure on retailers. With this trend set to contin-ue, we can expect further pressures on apparel retailers as the fight for the consumer dollar intensifies.

The department and discount stores sector is expected to continue to be challenged, with retail sales forecast to shrink by 3 per cent next year. There is

typically only one winner when compe-tition is based predominately on being the lowest priced, so we can continue to expect significant disruption in the discount stores sector this year – even if Amazon doesn’t make an appearance. These numbers also mask the early signs of recovery from the two major department stores in Australia over the past year. With new leadership teams and new strategies at David Jones and Myer, we should really start to see soon how successful they have been in trans-forming their respective businesses.

Supermarkets continue to face a challenging market with price deflation and increased competition across the board with the growing presence of Aldi in Australia. Population growth has helped offset falls in per-customer spend, as has a cultural shift to quality fresh foods. However, inflation-adjusted revenue in the category is still set to contract for another year or so as wage growth remains constrained.

FORECAST RETAIL SALES PERFORMANCE BY STATE

New South Wales and Victoria were the stand-out states last year, but there are challenges ahead. The wealth factor created by rising house prices in NSW will slow down as house-price growth is expected to moderate. This means retail sales growth this year in NSW will more likely match rather than exceed the national average. Similarly, while Victoria had above-average growth last year, potential overbuilding of apart-ments and the closure of car manufac-turers could slow growth this year.

Western Australia continues to to feel the effects of the downturn in the mining sector, and trading conditions are still expected to be challenging. It is likely that retail turnover will not start to recover until next year.

The other major state impacted by the mining slowdown, Queensland

David WhiteNational leaderDeloitte’s Retail, Wholesale & Distribution Group

DISRUPTION THE NEW NORM

The prospects for Australian retailers this year are relatively positive, but competition will be more fierce than ever and all players should be planning for change, especially with the possible entry of Amazon.

Graph: 2017 Retail Sales Growth (value) percentSource: Deloitte Access Economics: Retail Forecasts, November 2016

0% 2%-2%-4% 4% 6%

Total Retail Sales

Total non-food sales

Total food sales

Other retailing

Households goods

Apparel

Dep't and discount

Catered food

Specialty food and liquor retail

Supermarket retail


has a more positive outlook. There have been stronger signs of growth lately with the lower Australian dollar spurring significant numbers of tourists and students. This is expected to con-tinue and should help boost retail sales growth in Queensland this year.

THREATS, CHALLENGES AND OPPORTUNITIES

The elephant in the roomIf Amazon is not on the agenda at board meetings for Australian retailers, then it should be. With the rumoured arrival of the US giant to Australia’s this year, the potential for major market disrup-tions is huge. Already several retailers are setting up task forces to assess the potential impact of an Amazon market entry, but it’s not yet clear what exactly the company has planned for Australia. All we know is that where Amazon has entered markets, the impact on local retailers has been seismic in almost all categories and channels.

Retailers cannot afford to wait and see what Amazon does – they need to be developing strategies and taking action now.

International competition and expansionWe can be sure the influx of interna-tional retailers will continue this year and beyond. This will be driven by our strong economic conditions relative to other countries, high consumer demand for international brands, and relative proximity to Asia.

One of the key differentiators international retailers have brought to Australia is in their store-design and customer-experience model, leveraging their experience from larger markets. However, Australian retailers are slowly starting to fight back, investing more of-ten in store design, concept and flagship stores. New entrants will find Austra-lian retailers better prepared and skilled to take on this challenge compared to five years ago.

More Australian retailers last year started expanding internationally - into the US, Europe and Asia Pacific. The numbers are still relatively small, but with competition in the domestic market threatening saturation in certain categories, we can expect to see more Australian retailers take a leap of faith into overseas markets this year.

Consumer confidenceWhile consumer confidence has been quite steady over the past 12 months, any dents to confidence in the coming year through instability or uncertainties could be a major stumbling block for retailers to achieve their growth aspirations.

After the initial shock of Brexit, it ap-pears so far that it will take several years for the full impact of this game-chang-ing decision to be felt financially, as the complexities and time frames to unwind the UK from the EU become apparent.

The US election outcome has created greater uncertainties as we wait to see what impact a Trump administration will have on the global economy. Any move toward more protectionism by the US could certainly affect pricing and demand for Australian retail goods. Time will tell.

Growth prospectsAs shown in the table below, retailers continue to focus on apparent “tradi-tional” strategies for growth.

In an environment where consumers are demanding more convenience, the question is whether retailers should be focussing on opening more bricks-and-mortar stores. Even these outlets are fundamentally changing as the tradi-tional role of the store evolves. Stores are taking on multiple roles, from being distribution centres for click-and-collect purchases to becoming marketing focal points designed primarily to build brand awareness. So this year we can expect to see more retailers experimenting with store design, layout and footprint, with bricks-and-mortar stores remaining fundamental to their strategy.

As we head into a fresh year, the prospects for Australian retailers re-main relatively positive. Many retailers expect to be able to grow and expand their businesses. However, competition will be more fierce than ever, and even if Amazon does not enter the market this year, Australian retailers need to be planning for change - disruption is now the norm, not the exception.

New Stores

New Products

Overseas Expansion

New Sales Channels

Acquisitions

Online Offerings

Graph: Primary Driver of Sales Growth for Retailers in

Source: Deloitte Retailers’ Christmas Survey 2016, Stocking up for Christmas

42%

9%

2%

24%

7%

16%


There are 12 macro-trends retailers and manufacturers need to take into account in both their medium-term strategies and day-to-day business, according to GFK ConsumerLife.

The macro-trends cover five themes:• Prevention: wellbeing, *safety and

security• Conscientiousness: eco

citizenship, *considered consumption

• At home wherever: house to home, *instant everywhere

• Me-ism: *identity, *experience, *we are all Influencers

• Expectation: redefining value, *streamlining, satisfaction.

* Particularly pertinent to retailers and brands.

These trends change slowly over time. GFK’s 2016 FutureBuy study data has shown that shoppers were behaving in much the same way last year as they were the year before, only more so. This means an increased emphasis on experiences more than objects, and influences more than price.

There has been either a shift in, or more likely a re-emphasis of, existing behaviour pertaining to the macro-trends...

INSTANT EVERYWHEREWhat it is: Being on demand, 24/7 contactability, availability and delivery anywhere. This entails customer service and sales capability at any time, and flexibility with delivery options such as third-party collection, drones, click and collect, and buying in-store with delivery elsewhere.

Proof points: 27 per cent of adult Australians think it is important to be reachable wherever they are, one in five need the shops and services they use to be open and available 24/7, and 10 per cent will even settle for an inferior product or service if it is available when they need it. GFK Futurebuy indicates that one of the advantages of buying online is more and better delivery options.

Who’s doing it well: Domino’s, Netflix, Uber and McDonalds 30-minute delivery in China and Japan.

So what? What is your strategy for being available 24/7? What is your strategy for delivering 24/7? How can you make the process of interacting with your brand easier, such as shorter wait times or easy sign-up.

IDENTITYWhat it is: Self-expression, uniqueness, specialness, segments of one, tailoring, customisation, personalisation, co-creation - know me in order to tailor products, services and offers to me.

Proof points: How shoppers use their phones differs little across generations, it’s just the amount of

use that increases as age decreases. Shopping behaviours are becoming more determined by their values and attitudes than their generation. GFK Futurebuy says that while shoppers are becoming less loyal to particular retailers and brands - “loyalty” programs reward transactions rather than generate emotional loyalty - they increasingly say they would be more loyal to a brand/retailer that lets them give input or help shape the products and services they buy.

Who’s doing it well: Nutella personalised Christmas jars – the largest-selling Myer SKU at Christmas 2015 and leveraged again last year; Nike and Shoes of Prey customised footwear; McDonald’s Create Your Taste; Toyota’s 360-degree showroom kiosks; LG marketing to values in Japan and Korea.

So what? Email your customers with offers specific to them based on their purchasing histories and what similar customer profiles have bought. Don’t just gather feedback from your customers - encourage them to design products and services with you.

Norrelle GoldringAPAC Region Shopper LeadGFK

IT’S ABOUT THE EXPERIENCE

The retailers and brands that will succeed this year and beyond are those that treat their customers as special individuals and provide them with tailored offers without broaching their sense of security.

Harness positive word-of-mouth by creating offers around customer advocacy programs, and leverage reviews.

EXPERT FORECAST: GFK


EXPERIENCE What it is: Sensory stimulation, shared experiences, entertainment, excitement, exploration, humanising retail, fun, novelty, gamification, “what I do” rather than “what I have”.

Proof points: Experiences make us happier than objects, and are more memorable. Four in 10 adult Australians believe experiences are more important than possessions. The top reason for shopping in physical stores is tangibility (see/touch) and “web-rooming” (researching online and buying in-store).

Who’s doing it well: Blackmores Wellness Stores, BOQ, Lorna Jane fitness classes instore, St George Bank’s immersive scratch-window Christmas gift campaign.

So what? Focus on creating experiences, not just selling stuff. Tell a story, provide a theme, such as apportioning a part of your store to themes and seasonal items. Ensure your experiential marketing activities are shareable, and that sharing is encouraged.

WE’RE ALL INFLUENCERS NOWWhat it is: Recommendations, reviews, sharing economy, social media, word-of-mouth, trusted opinions, advocacy, crowdsourcing.

Proof points: 31 per cent of FutureBuy participants say social networks have become as important as other information sources for making product purchase choices, and this rises to 69 per cent for “leading-edge” consumers. The point here is that peer reviews – those of third parties and strangers – are becoming more prolific and more influential than the opinions of retailers and brands.

Who’s doing it well: 7-Eleven “Bring your own cup” campaign, Domino’s Pizza Mogul, Lego product development. Amazon originated this with its “People who liked this also like…” along with posting user reviews. A similar story for TripAdvisor.

So what? Retailers and manufacturers need to harness the power of their shoppers, particularly advocates, and provide platforms for showcasing third-party opinions both online and at shelf. Social listening is a must. Harness positive word of mouth by creating offers around customer advocacy programs, and leverage reviews.

STREAMLINING

What it is: Choice and complexity reduction, one-touch/one-tap/one-click, maximum of three screens to navigate to reach where I need to go, simplicity, ease, speed, efficiency

Proof points: Four in 10 GFK ConsumerLife participants believe innovation means an easier way of doing something, 27 percent say it means simplifying something that is too complex and 71 per cent say technology makes their life easier. According to GFK FutureBuy, we’ve seen web-rooming (research online, buy in physical store) more than double since 2014 while showrooming is static. This is because, despite a proliferation of touchpoints and information, shoppers are trying to simplify their options via research online before they start pounding the pavement. This means that in many categories, even for more involved and complex purchases, the number of physical stores visited has reduced to one or two.

Who’s doing it well: Amazon Dash Buy Now buttons, Hungry Jack’s breakfast e-tags trial store, Starbucks’ “Skip the queue, happy you”.

So what? Is your offering enhancing the lives of your customers? How does it make their lives better? How does it make their lives easier? Work on removing pain points and focus on the core proposition. Look at how you can trim the fat to create a more streamlined and efficient offering. How can you make it one tap, one click, maximum three screens? How do you ensure you are in the shoppers’ consideration set so your physical store is one of the two they actually visit?

SAFETY AND SECURITY

What it’s about: Cyber privacy and security, risk mitigation (such as guarantees), willingness to exchange money and time for peace of mind.

Proof points: One of the primary barriers for mobile payments is fear of insecure financial data. Strangely, however, Australian shoppers have no problem with tap-and-go credit-card transactions (we lead the world in these).

So what? Shoppers are willing to share their details with you - if they think your systems are secure, and if you’re asking them only for enough details to tailor offers. Fundamentally, shoppers want to be

in control and they need to be able to trust you in order to provide you with their data. Reassure them, and send them only tailored offers - don’t spam them with generalities.

VALUE AND SATISFACTION

The other two trends to note are redefining value and satisfaction, which work together. “Value” is not about lowest price, or even quality divided by price. It is about perceived quality, including that bestowed by the role of influencers in recommending a product or brand. It is about choice, durability and guarantees (guarantees tie back to safety and security).

Likewise, “satisfaction” is not merely being happy with the quality or value of a product or service. It is about indulgence, fulfillment, gratification, reward, extravagance, surprise and delight, exceeding expectations, and being best in class. In other words, satisfaction arises from being treated as special. This ties into identity.

In summary, Australian retailers and brands bound to do well this year are not those with merely an adequate range at a low price. A number of these have failed already, and deservedly so.

No, the retailers and brands that will succeed this year and beyond are those that treat their customers as special individuals and provide them with tailored offers, without broaching their sense of security. They are the retailers and brands that tell a story and provide a truly memorable experience in their retail environments, beyond mere range/merchandising/price/service. They are the retailers and brands that leverage the power of third-party reviews to drive traffic. And they are the retailers and brands that are available 24/7 to customers via a range of communications formats and vehicles.

One of the pri-mary barriers for mobile pay-ments is fear of insecure finan-cial data.

EXPERT FORECAST: GFK


With negative consumer sentiment, clothing retailers can expect their revenue to decline by 1.4 per cent in 2016-17, to $19.1 billion.

Many clothing retailers have had difficulty adjusting to the shift in consumer spending behaviour over the past five years. Consumers have been reducing debt and increasing their savings, with bargain hunting becoming increasingly prevalent. As retailers have discounted stock to boost sales, consumers have become accustomed to price reductions and have come to expect items to be al-ways on sale. They have also become increasingly comfortable using web-sites to compare prices and buy the best-value items from both domestic and international retailers. These changes have pressured traditional brick-and-mortar clothing retailers, who previously enjoyed a relatively high degree of protection from exter-nal competition.

Multichannel retailing will become increasingly important as retailers aim to capture consumer demand at any given point in time. This will involve the continued mi-gration of brick-and-mortar retailers online, and vice versa, as previously online-only stores develop a physical presence. The role of the traditional retail store will be challenged, with large physical footprints no longer

needed. Technological innovations will include interactive displays, adaptive storefronts and robot-en-abled dressing rooms.

INTERNATIONAL COMPETITION

Overall, retailers will continue to face challenges over the next five years as more international players move into the Australian market. Australia emerged comparatively unscathed from the global financial crisis, which drew the attention of many international retailers. Gap, Topshop and Zara are just a few of the big names already here compet-ing for market share, while newcom-ers H&M and Uniqlo plan to expand their store presence rapidly over the next five years. Australian retailers will have to compete with overseas entrants with significantly larger supply chains, allowing for better brand positioning and lower prices.

Fierce competition from online shopping is also anticipated over the next five years, as websites become more sophisticated and offer a greater range of products. Despite increased competition from the online-only space, many traditional brick-and-mortar retailers now have their own dedicated online stores, supporting revenue growth. Further-more, with the fall of the Australian dollar, domestic retailers can expect relief from international online com-petition as the products they offer become more expensive for Austra-lian shoppers.

While many Australian retailers scrambled to develop online stores in the wake of fierce competition from the eCommerce market, this trend is now happening in reverse with pure-play online retailers expanding to other sales channels, including physical stores. There is no longer any threat online sales will cannibalise traditional retail store

sales, as both continue to adapt and coexist, providing consumers with a seamless and convenient multichan-nel experience.

SIGNIFICANT ADVANTAGESRetailers who start out online are recognising the benefits of having a physical presence, as on-ground stores have significant advantages over their internet counterparts. This includes the ability of consumers to inspect and try on products, receive face-to-face customer service, and instantly acquire products rath-er than waiting for delivery. As a result, pure-play online retailers are increasingly using multiple channels to engage and connect with custom-ers by opening up flagship brick-and-mortar stores that typically act as showrooms.

As online sales continue to ex-pand faster than traditional retail, boosting their share of total con-sumer spending, physical floor space will be less focussed on driving the sale of products in-store and more on engaging and interacting with the consumer. This includes the use of video content, television screens, tablets and interactive displays in stores to view and order products online. Retailers are also explor-ing other avenues to enhance the customer experience by introducing cafes, spas and salons to their stores. For example, Glue Store has a cafe in some of its stores.

Retailers will continue to face a tough and challenging retail envi-ronment over the next five years. To drive sales and boost profit margins, domestic retailers will need to adjust their store format and the number of outlets in their network. Consumer behaviours are constantly evolving as new technology is adopted, and retailers need to be able to allow customers to buy through a variety of channels.

TOUGH TIMES AHEAD

A look in the crystal ball reveals this is set to be another challenging year for retailers on the back of negative consumer sentiment, intensified competition and technological change.

Lauren MagnerSenior industry AnalystIbisWorld

EXPERT FORECAST: IBISWORLD


A year ago I wrote about the concept of retail relevance and adaptation, both for retailers and lan dlords, and the importance of experience in the retail landscape as a tool to maintain customer engagement. That all holds true for this year and beyond.

However, I do see some particular challenges ahead for retail landlords.

Previously I have written about customer behaviour, retailers them-selves and retail property - nothing earth-shatteringly revealing and quite often just observing the ele-phant in the room. What is inter-esting is that it is the landlord bull elephants that object the most. They don’t like to hear anything but bullish predictions.

When it comes to the multi-bil-lions of dollars invested in the retail property sector, the custodians of our fortunes are reluctant to consider that without change they may be consign-ing their assets to the elephant grave-yard. Perhaps they are too focussed on counting their short-term performance bonus and so are less inclined to con-sider what the shape of things may be in 10 years or so.

PREDICATED ON GROWTHThe current game for fund managers is easy to understand and largely predicated on growth: growing sales, growing rent, growing asset value, growing fees. The model doesn’t cope too well with decline.

In simple terms, the thing that made retail asset investment great for both investors and fund managers alike - sustained rental growth - is the very thing now driving the assets to unsustainable levels, provided the

poachers with ready opportunity to fire away. Why?

Metaphors aside, the desire of in-vestors for never-ending rental growth has meant that specialty rental growth has outpaced sales growth, leading to a combination of retailer margin erosion, higher product prices and now, courtesy of access to information and macro economic forces, customers reaching point-of-purchase resistance. People are less confident or willing to buy stuff at inflated prices.

In an environment where CPI is very low, has been for a long time and is predicted to remain so for a while yet, how sustainable is it for a landlord to drive specialty store rents at CPI + 2 per cent increases in an environment where sales growth has not kept pace? Not sustainable at all.

BEING SQUEEZEDThe result? Retailers are stressed because they are being squeezed by unsustainable cost escalations on one end, and tapering sales growth at the other end.

Here is a prime example. At Savills we are helping a longstanding, suc-cessful, independent mum-and-dad food retailer with their lease renewal at a small suburban sub-regional centre. The rent was “set to market” five years ago by a major institution-al landlord. Since then, the rent has escalated by 5 per cent a year. It is now lease renewal time, and the landlord is fixated on a 20 per cent increase. Otherwise, he says, the shop will be leased to someone else.

So here we have a successful retailer who, over the past 10 years, has grown sales 31 per cent (despite

pricing pressure meaning the actual price per unit has increased only 15 per cent). During the same period, centre MAT has increased 25 per cent, the anchor supermarket 27 per cent, and the customer count only 8 per cent. By any measure, the tenant has outperformed the centre. His rent increase in the same period - 73 per cent. Yes, rental growth has more than doubled every other metric at this property, and this landlord wants a further 20 per cent now, because in its own words “we know your sales and you can afford to pay the rent”.

So here’s a situation where rent is being based on a captive’s capacity to pay, rather than real-estate fundamen-tals. That is not market rent, that’s a sales tax bordering on extortion.

VICTIM OF SUCCESSBy the landlord’s own admission, the centre is willing to risk vacancy loss

Leighton HunzikerDirector of Retail ServicesSavills

ELEPHANTS AND POACHERS

Australia’s shopping centres are facing challenges on many fronts, the likes of which have not been seen before. Retail landlords will need to adapt their mix and business models to maintain relevance and earnings.

EXPERT FORECAST: SAVILLS


and incentivise a new replacement tenant - that is, use the shareholders’ funds - to deliver the rental result, most likely through a franchise, meaning the centre loses another local identity and differentiation point. All this when the rent the proven and successful tenant is prepared to pay is more than market, fair and sustain-able. However, the retailer is trapped, a victim of his success. If he agrees to the new rent, he’ll be working for wages only with no reward for entre-preneurial effort.

Economists may say, “Let market forces prevail, let him go”, but in so doing a family will lose its livelihood for no other reason than the fund manager wants a bigger bonus and is in a position to extort maximum price. The cashflow result of the existing tenant versus a new tenant in the next five years is nominal. The fund will be using capital to subsidise the rent (and maximise value and fees too, by the way). Not a too sustainable outlook long term.

This scene is being repeated across the retail property spectrum – investor capital being used to prop up rent and hence asset prices, resulting in higher management fees for the manager. In a rising tide, with cap rate compression, this is a magical phenomena - every-one gets rich and all boats rise. But I believe the game is changing.

So I’m thinking it is peak value time (PVT) for retail property as a class. Why? Quite simply: • All the indicators say so• Global uncertainty levels remain

elevated• Personal and property finance

lending criteria is becoming tighter• Interest rates are rising• Wage growth is subdued• There is more chatter regarding

housing price unsustainability and residential price softening. Already retail sales are slow. The

above indicators just perpetuate low consumer confidence and make cus-tomers hold on to their cash or make more considered spending decisions.

COMPETITIVE ADVANTAGERemember that fundamental equation earlier? The very foundation of shop-ping centres is sales. If sales decline, so too will rent. It has to, otherwise we’ll see more retailers entering adminis-tration and increased vacancy – the cancer of a centre. Fund managers aren’t going to let that happen.

The situation is magnified because sales transfer out of shopping centres to the poachers – retailers with a com-petitive advantage. These are retailers:• With a reputation for consistency

and quality• With product control over their

brand supply chain/broader distri-bution strategy

• That provide a special or differenti-ated product or experience

• That provide the above at a compel-ling value proposition. Who readily springs to mind? Most

noticeably Aldi, Amazon, Bunnings and Costco, but more will come. What do they have in common as a key competitive advantage? They have sig-nificant scale, category dominance and generally do not locate in shopping centres, and so pay a fraction of the rent that retail landlords charge. This gives them a substantial cost advan-tage they transfer into lower prices for the consumer.

Consumers win (lower prices), the retailer wins (sales), but shopping centres lose. Why buy a $100 shirt in a specialty store at a shopping centre where the retailer is paying $1500 a sqm in rent, when you can buy a com-parable or better-quality shirt online from Amazon (paying $150 a sqm warehouse rent) for $50? It’s just too compelling for consumers. The price differential is so significant, partly courtesy of inflated product prices with inbuilt rent.

LOOKING FORWARDSo, polish the crystal ball and look forward five years. What will we see at the local mall? It will increasingly be things that can’t be replicated online or delivered by drone, things that are expe-riential, personal or of a service nature - space that responds to the trade area demographic instead of the “one size fits all” current model of shopping-centre leasing and development.

Undifferentiated fashion shops will be squeezed out by international juggernaut retailers, increasing cost (rent) pressures and flat sales (think Howards Storage, Ice Design, Payless Shoes, Pumpkin Patch). The DDS sector will continue to struggle. Banks will shrink or disappear from centres. Retailers that compete purely on price will fail.

Shopping centres aren’t dead as a whole, but many will fail to adequate-ly respond and become shadows of their former glory. The composition of successful centres will change. Our collective superannuation funds won’t allow assets to become vacant lest they spiral to terminal decline, as has happened in many US malls.

But all that has a cost to imple-ment, and that cost will be that property returns will be lower. A sobering thought for our investment balances.

Shopping centres aren’t dead as a whole, but many will fail to ad-equately respond and become shadows of their former glory.

EXPERT FORECAST: SAVILLS


Many exciting retail design concepts and developments are set to shape the competitive landscape this year.

Firstly, experiential brand immersion is going to continue to be developed by retailers keen to bridge the gap between online and brick-and-mortar environments. Where technology and communications companies have had the edge on the integration of technology in-store, retailers and restaurateurs are quickly understanding the advantages of designing it into their business.

McDonald’s has probably been the best example, last year rolling out menu kiosks. This brought in a new experience, allowing customers to “design” their own burger. It also allowed the company to cut back the staff standing behind counters and offer more customer service to the table. What we all need to learn from this is that in-store technology isn't about showing-off the latest technology, but using it in a way to ensure excellence in customer service.

There has also seen another interesting development with Amazon announcing a counterless supermarket trial in the US. Someone had to be first. This is a great example of how technology is driving our expectations, and that technology integration into retail environments will continue to be game changing. I love the way Amazon is striving to improve the everyday shopping experience by removing the bits we hate – queuing and paying.

WHO WILL RULE THE STREET?

Companies that develop patents on concepts that make our path to purchase more informed, faster and easier will quite simply rule the high street. Look at Apple and the advent of Apple Pay and iTunes, or Domino’s with its tracker app and drone delivery. Amazon could be the next big game changer…if it works. We will continue to see some great ideas driven by technology and led by our love affair with our smartphones and embedded RFID chips.

Personalisation will become more and more evident as we do our shopping, partly thanks to the advances in technology, but also because brands want to build a lasting relationship with you. Virtual and augmented reality, 3D scanning and printing are no longer ideas but tested technology that is more affordable and therefore ready to integrate into our everyday lives. It's already being used by online companies to sell products and services, which will naturally filter into retail stores.

Whether you’re buying an apartment before it has been built and want to walk through it and check-out the views, or you’re having a body scan to ensure showroom or online tailored clothes fit, technology is going to consistently offer opportunities to retailers and start-ups.

Not happy with what everyone else has? Your product can be modified in-store to suit you, then delivered when ready. This could be anything from computer-printed cake toppings to one-off customer-designed training shoes. Want to cook something

different tonight? Store apps will make a suggestion, show you where to find the products in your local store, then when you get home you can watch the video of their company chef preparing everything step by step. No more reading recipes (so last century).

SLIGHTLY SCARIERA slightly scarier development in personalisation will be the retailer pre-empting your purchase and communicating with you via your

Mark McConnellDesign DirectorMima Design

KEEPING UP APPEARANCES

What’s going to be hot and what’s not this year? Here’s a look at some important trends to ensure you are on the right track when it comes to retail design.

EXPERT FORECAST: MIMA DESIGN


smartphone, and potentially via focussed media channels inside the store. Apps will be triggered as you enter a store where you have purchased before, and reminders will identify what and when you bought something, whether you need to buy it again, or if there is something else that will most likely interest you based on your profile gathered from your previous purchase history and web browsing.

I can imagine your phone telling you what you need to go shopping for, the best route to take and when to take a break at your favourite cafe, clarifying how much you are probably going to spend - and all this before you get out of bed.

While all this new thinking is a little lost on our burgeoning older community, retailers tend to focus on our younger generations whose expectations exceed what can be delivered by a brick-and-mortar location, primarily because of the plugged-in instant response their smartphones, tablets and laptops provide them. Retailers have been grappling over the past few years with the challenge to instantly gratify their demands and win their loyalty online and in the real world.

It is this search for great products or services that are presented brilliantly, with expert knowledgeable service, priced

competitively, and convenient to buy, that will shape the best retail concepts this year. Achieving this will involve every member of a retail organisation. They need to lift their game and deliver their part of the solution. Overseas brands may lead the way in how this is done effectively.

Australia has seen an influx of overseas brands over the past few years, all bringing new, engaging store experiences. Think what Apple did. Now think Tesla, definitely a company to watch. The fashion sector has seen the most action with brands such as Gap, H&M, Uniqlo and Zara expanding their footprints and really socking a big punch to some well-known Australian retailers. But in terms of in-store

experience, I am not sure I have seen anything revolutionary from any of them. Smaller bespoke and more personalised fashion brands will pop up, potentially within department stores, keen to offer something different that won't be found in the malls.

PLACING PRESSUREThe supermarket space has also continued to see quite a bit of development as Aldi continues to place pressure on the larger competitor formats. This is likely to grow worse with Amazon and Lidl rumoured to move into our territory. This is why major Australian retailers have been scrambling to adjust their entire businesses and store environments. I think

Whatever we learn from the in-fluence of overseas brands on the local retail scene, one rule that never changes is that if you simply stand still and watch, you’re going backwards.



Woolworths is really making strides and this year will see better results as it returns focus back on what it is good at.

Whatever we learn from the influence of overseas brands on the local retail scene, one rule that never changes is that if you simply stand still and watch, you’re going backwards. Look at fallouts such as Dick Smith, Howards Storage World, Payless Shoes, Pumpkin Patch - they just didn’t seem to move their business concept forward. Unfortunately, I think more will follow.

Probably the most successful growth area in retail since the GFC has been casual dining. I believe Australia is among the best in the world for creating amazing food concepts. Our climate, our producers, and our multicultural mix really shines here, with worldwide experiences delivered on a plate. The combination of a sluggish economy has meant a reduction in luxury purchases in favour of more regular good food experiences. Masterchefs closed its fine-dining restaurants in favour of smaller format affordable

concepts. This transfer of talent into a mainstream restaurant sector has lifted consumer expectations, and we're all better for it in my opinion. But the success is already attracting more overseas food brands. Carl's Jr, Hotto Motto and Yayoi are some that are here already. Expect more this year.

Commentators talk about how retail will involve a more experiential design, but I think Australians have been developing this well in terms of our fresh food and restaurant design, primarily led by the best retail design landlords, creating superb food precincts. Australians’ love of food can be seen in shopping-centre developments, with more money being spent on food precincts that are expanding into unusual spaces like basements and rooftops. Affordable high-quality casual dining stimulates more regular visits and increases dwell time in the malls, which leads to higher sales. Emphasis on quality food and service is paramount, and is often a reason to chose one centre over another.

DINING SPACESFood courts as we know them will slowly disappear as malls create more immersive dining spaces that accompany more individually designed food concepts you want to dine in for the experience, not sitting in a generic sea of tables and chairs. Malls no longer want you to hurry through your food, but rather provide a space where you can meet friends and family, and use more regularly.

Retail convenience will become more important in our lives. Everyone is becoming even more time poor. Smaller developments will pop up closer to multi-residential hubs where community matters, people know each other, and a balanced mix of essential services and products are retailed beautifully. We're working with retailers who are completely re-thinking their outdated methodology in order to address customer needs. We will see retailers get staff out from behind counters as technology allows more mobile cashless sales, with tablet-wielding store managers able to complete a sale, or find a product



that isn’t on the shelf and have it delivered to you by the time you get home, with no cash involved. In fact, you will probably go shopping and leave with nothing, but have a great meal and watch a movie without the hassle of carrying all those bags.

Shops are going to become experiential showrooms where you

come in and try out products you have probably already researched (one of our clients noted 40 per cent of its customers researched its website before visiting the store), and if you do decide to buy something, it will be sent from a distribution centre. The benefit to the retailer is space. With less stock to manage they can run smaller stores, reducing rent. The upside for customers is more immersive experiential retail environments, and a new focus on professional customer service.

Another knock-on effect of reduced stock would be the integration of a food offer into a traditionally non-food retail format. This is nothing new. I remember retailers doing this 25 years ago in London (Next), only now it is easier to implement. Target has been introducing a cafe into its stores for the past couple of years, and Myer has asked Mima Design to develop a cafe for its new store concept at Warringah Mall in Sydney's northern beaches, such is the power of food to attract and retain customers. Smaller retailers may also follow this trend with highly refined coffee and food concepts targeted at their specific customer demographic.

ACCOUNTABILITYUnhealthy and unethical brands and products will continue to struggle as competitors develop attractive alternatives and educate consumers about what they are buying. It has been a long-run challenge for fast-food chains to step up, but new entrants are forcing their hand and our younger generations also demand accountability. If you are aiming to go mainstream, you have to think about how you look after your customers’ health, how you treat your staff, how your suppliers manage their product and what good your profits are doing for others. Our client Guzman y Gomez has been quite vocal about the need to improve fast-food ethical standards, and it chose to lead by example.

Considered a risky move not long ago, social media managed correctly can actually stimulate consumer loyalty and increase sales to cover the higher costs to purchase more ethical raw ingredients, while building upon a point of differentiation. We will see more of this rebellious response with smaller brands being more nimble and standing proud for what they believe in.

Shopfronts within malls are going to blur more into the fabric of the mall itself, especially in fresh food and restaurant precincts. Abundance is the key word, presenting a mass of textures and products, seating and canopies, and integrating interior and exterior spaces to provide year-round spaces to enjoy. We've been seeing this development in some major mall developments, so other landlords will follow their lead.

For non-food retailers, lighting design and quality merchandising remain retail classics that are all too often ignored but help distinguish a professional from the amateur. Creative lighting is essential to ensure products are illuminated without being harsh or blinding. If you don't understand how to light a space, engage a qualified retail lighting designer. LED technology continues to inspire new methods of illuminating spaces, making the light source virtually invisible in some instances. High CRI levels from cost-effective fittings means most retailers and restaurateurs can have extremely good-quality lighting. Once you have some great lighting that presents the store or restaurant to the mall, artful merchandising can capture attention.

So to keep moving forward, how do we know what next year’s colour and material trends will be? This is never an easy answer, especially when related to retail environments developed to appeal to specific customers, with a brand story often defining many aspects of design. I believe this year will continue the exploration of textures with earthy tones layered over the emerging Scandinavian design ethos that developed last year. This has all come out of the old “industrial chic” movement of the past four to five years, so unless your environment really does have industrial heritage, you need to move on. Think clean with simple grids and lines using natural materials and with highlights of pastels, used in furniture for example. If you aren't sure, pop on to Pinterest and you will soon see what is happening all over the world, but interpreting it all and picking the best bits for your business is where designers earn their points. If you don’t have a clue, employ a qualified retail designer and take a ride on the wild side to see how good design can elevate your business this year.

Considered a risky move not long ago, social media

managed correctly can

actually stimu-late consumer

loyalty and increase sales



The rise of the microstore is estab-lishing a new paradigm in which re-tailers are embracing flexibility and diversity in a bid to secure a share of Australia’s increasingly competitive market.

Australian continued to cement its position on the global retail stage last year with an influx of interna-tional names in the major shopping capitals.

It was a year defined by new entrants, with about 60 offshore re-tailers expanding or opening across the nation. From a global perspec-tive, there is still huge potential in Australia for foreign brands, with our market low compared with inter-national saturation rates.

However, this equilibrium is starting to shift, with the microstore phenomenon emerging in major cit-ies, helping support the more niche, independent and ultimately local pockets of the retail market.

Offshore retail giants such as H&M and Uniqlo are now synony-mous with main shopping strips in cities like Melbourne and Sydney, with significant deals being signed last year.

Melbourne is widely regarded as both the fashion capital of Australia and a notable retail destination at

a global level, with Collins Street and Chadstone Shopping Centre continuing to produce unprecedent-ed results in both rental levels and retail sales. And the strong ongoing performance of Melbourne’s retail sector is drawing the attraction of retailers from all over the world as they look to Australia for expansion.

Melbourne is also leading the trend toward microretailing with its laneway culture providing a platform for home-grown retail, enabling smaller, dynamic and ever-changing tenancies across the city.

As noted in a recent CBRE report, tighter vacancies and higher rents on main strips in Melbourne’s CBD have begun to push some retailers into tiny spaces of about 60 sqm or even less, with some retailers work-ing in spaces as small as 18 sqm.

These microstores are becoming an important and successful part of Melbourne’s retail landscape as the city’s population grows, consumer tastes change and the concept of “destination” retailing grows. The microstores provide the opportunity for a variety of retail types to have a CBD presence, driving a more diver-sified retail mix.

The microstore concept is also being adopted in some parts of the Sydney CBD. A prime example is Temperance Lane, with the addition of the small bar Grasshopper and boutique retailer Sneakerboy provid-ing some welcome activation in this tucked-away precinct.

This trend is good news for ev-

eryone. Not only do microstores pro-mote a more rich and diverse retail offering, characterised by boutique and independent stores, the con-cept also offers fiscal perks for the owners. These include lower capital outlay costs, lower overheads and the chance to have multiple tenan-cies in different locations, opposed to just one large store.

Microstores are also helping sup-port traditional bricks-and-mortar retailing. Despite the growing avail-ability and convenience of online retailing, a CBRE study of the habits and preferences of Australian mil-lennials has shown that 70 per cent of people still make their non-food purchases in a physical store.

What continues to draw people to bricks and mortar? The ability to touch the product, try the product on and have the product immediately. As a result, online retailers are also seeking modest spaces to display products, and are becoming more strategic in their quest for brand ex-posure through small “showrooms” that offer an enhanced focus on store design and customer experience.

An example of this is the expan-sion of online menswear boutique The Practical Man into bricks and mortar. Originally exclusively on-line, the brand has leased a 30 sqm ground-floor store in Scott Alley in the Melbourne CBD. The alley, run-ning off Flinders Lane, has quickly established itself as a microstore hub, with some retail leases for areas of only 18 sqm.

THINKING SMALLIf 2016 was the year of the international retailer, this will be the year domestic players rise to the challenge, with the emergence of microstores helping level the playing field between local and offshore brands.

Zelman AinsworthHead of Retail Brokerage Leasing, MelbourneCBRE

Microstores provide the opportu-nity for a variety of retail types to have a CBD presence, driving a more diversified retail mix.

EXPERT FORECAST: CBRE


As we head into 2017, Australian and New Zew Zealand retailers are starting to truly understand the im-portance of shifting to omnichannel retail strategies.

Retailers testing key elements of omnichannel thinking are experiencing the benefits of giving consumers the information they need to make smarter buying decisions in a consistent brand environment. The divide between on-line and in-store shopping is diminish-ing as retailers recognise that in-store service experiences affect online sales, and customers’ needs for immediate delivery and service are driving them back to the store.

But the No. 1 threat facing Austra-lian and New Zealand retailers this year is the same threat as every year: failure to understand their customers. Modern consumers are informa-tion-hungry, using multiple devices on-the-go to shop wherever the buying is best. And, according to the Omni-channel Shopper 2016 (John Gaffney, MasterCard), they are loyal, which means they are likely to stick with a good retailer once they’ve found one.

The PwC Total Retail 2016 Survey says that 62 per cent of Australian and New Zealand shoppers would be likely to buy from an overseas retailer if the prices were better, and 34 per cent had used their mobile phones in-store to compare prices. To thrive in this global market, local retailers need to keep their customers engaged and informed, and

offer better value for money than their foreign competitors.

NOT SEPARATETo meet this challenge, Australian and New Zealand retailers need to stop focussing on sales channels as separate businesses with separate strategies. They need to create a cohesive user experience and business-management strategy that all channels support. With a single view of inventory across these channels, retailers will be able to opti-mise their supply chain by minimising freight costs.

Retailers will need to encourage online shoppers to buy now with same-day delivery or click-and-collect services that foreign retailers cannot compete with. And they need to offer free shipping and free returns, factors the KPMG Omnichannel Retail Survey 2016 says have been driving extra on-line and in-store buying.

A key part of an effective omnichan-nel strategy is rethinking the bricks-and-mortar outlet. It’s not just a point of sale any more — it is anything you want it to be. It can be a service base. It can be a user experience lounge. It can be a fulfillment centre. It can be a pop-up shop that spends a month in each city around the country. It can be a boutique mart. There is no script to follow — an outlet does not even need to be in a shopping mall.

We also expect retailers to revamp their websites, giving customers a bet-ter experience and building brand trust. In the PwC Total Retail 2016 Survey, 37 per cent of respondents claimed their buying behaviour was influenced by reviews, and 25 per cent had used a mobile device to check reviews while in the store. So there is value for retailers in giving potential customers access to reviews in all the same places they can buy. Customers also want to know whether the item they’re after is avail-able online or instore, so the integration of live inventory levels will make brand

websites more appealing.

FURTHER INCENTIVEThe arrival of more international retailers and new marketplaces is only further incentive for Australian and New Zealand retailers to include indirect selling methods as part of their sales strategy. While eBay started out as a platform for small consumer-to-con-sumer auctions, many high-profile brands now list their complete inven-tory as “Buy Now” stock in order to compete directly with smaller-scale resellers. The benefits of listing stock on sites like eBay and Etsy are evident, but inventory and delivery management can become a nightmare for retailers who do not have a single view across all channels. Companies like Neto can pro-vide that view with an all-in-one tool that lets users integrate seamlessly with each marketplace that presents a new opportunity to connect with customers.

So what new technology will we see in Australian and New Zealand retail this year? We expect to see a significant improvement in mobile apps for purchasing. The State of Retailing Online 2015 Forrester Report showed that retailers see 30 per cent of their ses-sions coming from mobile phones, and Goldman Sachs predicted that mobile commerce will account for almost half of all eCommerce by next year. New apps will make it easier than ever for consumers to find the information they need and buy the things they want.

We think the best way for online retailers to lift their game this year is to embrace strategies that recognise the value of all customer contact — in-store, online or mobile — as part of a continuous shopping flow. This starts with taking a more rounded approach to sales and marketing that does not depend solely on driving traffic to corporate sales websites, but instead provides a consistent brand experience across all channels. It is time to go omnichannel.

KEEPING IT ALL IN THE FAMILY

To succeed this year, retailers will need to embrace strategies that recognise the value of all customer contact as part of a continuous shopping flow, be it in-store, online or mobile.

Ryan MurtaghCEO

Neto

EXPERT FORECAST: NETO

ICC Sydney

Register Today!

29-31 March 2017

ExperiencesWorth

Remembering

Second roundticket releasewith first day FREE for retailers

FeaturedSpeakers

Chadatip ChutrakulCEO, Siam Piwat

Co, Thailand

Jim FieldingHead of Retail,

DreamWorks (USA)

Jon BirdManaging Director,

Labstore Global

Steve MaraboliAuthor and

Behavioral Scientist

Russel HowcroftExecutive General

Manager, Network Ten

Stefaan Le ClairBerenike Global

Fashion Management

Peter Wilkinson Chairman,

Forever New

Launa Inman Non-Executive Director, Commonwealth Bank

Day 1 – 29th March 2017: FREE for retailers

The Customer JourneyAttraction, Engagement & LoyaltyPerfect for marketing, sales & customer management

Day 2 – 30th March 2017

Retail Leadership, Management and ExpansionCulture, Crisis Management & Business GrowthPerfect for senior marketing retail executives, leaders and owners.

Day 3 – 31st March 2017

Retail 2027Disruption, Opportunity and AdaptationUnderstand where the retail industry is headed and plan and execute real strategies.

First Half • 09:00 - 12:30The Customer Landscape

A good customer experience means you need to understand the customer better than they know themselves, en masse. How do you now go beyond exceeding expectations?

Second Half • 13:00 - 17:00The Honeymoon period | Keep the spark alive

Attracting new customers is only one step of the journey. It’s time to engage, convert and keep customers loyal – all whilst juggling the most chaotic retail environment in human history. What do you do to keep the spark alive, and keep customers loyal... or is loyalty dead?

First Half • 09:00 - 12:30Retail Management 3.0

Dynamic, agile businesses are leading the new wave of disruption. You need to adapt new models for innovative retail management. How does culture support retail leadership, and how do you manage the ‘me’llenial generation? How are top retailers empowering floor staff? With the offshoring and automation revolution continuing, how are you managing expectations, and futureproofing your staff?

Second Half • 13:00 - 17:00Managing Crisis | The Next Retail Frontier

Your main competitor has just collapsed, a seemingly steadfast retail operation, are you next? Print is dead, services and industries are becoming automated, how will you adapt to industry crisis? What are the economic levers that impact your customers? What’s the next frontier for Australian expansion internally and abroad?

First Half • 09:00 - 12:30Future Setting | Disruption

“Our intuition about the future is linear. But the reality of information technology is exponential, and that makes a profound difference. If I take 30 steps linearly, I get to 30. If I take 30 steps exponentially, I get to a billion.” – Ray KurzweilThe amount of change in the last ten years is equivalent to an entire generation of change for someone born in the 1900s. We cannot use the last ten years of change as a precedent for the next ten, we must think far more imaginatively. How well are you prepared?

Second Half • 13:00 - 17:00Practical Next Steps | The Future is Here (It’s Just Not Distributed Yet)

How do you tackle the future? What do you need to do in the present to be ready? We’ve been given the warning signs of change and impact – now you need to act.

For the full agenda please visit insideretail.live

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australian retail outlook 2017...reflected by all the retailers participat-ing in the australian...

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