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As the Australian Retail Industry entered 2020 and reviewed the events of 1999. They saw a year where retail spending had slumped to a 28-year low. The sector had tackled the challenge of employee underpayments and seen many retailers shut their doors, faced with the ongoing challenge of disruption caused by consumers switching to online shopping.

As 2020 emerged there is no doubt that many in the sector had hoped for a turnaround, but instead were faced with a year with even more disruption and challenges. Many retailers are now searching for ways to improve efficiency in these difficult trading conditions. Technology together with the realization that a major change has happened, can help in streamlining processes.

How much is the Australian retail industry worth?

Annually, the Australian retail industry accounts for around $300 billion of consumer spending and provides between 15% and 17% of all Australian jobs. (2019 Figures).

Few industries are as immediately hit by the change in household consumption as the retail sector. The COVID-19 lockdown had a significant impact on both consumer sentiment and household incomes.

What are the main challenges facing the Australian retail industry?

During the COVID-19 Pandemic for the Australian retail industry, there has been a marked reduction in foot traffic as consumers have decided to heed the warnings of the government and stay at home. The remaining traffic is highly dependent on Click & Collect.

Super Retail Group (SRG) has seen a doubling in Click and Collect transactions and also seen the proportion of online sales move from 1 in 12 last year to 1 in 4 this year. They are seeing a 145% year of the year online sales growth in recent weeks.

Source – Financial Review: https://www.afr.com/companies/retail/retailers-switch-focus-to-online-to-keepcash-flowing-20200406-p54hjz

Consumers Switch to Online in the Australian retail industry

Since the very first restrictions to fight COVID-19 were put in place foot traffic in shopping malls has plummeted. At the same time, the number of people shopping online has been increasing. There had been a slight trend in the last few years and the issue has been hanging over the Australian retail industry for some time, but the pandemic has caused this process to accelerate. The previous reluctance of both the consumer and retailers to switch to online has been overcome by necessity and now people have tried online many are saying that they may be inclined to continue shopping online after the pandemic. Retailers have invested in their online operations and consumers are becoming more comfortable with online shopping.

This investment in online retailing has resulted in many retailers trying to save money elsewhere and not renewing store leases is becoming an attractive option.

Premier Investments (who operate Smiggle, Peter Alexander, and Portmans) did not pay rent while its stores were closed and now find that 70% of store leases have expired. This allows them to close those stores. In September 2020 they went on to announce that 350 stores may shut for good. Premier had experienced a substantial shift to online and were now reconsidering their focus on store profitability.

Source: News com Australia – https://www.news.com.au/finance/business/retail/premier-investments-sayshigh-rents-could-close-350-stores/news-story/2bf2d045e24bb272e6a8d2b9e904f46c

The Slow Death of Department Stores

Department stores worldwide have recently been facing challenging conditions. Some big names like Barney’s, Debenhams, and JCPenney have filed for bankruptcy, and Closer to home, Harris Scarfe, Myer, and David Jones have all taken measures.

COVID-19 has just been the final nail in the head of many department store chains, hastening what seemed to be happening anyway.

Source: The Conversation – https://theconversation.com/dont-blame-covid-19-targets-decline-is-part-of-adeeper-trend-139205

Dark Stores are the Future

Dark stores are traditional stores that have been converted into local fulfillment centers. They may be grocery stores, clothing stores, or home good stores. With the rapid switch to online during the COVID-19 pandemic, footfall in traditional stores has plummeted so much that retailers have chosen to simply close the stores and turn them into local fulfillment centers for online purchases, or click and collect orders.

By converting stores to local fulfillment centers retailers are making it possible to offer much faster delivery or almost immediate collection with the click and collect.

While Dark Stores were a knee jerk reaction to the pandemic, it may well be the case with a country that is now finding they quite like online shopping, that previously borderline profitable stores could well be candidates for permanent Dark Store status.

Just before Christmas 2020, in the Australian Retail Industry, Woolworths opened their largest Dark Store in Lidcombe in Western Sydney, creating 900 new jobs and creating 20,000 extra delivery windows each week.

Dark Stores were originally opened by the grocery retailers but offer other types of retailers an opportunity as well. Dark Stores originated in the UK and EU, but have spread globally during the pandemic.

Advantages of Dark Stores

Typically closed to the general public these stores can operate extended hours and are close to the areas they serve, allowing retailers to lick and deliver orders rapidly. Underperforming stores in densely populated areas make great locations for Dark Stores. Stores that offer delivery in just hours, not days.

Technology and More Accurate Inventory

Dark Stores operate entirely in real-time and offer far more accurate inventory control using technology during the pick and pack process. This technology will also allow Dark Stores to offer extended ranges.

With no opening hour restrictions experienced by traditional stores, Dark Stores can operate 24/7 and offer a vastly improved efficiency.

This represents a new era in Australian Retail Industry and is sure to be part of the New Normal in the future.

Australian retail industry Technology Trends

There is no doubt that the retail world is going through a transformation of such magnitude that many aspects of the relationship between the retailer and consumer are having to be re-thought. The long-term move towards online purchases, hastened by the bushfires, and the pandemic, have resulted in a swift transition to a new era of retailing that many companies were not yet ready to face.

In this section, we will look at a handful of developments that are becoming increasingly relevant in these troubled times and will ensure that there are opportunities for innovative companies to weather the storm and come out ahead.

POS systems Integrated with E-Commerce

Many retailers have been operating e-commerce sites that we totally disconnected from their store operations. This was fine while e-commerce was minuscule compared to the store-based business, but today all this has changed and it makes much more sense if e-Commerce is integrated with store operations and inventory control is common between both retail systems. Retailers are beginning to appreciate that a single system that manages both store sales and e-commerce is the direction they should be going. In the new retail environment after the pandemic, retailers will expect to be able to control inventory and promotions across all distribution channels from one central dashboard.

Augmented Shopping

Most people have experienced augmented gaming or at least seen it on TV. It has been predicted in 2018 that by 2020 100 million shoppers would experience augmented reality in their shopping experience. That prediction has come true. The Pandemic has only made this even more important to consumers. Features such as virtual fitting rooms. One perceived advantage of bricks and mortar stores is that you can try clothing on before you buy it. With virtual fitting rooms, it is possible to try on and see yourself wearing clothes, shoes, watches, glasses, and hats. As these systems become more common, consumers will be expecting them to be offered by all online retailers.

Recommendations Based on Data

Amazon claims that 35% of its sales are generated by personal recommendations made by its “Recommendations Engine.” The recommendations Engine looks at the profile of the customer and then matches it with similar customers to find products that the individual is likely to favor.

Once this type of technology was only available to online customers, but now similar technology can assist in-store customers as well. Alibaba group has developed “Fashion AI” which follows a customer around the store and using RFID and Bluetooth to offer customers recommendations on items that will mix and match.

Integrating this technology with chatbots can create a virtual sales assistant who can chat and advise while the customer shops the store, or browses online.

Machine Learning for Demand Forecasting

Machine learning bases demand forecasting is here already and can power Inventory control, logistics, and reduce environmental impact, by gathering POS data, external data (exchange rates, market states, and economic factors) in a way that is far more accurate than older methods of forecasting. Intelligent use of this technology can stop the problem of overstocking, reduce logistics expenses, and mitigate the environmental impact of the business.

Staff Free Stores

In China, a company called BingoBox operates a chain of staff fewer stores that open 24 hours. They look like any other convenience store but one thing is the absent staff. The shop is a single-aisle and is unlocked by the customer through a phone app. Customers scan items themselves and the store monitors for potential thieves by real-name registration and several video cameras. The company is selective where it installs these stores, concentrating on upmarket areas well away from “hooligans and homeless people.”

Amazon is also developing Stores that have no cashiers and can be operated by just six staff. Many UK supermarkets also have large numbers of self-service checkouts.

Robots

Another new technology which may well become big in retail stores is robot technology. Most of the new technologies so far have been more concerned with the point of sale and data control. This technology is a response to the manual work involved in retailing. These tasks involve restocking shelves. Cleaning and counting stock on the shelves. There are also robots being developed that answer customer questions and assist customers in finding products.

They have even developed safety robots that locate and clean up spillages, and make customer safety announcements. Of course, robots are not going to have problems with social distancing if required.

Drones

Most drones in use in retail at the moment are used inside warehouses for inventory management, and picking orders. Several companies are investigating and developing a more ambitious use of drones. They want to utilize drones for the last mile delivery.

Some big-box retailers are planning to develop and operate their own fleet of autonomous drones to deliver purchases by air, and thus avoiding increasing road congestion. Others are considering the development of third-party drone delivery operations. UBER is for example looking at developing and utilizing drones for delivery.

Many companies worldwide are in the advanced stages of developing third party delivery drone services, including the following well-known companies. Swiss Post, Deutsche Post DHL (DHL Parcelcopter), China’s JD.com, Japan’s Rakuten.

Conclusion – How digital transformation is revolutionizing the Australian retail industry

Retailing is facing so many challenges today and has been for a decade now. If we look at the UK, for example, we saw the introduction of shopping parks and out of town malls. These resulted in big-name destination stores being attracted out of town, leading to town centers that looked like ghost towns, and many smaller businesses closing since people had followed the big names out of town.

In the last few years, there has been an increasing threat from online stores operating at lower costs than bricks and mortar stores. Many big names have been lost in recent years as they failed to compete. Times were hard for large brick-and-mortar stores and changes in society have eroded the popularity of department stores that once we the cornerstone of malls, resulting in many closings, weakening the surrounding retailers.

Then of course in 2020 we saw the pandemic and lockdown, which hit the already struggling retail businesses hard. Many close for lockdown, never to reopen again.

The remaining retail business needs to reduce costs to survive in these difficult trading conditions. They are doing this by an ever-increasing use of technology. Staff numbers are being reduced with self-service checkouts and costs are being trimmed by the use of technology that has a tighter control on inventory. Bricks and Mortar businesses have mostly also been forced online and technology is helping them merge the management of online stores and bricks and mortar stores. Where stores are no longer viable some are being converted to Dark Stores, fulfillment centers to improve the local distribution of online sales. Now how to get stock from local distribution centers to the customer and speed up delivery is being investigated with some companies considering aerial drones to make individual deliveries.

We are at the dawning of a new age in retail where those that embrace technology will thrive and others will join the list of businesses that have closed forever.

Digital transformation impacts your customers, suppliers, partners and stakeholders. DC Encompass provides professional consulting services to the Australian Retail Industry. Call our team on 1300 002 112 to find out how we can assist.

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