Traditional or legacy retailers are having a hard time of it, sales and margins are down over an extended period and it seems that every time things seem to be getting better along comes another hit – this time the Corona Virus.
In my recent article, I described how 5 of our larger retail public companies (excluding Woolworths/Coles/Harvey Norman/JB HI-FI) have between 2016-2019 collectively seen Sales and Margin Decline by between 2% and 3%. After inflation of 6.8% over this period this equates to a 8.6%-9.4% real decline in business.
So, What Does a Successful Retail Transformation Look Like:
In order to transform your retail business, you must have a benchmark description of what success looks like and I can do no better than to quote Mark Cohen a successful US & Canadian retail executive who in the Robin Report on the 2nd February 2020 described the answer to his question “So, What’s a Legacy Retailer to Do in this Age of Endless Disruption?” so eloquently –
“The “good old days,” if they ever were really that good, are gone forever. To survive, a legacy retailer must create differentiated and defensible assortments of merchandise and services, offered at appropriate prices, in a setting that is attractive and compelling. Stores must be well located, properly sized, wonderfully presented — and at the end of the day, always neat, clean, and friendly.
Store and website presentation must become one and the same. Great customer service is really and truly the price of entry, not a premium feature. As for e-commerce, the customer has come to expect to have it all their way. Fast and free inbound and return shipping, whether to homes, offices or pick up in stores, represent a checkbox that every legacy retailer must deliver against.”
And the Winner Is!
Most of our Australian Retailers would struggle to get near this definition in terms of delivering the outcomes customers are looking for. In our opinion, The Just Group stands out and in particular Smiggle and Peter Alexander who have grown 55% between 2016-2019 versus their traditional retail brands (Dotti, Portmans, Jay Jays, Just Jeans & Jacqui E) that collectively grew 3.6% over the same period.
So, what have Just Group and Premier Investments done well to stand out from the crowd?
- They employ the best executive retail talent in Australia
- They have over-invested in the Brands Peter Alexander and Smiggle where they have created a clear point of differentiation and taken these brands to the world to generate growth.
- Over 4 years ago they developed their strategy that recognized that their traditional retail brands would struggle for growth and therefore with all their brands, they lowered their cost of doing business to extract maximum profit. Solomon Lew & Mark McInnes well-published clashes with retail landlords have been effective in lowering rents from 19.9% of sales to 18% of sales and the same energy was expended on all areas of the business.
- The one area they are definitely lagging is on the eCommerce side where sales are 11.6% of total sales well behind other fashion retailers that are averaging 25% to 30% of total sales. This is our view as a result of under-investment in technology and supply chain that would enable faster delivery and more customer-friendly features like Buy Online Pick-Up in Store and Store Stock lookup.
Congratulations to Premier Investments for showing retail leadership to other traditional retailers by getting on with the business of transformation. As the saying goes “Rust Never Sleeps” likewise, I am sure Premier Investments is working continually on updating their strategy and there is much work to be done on the traditional brands that will increasingly struggle against fast fashion and market places as well as the above-mentioned capital investment on technology
For our more traditional retailers, there is no escaping the need for transformation driven by a clearly articulated strategy and a “new breed” of talent taking calculated risks to deliver the above-quoted outcomes for their customers.