Australian Retail Outlook 2020

Australian Retail Outlook ®2020 Powered by KPMG Happy customer, happy company

In the new retail landscape, best-in-class retailers know that if their business is not truly focused on the customer, they face an uphill battle to survive - much less prosper. KPMG Connected Enterprise helps retailers deliver a customer-centric approach to digital transformation. We work with retailers to connect every part of the business across its value chain, aligning the organisation to achieve a single, simple process. Placing the customer at the heart of everything it does.

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Happy FOREWORD 4 INDUSTRY IN FOCUS 5 AUSTRALIAN RETAIL OUTLOOK 2020 SURVEY 10 1820 customer, RETAIL TRENDS by KPMG SUSTAINABLE IS THE NEW TICKET TO PLAY 20 SOCIAL CUSTOMER CARE 22 RETAIL AND THE SOCIAL LICENCE TO OPERATE 24 CASHLESS IS KING 26 IS E-COMMERCE PRIMING TO BOOM? 28 happy INVEST IN CX – BUT NOT FOR CX SAKE 30 PUTTING CUSTOMERS FIRST WITH ADVANCED ANALYTICS 32 company RETAIL PROFILES COLES’ TRANSFORMATION GATHERS PACE 35 35 EBAY ACCELERATES GROWTH 38 OFFICEWORKS’ BLUEPRINT FOR 2020 40 In the new retail landscape, best-in-class retailers know that SWAROVSKI SPARKLES DOWN UNDER 42 if their business is not truly focused on the customer, they DOMINO’S DELIVERS MORE INNOVATION 44 face an uphill battle to survive - much less prosper. KPMG Connected Enterprise helps retailers deliver a customer-centric approach to digital transformation. EXPERT FORECASTS by KPMG

We work with retailers to connect every part of the WHY RETAILERS FAIL 49 business across its value chain, aligning the organisation to ECONOMIC UPDATE 52 achieve a single, simple process. NZ RETAIL: BLACK CLOUD OR SILVER FERN? 54 THE POWER OF PERPETUAL INVENTORY 56 Placing the customer at the heart of everything it does. BRIGHT SPARKS IN TOUGH M&A MARKET 57 HOW TO GENERATE MORE CASH FLOW 58 54

The Australian Retail Outlook ADVERTISING is printed by Octomedia Jeff Purser Australian Retail [email protected] ® HEAD OFFICE Outlook 2020 S3, Ground Floor, GRAPHIC DESIGN Octomedia Pty Ltd accepts no liability for any errors, 131 Clarence Street, Sofia Costales omissions, or consequences, including any loss or KPMG Connected Enterprise damage, arising from reliance on information in this Sydney, NSW [email protected] publication. The views expressed in this publication KPMG.com/au/connectedenterprise PO Box R217 Royal Exchange reflect the opinions of the writers and are not NSW 1225 Tel: +61 2 9901 1800 GENERAL MANAGER necessarily endorsed by Octomedia Pty Ltd. We recommend obtaining professional advice from an Fax: +61 2 9901 1800 Amie Larter accredited advisor before relying on the information [email protected] in this publication. Octomedia Pty Ltd reserves all EDITOR copyright over the content included in this publication. No part of this publication may be reproduced, stored Dimitri Sotiropoulos FOR MEDIA RELEASES in a retrieval system, or transmitted in any form, as per [email protected] [email protected] the Australian Copyright Act 1968.

From the editor The year that was WELCOME TO THE AUSTRALIAN 2019 WAS ANOTHER MOMENTOUS YEAR FOR RETAIL OUTLOOK 2020, CO-PRODUCED AUSTRALIAN RETAIL. by Octomedia – publisher of Inside Retail – Headlines were made (often) for the wrong reasons as retail and KPMG. spending slumped to a 28-year low, the industry was further Another year, same challenges and even impacted by the challenge of employee underpayments and more more difficulties have made retailing Down retailers were forced to shut their doors, driven by a wave of Under a tricky task. Just ask some of the consumer change. latest retail casualties to enter administration There can be no doubt that the global retail sector is being or those suffering from the unprecedented impacted by hugely disruptive forces as consumers shift to digital bushfires that have ravaged the countryside. and online as their preferred medium of engaging with their But it’s not all bad news. Consumers favourite brands. have more paths to purchasing goods than The simple truth is Australian and New Zealand retailers are not ever before, and the increased competition immune from the changes impacting the rest of the world. has forced retailers in Australia and New The pressure on retailers to remain relevant in the eyes of the Zealand to up their value proposition to consumer has never been stronger. Consumers are shopping keep pace. The result? Exciting partnerships, differently, paying differently and their values are continuing to shift launches and innovative retailing by as sustainability and ethical retailing have taken centre stage. successful local retailers that are powering Retailers around the world are recalibrating their business models ahead in the new retail landscape. to optimise (usually downsize) store portfolios and physical space On the flipside, those lagging behind alongside maximising online and digital engagement. They continue on merchandise and service are falling by to be subject to the challenge of profitable growth across all channels the wayside. in the face of unparalleled headwinds, combined with the white hot This year’s edition features the latest spotlight of where they fit in the circular economy and their social insights from some of the largest retailers license to operate. operating in Australia. We speak to Coles Across the Tasman, the New Zealand retail market has remained CEO Steven Cain about the supermarket resilient amongst a buoyant national economy. However, much like giant’s last 12 months and their current Australia, international entrants are driving competition and placing transformation journey. pressure on retail margins. Ebay’s MD Tim MacKinnon talks about the So who is doing well? JB Hi-Fi continues to dominate as the e-commerce conglomerate’s continued success strongest player in the sweet spot of consumer electronics. The in Oz, while Officeworks’ acting MD Michael Universal Store continues to power ahead as a beacon for other local Howard talks about the retailer’s plans for the apparel retailers. Online players such as Kogan and Temple and next 12 months. Domino’s ANZ CEO Nick Webster are producing good results leveraging data and digital to Knight gives us a glimpse of the pizza firm’s engage with consumers. innovation focus and Swarovski’s MD Brett History has shown that, overtime, retail has a tremendous capacity Spinks talks about the jewellery firm’s plans. to adapt to changing customer preferences and consumer behaviour. KPMG’s experts delve into the latest We believe that the next decade will see even more dramatic change and largest trends in retailing while also in the retail sector as how we live and work further reshapes what offering their forecasts on the business best practice retail should look like. landscape over the next 12 months. We also Of course, with any significant change also comes significant have the results from our industry-wide opportunity. 2020 is likely to be another challenging year where survey and much more. Australian and New Zealand retailers will continue to adapt and I hope you enjoy this year’s edition and look for that opportunity to differentiate themselves, reinventing that it provides some valuable insights for their businesses and leveraging digital and data to engage with the year ahead. their target customer.

DIMITRI SOTIROPOULOS MATTHEW DARBY, JAMES STEWART, Editor, Partner, National Sector Partner, Joint National Leader, Australian Retail Outlook Lead Retail, KPMG Restucturing Services, KPMG

4 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au INDUSTRY IN FOCUS COMPLEXITY AT THE CORE OF LOCAL RETAIL LANDSCAPE

www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 5 INDUSTRY IN FOCUS

Surveying the scene in 2020

It’s certainly been a tough year for retailers, and it doesn’t look like trading conditions are going to get any better in the immediate future.

IF ONE WORD HAD TO BE USED Strategy and Economics and Chief c-suite executives, owners or board IN DESCRIBING THE CURRENT Economist, AMP Capital. members, think there will only be slight state of Australian retail and broader “The Victorian Black Saturday changes to trading conditions over the economy, perhaps ‘tempestuous’ is the bushfires are estimated to have cost next 12 months. most appropriate. $4.4bn, whereas the current fires have It’s a view echoed by Dr Brendan On the one hand, while some covered an area 15 times bigger,” he says. Rynne, Partner and Chief Economist categories and retailers are Indeed, ANZ says consumer at KPMG, who in a must read economic thriving, others are failing and confidence fell 1.7 per cent in the first update, says the trading environment falling into obsolescence. week of January to its lowest level in facing Australia in 2020 is likely to be And then there’s the impact of over four years – the ‘unusual drop’ a continuation of the current tough unprecedented bushfires across the reflecting the the impact of the bushfires. trading conditions [page 52]. country. The costs from damage to Meanwhile, in this year’s Australian With consumer confidence already property and wealth “will likely run Retail Outlook Survey [page 10], over low due to the catastrophic bushfires; into many billions” according to Dr half of the 610 participants from across global economic factors and the volatile Shane Oliver, Head of Investment the industry, of which 24.5 per cent are value of the Australian dollar; plus the

6 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au same old culprits of rental overheads that the impact of this Black Friday [page 54]. and competition from both local and exceeded that of previous years.” KPMG’s James Stewart, Gayle overseas retailers, it’s no wonder that Online retail turnover contributed Dickerson and David Hardy say retailing is expected to be tough in 2020. 7.1 per cent to total retail turnover in technology has become a cornerstone But while this may sound very original terms in November 2019, up on of retail success – a serious strategic downbeat, there’s also been some the previous year which had an and tactical point of difference for best positive news for retailers to herald a online retail turnover contribution of practice retailers [page 49]. new decade. 6.6 per cent. However, Andy Buckle, Director, National Lead for Retail Technology at CHRISTMAS KINDNESS TECH IN FOCUS KPMG says very few of Australia’s top The first retail spending update from While the fundamentals for retailers have perpetual inventory, a the Australian Bureau of Statistics (ABS) successful retailing remain – near real-time and ubiquitous approach of the year and decade, is a positive one effective merchandising, supply to inventory management and the for retailers. chain operations and enticing value ramifications are ominous [page 56]. Buoyed by major online sales events, proposition – technology has become a Meanwhile, Coles CEO Steven Cain Black Friday and Cyber Monday, retail key area of interest for major retailers says that securing a series of key tech had its largest retail sales increase in across Australia. partnerships with major firms are two years, up 0.9 per cent in November It’s also the case in New Zealand, important for its transformation journey. to a record $27.9 billion – doubling the where the country’s largest retailer The supermarket giant’s exclusive increase expected by economists. is looking to overhaul its operations to deal with online retailer Ocado, will There were rises for clothing, footwear compete with international platforms create an end-to-end online shopping ► and personal accessory retailing (3.1 per cent), food retailing (0.5 per cent), household goods retailing (1.2 per cent), department stores (3.4 per cent) and While the fundamentals cafes, restaurants and takeaway food services (0.9 per cent). for successful retailing remain – “We have seen strong growth in Black Friday sales, both in areas such effective merchandising, supply as electrical goods and online sales, but also in areas such as clothing chain operations and enticing and furniture,” said Ben James, ABS Director of Quarterly Economy value proposition – technology Wide Surveys. “While seasonal adjustment removes “ has become a key area of regular seasonal patterns associated with Black Friday based on prior results, interest for major retailers the strong seasonally adjusted rises in a number of sub-groups this month shows across Australia.”

Has e-commerce hurt bricks-and-mortar, or simply weeded out the weak from the strong?

www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 7 solution, from website to efficiently mapping delivery routes to get customers’ orders to their kitchen benches quicker and at a time that suits them [page 35]. Domino’s Australia and New Zealand CEO Nick Knight also expects 2020 to be full of more tech launches for the pizza firm, with e-bikes, fast bake ovens and world-first technology like the GPS Driver Tracker, Predictive Ordering and DOM Pizza Checker to be areas of innovation and iteration [page 44].

ONLINE TIPPING POINT? With the rise of mega online sales events in November now becoming normal, and e-commerce continuing along its upwards trajectory, we may be on the precipice of a second digital boom. That’s the projection by KPMG’s Jane Cohen, Partner, Global Strategy Group, who sees parallels between the current economic pressures and trends with the conditions that precipitated the Post-GFC e-commerce boom [page 28]. That’s good news for the likes of Ebay Australia The historical and New Zealand’s Managing Director, Tim Strand Arcade in MacKinnon, who says the e-commerce giant already Sydney’s CBD. has 11 million unique monthly visitors to Ebay and remains the number one shopping destination in Australia [page 38]. As retailers continue to increase investments in e-commerce operations, and consumers become more comfortable with online platforms, 2020 could be the year of accelerated digital shopping and organisational transformation – separating the profitable from the liquidated.

Retailers that have entered administration in 2019-20 so far Harris Scarfe Bardot Karen Millen (local arm) Ziera Ed Harry Debenhams (local arm) The Co-Op Bookshop Napoleon Perdis Shoes of Prey Zanui Jeanswest Dimmeys Stylerunner Build-A-Bear (local arm) Bose (local arm) Colette by Colette Hayman

8 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 9 AUSTRALIAN RETAIL OUTLOOK 2020 SURVEY

10 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au AUSTRALIAN RETAIL OUTLOOK SURVEY 2020 Industry insights: executive voices

Volatile consumer confidence and a struggling Australian dollar are keeping retail executives cautious in outlook and approach – here are the findings from our annual industry-wide survey.

THE FIRST AUSTRALIAN RETAIL OUTLOOK year’s survey. Survey to herald a new decade has drawn responses from Supply chain and fulfillment executives [3.6 per cent], a broad cross-section of the sector – including 360 retailers buying and merchandise planners [5.3 per cent], area and 250 related industry members. and store managers [6.6 per cent] were also represented in Survey respondents came from all levels of retail the findings. organisations, with 24.5 per cent representing c-suite All retail categories had participants in the survey, executives, owners or board members. Over 36 per cent with nearly 15 per cent plying their trade in clothing, of participants work at retail organisations with 400 or footwear and accessories. Supermarket and grocery firms more employees. [7.4 per cent], furniture and homewares [6.9 per cent] and Marketing executives [10.5 per cent] and sales pharmaceutical/cosmetics were all healthily represented. representatives [8.7 per cent] had a strong showing in this All data is in percentages.

How would you describe trading Q.1 conditions in the past 12 months?

3.1% 25.9% 41.8% 20.5% 8.7% Best I have Good Ordinary Poor Worst I have experienced experienced

Last year’s optimism – where there same opinion. majority nominating the last 12 was an increase in retailers describing And at the other end of the months of trading as ordinary [41.8 trading conditions as the best they’d spectrum, there was an increase of per cent]. There was a notable decline experienced – has declined. respondents asserting that the past in retailers identifying trading as Whereas last year, over five 12 months were the worst they’d good [25.9 per cent, down from 38.3 per cent of retailers said that experienced, up from 6.9 per cent to per cent in 2019]. trading conditions were the best reach 8.7 per cent this year. Meanwhile, more participants they’d experienced, 3.1 per cent of The bulk of responses were identified trading as poor [20.5 per participants this year were of the somewhere in between – with the cent, up from 12.9 per cent]. www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 11 In the year ahead, Q.2 Q.3 how do you expect How did the last 12 months trading conditions to change? compare to the previous?

Significant improvement

6.6% 16.9% Slight improvement 30.8% 25.9% Remained about the same 24.4% 52.3% Slightly worse 32% Significantly worse

11.2% Significant changes Slight changes Remain about the same The negative trend continued, when considering comparisons of full-year results. The number of respondents claiming the last 12 months were significantly worse, rose to Looking to the year ahead, most retailers expect slight 11.2 per cent [up from 7 per cent in last year’s survey]. changes to trading [52.3] per cent. A further 30.8 per cent Worryingly, the number of retailers who said the last 12 think trading conditions will remain the same. months were slightly worse jumped from 19.7 per cent last Just under 17 per cent said that the next 12 months year, to 32 per cent. will have significant changes in trading conditions. The There was also a nearly 10 per cent swing from figures are close in comparison to last year’s responses, retailers claiming their full-year results were a significant where around half of the executives also only expected improvement on the previous year, dropping from 17.4 per slight changes. cent to 6.6 per cent.

What 44.9% Rental overheads Q.4 are the biggest challenges 18.9% International entrants facing the retail 26.7% Offshore online retailers industry in 2020? 42.1% Discounting

The top three challenges facing 56.4% Consumer confidence the retail industry in 2020, are a mirror image of last year’s selections 30.8% Labour costs by participants. With respondents asked to select the three major challenges facing the industry 28.9% Global economic factors in 2020, the major challenge identified by 56.4 per cent by executives was consumer confidence [up from 51.3 The value of the per cent in 2019]. 25.7% Australian dollar Next was discounting with 42.1 per cent, followed by rental overheads with 44.9 per cent, consistent with last 4.8% Taxes year’s results. Meanwhile, local executives are less and less scared of the threat posted by international e-commerce 5.7% Private label giants, with overseas entrants dropping from 34.1 per cent last year, to 26.7 per cent. 6.1% Government regulation Global economic factors [28.9 per cent], labour costs [30.8 per cent] and the value of the Australian dollar [25.7 per 9% Other cent] continue to weigh on executives’ minds.

12 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au What will be the top priorities ` Q.5 for your business this year? When given three choices Increasing margin 54.3% for selecting the top business priorities for the next 12 Increasing turnover 59.3% months, executives were consistent with their goals E-commerce 44.4% compared to last year. Again, mirroring the results from Omnichannel initiatives 37.1% last year, increasing margin [54.3 per cent], increasing Expanding store network 14.3% turnover [59.3 per cent] and e-commerce [44.4 per cent] Entering new markets 28.9% occupied the top three spots. Retailers are still keen Expanding product range 26.6% to prioritise omnichannel Closing stores 8.9% initiatives [37.1 per cent], while entering new markets Reducing product range 6.7% [28.9 per cent] and expanding product ranges [26.6 per cent] Rebranding 7.8% had increases on last year – indicating that executives Others 12% are keen to find new avenues of growth.

Does the influx Do you plan to Q.7 of international Q.6 change your retailers to Australian shores number of stores this year? worry you?

There’s been a reduction in retailers looking to increase the number of stores they operate, with 23.3 per cent, down from 28.4 per cent in 2019. More executives are now looking to decrease the number of stores, with 10.2 per cent [up from 9.3 per cent last year] planning to cull the amount of physical locations they operate. More concerned 50% 36.9% than last year 25.4%

23.3% Less concerned 22.3% than last year

Not concerned 27.7% The value of the

Australian dollar THE DECREASE – YES STORES OF NUMBER

10.2% It appears that international retailers entering Australia are not seen as a large threat to local firms’ market share. Executives are rather bullish this year, with 50 per cent asserting that they are not concerned about international entrants. NO – STAY ABOUT THE SAME THE ABOUT STAY – NO YES – INCREASE THE THE INCREASE – YES STORES OF NUMBER WE DO NOT OPERATE NOT DO WE STORES PHYSICAL ANY A further 22.3 per cent are less concerned than last year while the number of retailers more concerned, dropped to 27.7 per cent from [32 per cent last year].

www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 13 3.5 Did you Q.8 Q.9 find that How do you 3 you received more believe the flexibility and Australian help from landlords retail market 2.5 last year? is placed compared Always a hot topic of the industry, this 2 year’s response to the flexibility and to other helped proffered by landlords showed international that attitudes are perhaps changing for the positive. markets? 1.5 The number of executives saying 2.8% they had significantly more help rose from 3.6 per cent to 4.9 per cent, while Mirroring last year’s slightly more also increased to 18.7 per findings, the majority 1 cent [up from 15.7 per cent]. of participants Meanwhile, 7.5 per cent of said the Australian respondents said they had slightly less retail market is in help, down from 10 per cent last year. the middle-range, 0.5 compared with overseas markets. Less Significantly more executives said that Slightly more Australian retail was 0 in the lowest-tier, with Remained about the same 9.3 per cent down from 13.3 per cent last year. WEIGHTED AVERAGE Slightly less Significantly less

How do you Q.10 expect leasing terms to change this year? 4.9% Most executives expect leasing terms to remain the 18.7% same, with 43.6 per cent expecting slight changes and 45.7 per cent anticipating no changes at all. 4.3% Interestingly, there was an increase of respondents expecting significant changes, rising from 7.8 per cent to 10.7 per cent this year. REMAIN ABOUT SLIGHT THE SAME 7.5% CHANGES

43.6% 45.7%

SIGNIFICANT CHANGES 64.6% 10.7%

14 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au How will the value of the Australian dollar impact your Q.11 business this year?

11.2% 59.8% 29%

Positive impact This year’s response to the potential value and impact of the Australian dollar, again Negative impact doesn’t point to much local confidence. Nearly 60 per cent [59.8 per cent] expect a negative impact from the Aussie dollar, while 29 per cent don’t think there will be No impact any impact on trading conditions.

35.1% 33.8% How has your Q.12 revenue from e-commerce changed in the 27.7% past 12 months?

E-commerce continues to draw positive sentiment Significantly more from the business community. The number of retailers experiencing a decline in e-commerce revenue dropped again [down to 3.4 per cent from 4 per cent]. Remained about the same More executives said that e-commerce revenue stayed the same [35.1 per cent, compared to 32.6 per cent], while Slightly less 33.8 per cent said revenue slightly increased.

Increase slightly Increase significantly Stay about the same 3.4% Decrease

What percentage of your total revenue comes from Q.13 your e-commerce channel?

Less than 5% 43.1%

Less than 10% 24.6%

Less than 25% 18.2%

Less than 50% 6.6%

Less than 75% 3.1%

100% of revenue 4.4%

0 10 20 30 40 50

But while e-commerce continues to be a source of revenue growth, the overall contribution towards a company’s balance sheet appears to remain comparatively low. Over 43 per cent of respondents said that e-commerce represented less than 5 per cent of overall revenue.

www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 15 Facebook 72% What is Q.14 the best Australian retail brand for 2019? Instagram 66.9%

7.9% JB Hi-Fi LinkedIn Q.15 25.3% Which are the most effective Blog/native content social media on website 14.1% 7.2% channels your Bunnings Don’t use social media retail business 7.2% uses? Twitter 6.4% Facebook and Instagram continue to lead the way, in terms of most effective social media 6.6% channels used by retailers. WeChat 3% Woolworths Respondents were asked to select two platforms and Facebook [72 per cent] and Pinterest 2.6% Instagram [66.9 per cent] clearly came out on top. Interestingly, there was an increase in Snapchat 1.8% respondents that don’t use social media – up to Tiktok 0.8% 4.3% 7.2 per cent from last year’s 5.5 per cent. Mecca What do you think 3.8% Q.16 consumer expectations Aldi will increase the most in over the next 12 months? 3.1% Speed of delivery and increased Coles 42% flexibility in fulfilment options again came out on top, with 3% consumers’ e-commerce 35.9% Kmart 34.9% demands continuing to rise. Online delivery speed [42 32.5% 2.8% per cent] and online delivery Cotton On Group options [35.9 per cent] were the frontrunners for consumer 2.5% expectations in the next 12 The Iconic months. Customer service is still deemed critical, nominated by 1.8% 34.9 per cent of executives as a Harvey Norman key area to watch in 2020. 14.7% 14.4% In terms of popularity contests, the 13.8% typical big names featured prominently in the top 10 of most voted for retailers. Some executives weren’t sure, making 7.1% comments including “none really, there is no retailer that is really standing out to 3.8% the consumer”.

Online delivery options Online delivery speed Price Customer service In-store digital functionality Product quality Product variety Product freshness/ relevance Other

16 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au THE FUTURE IS UNFOLDING

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www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 17 SPONSORED ARTICLE

Retail Data: Unavoidable cost or investment opportunity? BY PAUL HINDS, IRI Managing Director Asia-Pacific

AFTER A PROLONGED PERIOD insight-driven collaboration between the decisions we support and OF STABILITY, THE RETAIL DATA themselves and their suppliers are measure. Our independence in the market in Australia is currently visionaries. These retailers do expect a marketplace enables us to act as a true going through some major changes, commercial return on their data sharing collaboration agent. reflective of the global trends impacting but this will not be their driving force. our industry. They understand that the long-term SO WHERE SHOULD YOU SPEND There are generally two approaches commercial benefits of sharing their YOUR BUDGET ON DATA SERVICE? retailers are taking to sharing their data: data will far outweigh the short-term When I look at the evidence from data revenue. IRI’s strategic global retailer 1. Supplying more granular data to Many retailers do view the goal partnerships, where we work with their suppliers more often – sharing of commercialising their data as the majority of the top 20 retailers the challenge of creating faster, more pure incremental revenue. If this is in both the US and Europe, I believe actionable and measurable insights transparent to their supplier base and those willing to collaborate on to drive incremental customer value. the cost is not exorbitant, this approach deriving insights will gain the greatest can work; there is still incremental value competitive advantage. By focusing on 2. Controlling and limiting supplier to be derived from the insights to inform customer needs, they will truly enjoy access to data – concerned about product, pricing, promotional and a WIN/WIN/WIN (Customer/ suppliers knowing too much about channel strategies. However, if genuine Supplier/Retailer). the inner workings of their business collaboration is minimal, it will take far They best way to achieve this is and the potential for competitors to longer to have an impact and the ROI to offer a meaningful joint business access and leverage this data. will always be questionable. planning process where both the retailer IRI holds a unique position in and supplier leverage common data sets An important nuance for retailers the FMCG eco-system. We have and agreed KPIs, supported by new, who share data lies in their objectives. relationships with retailers and faster, innovative methods of accessing Retailers who recognise that to their suppliers. We generate data to generate impactful insights. differentiate their offering and revenue from data but our value to This is the winning criteria for data win customers requires genuine, clients is the insights we provide and defined as an investment opportunity.

18 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au RETAIL TRENDS

www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 19 RETAIL TRENDS

Sustainable is the new ticket to play

Transitioning to a circular textile economy is both a sales opportunity and risk management strategy that can safeguard a retail organisation’s future.

BY MYRIAM BENTLEY, Senior Account Manager, Clients and Markets, KPMG

DID YOU KNOW THAT THE Unsurprisingly, caring for the are developing initiatives to promote the AVERAGE AUSTRALIAN BUYS 27 environment has never been a hotter circular economy, which they claim can kilograms of clothing every year yet throws issue both for society and businesses. potentially deliver economic benefits of $1 away (cough...recycles) 24 kilograms of And right in the middle of the trillion globally by 2025. apparel a year? battleground is retail, which is a huge In Australia, state and federal Approximately 65 per cent of the contributor to the environmental government initiatives have been clothing we ‘recycle’ usually gets sent problems we face around the world. announced, with $167 million being offshore to a developing country where it In response to a global environmental invested federally to contribute to the is sent to landfill. disaster, the circular economy movement circular economy and recycling. And somewhere between California and is gaining momentum as brands recognise This is in part for funding a Circular Hawaii there is an island of plastic and that a sustainable environmental footprint Economy Hub developed through Planet floating rubbish known as the Great Pacific is the new ticket to play in retail. Ark, planned to launch in 2020 where Garbage Patch – comprised of 1.8 trillion The circular economy gives new life a marketplace will connect buyers with items of rubbish that is twice the size of to products and materials that would sellers in the circular economy. Texas and three times the size of France. otherwise make their way to landfill, Well you may not know it – but your letting products have an infinite lifecycle THE CURRENT STATE IN THE customers sure do. Particularly millennials. through different uses. TEXTILE INDUSTRY And it is very important to them. Globally, governments and industries While the majority of Australians believe they already contribute to a sustainable circular economy in textiles An infinite product – via charitable donations, which is lifecycle loop. primarily recycled clothing – the reality is much different. While charities have given a second or third life to over 285 million items of clothing and hard goods, there is still an estimated 62 million kilograms of textile waste exported by charities yearly. And these charities are spending around $13 million in landfill costs per year. Globally, 85 per cent of textiles are sent to landfill, equating to around one garbage truck load of textiles being sent to landfill or burned every second. When we then recognise that 60 per cent of textiles are made from polyester, what we wear as consumers can be compared to the plastic bottle waste the community is currently up in arms about.

MOVING TOWARDS A MORE SUSTAINABLE INDUSTRY Retailers are starting to take sustainability more seriously, seeing it both as a sales opportunity and risk management strategy to future-proof their business. Sources: Victorian Government; KPMG Australia Customers have shown that they care and sustainability is here to stay.

20 | AUSTRALIAN RETAIL OUTLOOK 2020 Nudie Jeans Repair Shop in Zetland, Sydney.

Yet the complexity for retailers to diverted from landfill and saving The primary ambitions of the initiative transition into a circular economy can 386,000,000 litres of water. are to phase out substances of concern be like navigating a labyrinth, making and microfiber release; increase clothing it difficult to action without sacrificing GLOBAL CIRCULAR RESOURCES utilisation; radically improve recycling; profitable business models. If retailers are interested in undertaking make effective use of resources and move Retailers should see the circular the journey to becoming part of the to renewable inputs. economy as an opportunity to be circular economy, there are a plethora of innovative, collaborative and explore resources available to assist them. A CALL TO ACTION new business models that connect with One of the largest organisations Retailers should seriously consider their customers. Partnerships are key in a associated with the circular economy the impact of sustainability on the circular economy, ranging from recyclers, is the Ellen MacArthur Foundation, future of their organisations – that is if resellers, repairers, manufacturers, a valuable resource to get education they aren’t already thinking about the distributors and customers themselves. and understanding of the innovative circular economy. An example of a company that has solutions and ideas that have Simple ways to engage with the taken the textile circular economy started to form globally in the textile circular economy could be to reduce to heart is Nudie Jeans, which uses circular economy. packaging, identify additional ways to sustainable and recycled materials. The An initiative from the foundation reuse transport material, incorporate company has global repair locations for called Make Fashion Circular has sustainable clothing materials, explore customers to maintain their jeans, as brought global leaders together from with rental and reselling products or well as re-sell and recycle their jeans. across the retail industry, including identify local partnerships related with In 2018, the company reported they innovators, philanthropists, governments the circular economy. had repaired over 55,173 jeans, collected and retail brands to stimulate The most important step in any 10,557 jeans to resell or recycle, resulting collaboration and innovation for the journey is the first one, you should in 44,000 kilograms of clothes being textile circular economy. consider yours if you haven’t already. www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 21 RETAIL TRENDS

Social customer care: The new standard of customer service

Retailers that are proactive, instead of reactive, on social media are driving brand advocacy – and profitability.

BY LOUISE POGMORE, Director, Customer, Brand and Marketing Advisory, KPMG

THE UBIQUITY OF SOCIAL working alongside team members to queries immediately. The supermarket MEDIA HAS GIVEN CONSUMERS help them make and bake pizzas to giant staffs their social channels with more ways to interact with brands. perfection every single time. service agents, who possess detailed According to The Harvard Business Aside from providing convenience to knowledge about products, deals or Review, 67 per cent of people have the consumer, resolving customer issues service – ensuring replies offer real shifted away from traditional customer via social media costs less than other value immediately. service channels like phone and email, channels. Optimising your social media and are now using social media as their channels to deliver social customer care preferred channel. has never been more important. With 18 million active users, social The difference between ‘customer ...best media is an integral part of Australian service’ and ‘social customer care’ is society and provided consumers with subtle, yet critical. Customer service practice retailing a platform to share their stories, both traditionally triggers when the positive and negative. customer contacts the organisation is about being part Today, an issue has the power to with an issue or a complaint. trigger hundreds, if not thousands Social customer care is about of, and shaping of retweets, comments, hashtags and proactively meeting customers’ needs the conversation to memes – potentially damaging a brand’s – where retailers not only respond to “ reputation and bottom line in a matter complaints, but are also actively listening avoid reputational of seconds. to customers, and acknowledge their Best practice retailers ensure they brand interactions across social media. damage and adapt so they can deliver consistent, Leading the way, Nike has a dedicated convenient and quality customer service Twitter account, Team Nike, providing negative impact.” both offline and online. social customer support 24/7 in six When the number one customer languages. When a customer mentions Whether you have a social media complaint on Domino’s Pizza’s social the brand on Twitter, @teamnike jumps presence or not, from a B2B or a media accounts was “my pizza doesn’t in to provide support. B2C perspective, your customers look like it should,’’ the pizza firm By providing a dedicated social are actively talking about you – best leveraged this insight alongside leading customer care channel for all the practice retailing is about being part AI technology to ensure they could support their customers require, Nike of, and shaping the conversation deliver the best customer experience has demonstrated how committed and to avoid reputational damage and and product quality. dedicated the brand is to addressing negative impact. Domino’s subsequently launched the customer needs, and ultimately meet Social customer care doesn’t need DOM pizza checker – a smart scanner their expectations. to be onerous – there are four steps that sits above the pizza cutting bench Meanwhile, Tesco in the UK make you can take to optimise your social and checks the quality of every pizza; sure they can answer detailed customer care:

22 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au GOVERNANCE Social media customer care governance is an essentaial foundation. Governance is about creating and maintaining an enterprise-wide framework for keeping a company’s array of social customer care touch points known, secured, accessible and operating within a set of standards. This approach ensures compliance is maintained and risk is mitigated.

RESPONSE TIME Retailers would never ignore a customer who walked up to them in-store and asked about a product. Yet, brands respond to only half of social media messages. According to research conducted by The Social Habit, 42 per cent of consumers expect a response on social media within 60 minutes. Answering a complaint on social can increase customer advocacy by as much as 25 per cent, while failing to respond can reduce customer advocacy by as much as 50 per cent.

HUMAN VERSUS TOOL It’s not feasible to have a human answering social queries 24/7. However, it is important to have the right balance of human versus tool to foster connections with consumers. In order to meet consumers’ expectations, firstly conduct a review to understand when and how often your customers are connecting with you on social media, which will enable you to determine what options you need deployed to meet their needs – whether that be self-serve, messaging service or AI powered chatbots.

CUSTOMER INTELLIGENCE Actively listening to and synthesising actionable insights from social media data enables a brand to really optimise social customer care, giving you real-time insights when people are engaging with your brand, outside your own channels. This empowers you to connect and engage with consumers when they least expect it – driving advocacy. Social customer care is an integral part of gaining, retaining and growing customers. Brands that are leading the way are ensuring their most public facing customer service channel is optimised to meet their customer’s expectations. www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 23 RETAIL TRENDS

Retail and the social licence to operate

More consumers now choose to buy brands based on their social and environmental impact – and retail boards have to comply or risk the costs.

BY CARLY RICHARDS, Director, Retail Lead, Risk Consulting, KPMG

RETAIL BUSINESSES ARE FACING A WAVE OF BLACK TAPE IN THE growing and competitive Australian retail landscape, as the social licence to operate becomes a factor consumers are increasingly concerned about. For retail boards today, the objective is not only revenue and profit growth but also how their organisation meets the new community standard, of what it means to be a socially responsible retailer today. As a greater number of consumers shift their focus to social and environmental trends such as plastic pollution, climate change and public health, the spotlight is on retailers to reflect these changing values and respond to societal challenges. With the green generation making sustainable shopping a priority, the need for ethical, social and environmental business models that underpin purpose-driven companies is critical. New research by Unilever shows a third of consumers now choose to buy brands based on their social and environmental impact and one in five consumers say they would choose a brand if its sustainability credentials were made clearer on packaging or in the product’s marketing. Today’s discerning consumers are more informed and now shop with their emotions and values, instead of just their wallets. Retailers and consumer brands are presented with both opportunities and challenges with the rise of the leaders in Australia. with the threat of heavy fines for non- savvy shopper. These organisations exemplify compliance. Stricter regulations to protect Businesses that make meaningful authenticity through altruistic initiatives consumer data and privacy, safeguard sustainability commitments by that reflect the intrinsic values of employee welfare and ensure accurate and ensuring environmental, social and Australian society. As a result, a fair business reporting for shareholders corporate governance policies reflect relationship of trust is instilled and have come into effect. these values are likely to be seen as perceived customer experience is elevated. It’s also clear from recently introduced favourable by consumers. Failure by businesses to define and legislation such as the Modern Slavery KPMG’s Customer Experience Excellence act on sustainability initiatives can Act, Notifiable Data Breaches Scheme Report 2019 highlights the average significantly impact a retailer’s brand and [NDB] and the General Data Protection customer experience excellence rating in financial performance. Regulation [GDPR], that retailers must the Australian market was 7.14 out of 10, Over the past year, a series of Royal be transparent about the impact of their with the grocery retail sector maintaining Commissions and subsequent media business activities across a range of areas. its leading position for customer coverage have placed integrity and the experience and improving its overall social licence to operate at the forefront of UNDERSTANDING THE score to 7.4. any great retail experience. REGULATORY ENVIRONMENT AND The report shows community-centric The regulatory landscape has also THE COST OF NON-COMPLIANCE brands are rated as customer experience reinforced responsible business conduct It’s known that regulations in retail have

24 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au As consumers better understand the link between corporate activities and social impact, retailers need to consider the value their“ business can create for the economy and society as a whole.”

been growing in number and rigour, with data with consumers. – such as fines, suspensions, loss of the cost of non-compliance on the rise. Retailers should be aware of their operating rights, loss of customers, or Placing compliance at the heart of data privacy obligations, while ensuring severe reputational damage. a retail business can create a strategic customers are at the heart of everything As human rights and social risks advantage by helping retailers manage risk they do. become mainstream and are placed on the in their supply chain, protect customers It’s critical that organisations corporate agenda, the onus is on retailers and safeguard employees more effectively. understand data privacy changes and to ensure they have a sound strategy what action is necessary to comply in place to keep track of updates and FOUR PILLARS TO ALIGN with and how a data breach would be mitigate risk. CUSTOMER VALUES AND handled, especially as data breaches Effective compliance results in better COMPLIANCE REQUIREMENTS have potential for a significant brand outcomes for businesses, their customers  To ensure compliance, protect your brand and reputation damage. and shareholders. and manage financial risk effectively, PROTECT YOUR PEOPLE every executive in a retail business has an important role to play. An ever-growing number of household brands continue to fail to meet industry Five key KNOW YOUR CUSTOMERS standards and regulations. In Australia, questions to Consumers are becoming increasingly retailers must adhere to minimum aware of the damaging effects of plastic wage regulations, national employment consider for pollution on land and marine life, and they standards, as well as relevant awards and expect retailers to take action. enterprise agreements. managing The source of food produce has According to The Fair Work also become a hot topic whereby Ombudsmen, more than $40 million regulatory grocery retailers offering regional in unpaid wages was handed back to produce are seen to be supporting local Australian workers in the past financial compliance Australian businesses. year, with the Ombudsmen recovering money for 17,718 workers in 2018/19. 1. How well do you understand As consumers better understand the link and prioritise regulations that between corporate activities and social Understanding wage requirements and ensuring robust payroll process impact your business? impact, retailers need to consider the value 2. Can you clearly articulate how their business can create for the economy are in place remain essential steps for organisations to uphold brand integrity your business complies with and society as a whole. regulations to policy makers? Retailers need to focus on their supply and maintain trust in the eyes of employees and the wider community. 3. Do you have sufficient internal chain and identify areas to improve and external assurance to give environmental sustainability to reflect confidence to regulators, the UNDERSTAND REGULATORY consumer values and allow them to make board and your customers, in REQUIREMENTS more informed choices. the non-financial information Nowadays, organisations cannot just say Organisations not only have to transform you’re reporting externally? they have a sustainability strategy, they to remain relevant in this dynamic 4. Have you implemented need to show the consumer that they are market, but must keep one step ahead strategic, cost-effective internal acting upon it. of their obligations to prevent breaches risk and control systems to across a number of potential exposures. ensure regulatory compliance? PROTECT YOUR CUSTOMERS Retailers must define, identify and help 5. Are you able to anticipate Changes to privacy regulations in mitigate conduct risks in their business new regulatory developments Australia are a top priority for businesses and embed conduct risk management and plan and implement new with regulations such as the NDB and into daily operations and existing risk strategies to ensure compliance the GDPR lifting the standard on security management frameworks. once they come into effect? measures, organisation-wide data Failure to manage the continual awareness and restoring trust of personal changes can have costly consequences www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 25 RETAIL TRENDS

Cashless is king

The impact of new payment platforms on both consumers and businesses shows no signs of slowing down.

BY BRETT WATSON, Partner, Advisory, Management Consulting, KPMG

DISRUPTION IN CONSUMER that improve customer experience, of handling cash, the price of card PAYMENTS SHOWS EVERY SIGN reduce staff costs and improve processing has attracted significant of continuing, as new products such as checkout times. attention from merchants. This was buy now pay later (BNPL) grow rapidly. Simultaneously there has been a exacerbated by the rise of contactless, There’s also the occasional big idea, rise in integrated payment terminals which automatically diverted such as Facebook’s blockchain-based as digital payments allow greater payments down the costlier credit digital currency – Libra payments network communication between management processing rails. – which keeps everyone contemplating software and payment services, further The RBA eventually acted by about longer-term alternatives. reducing check out times, reconciliation mandating the banks introduce least In the medium-term, the payments requirements and human error. cost routing that allows merchants to landscape looks set to follow existing divert card payments to the cheapest trends. Total card use continues to grow 2. Least cost routing: while cards could available option. These solutions are strongly, however millennials are showing arguably be cheaper than the cost finally beginning to emerge. an aversion to credit cards, also shown by e-commerce and alternative payments, albeit from a low base. Despite these trends, the combination Debit cards are our favourite payment of digital payments and mobile is yet method accounting for ~50% of all to disrupt the Australian retail landscape as significantly as it has in markets such payments as China.

AUSTRALIANS LOVE CARDS In 2018, there were 9.4 billion card payments in Australia, with debit cards alone making up 50 per cent of all payments after growing at an annual rate of 13.7 per cent for the past five years. Alongside this has been an enthusiastic take up of contactless, which in 2016 was estimated to account for 65 per cent of all card payments, with the value transacted via contactless increasing a further 50 per cent to 2018. This trend has resulted in two key outcomes:

1. Faster checkouts: cards have allowed rapid checkout options at Woolworths, Wesfarmers-owned brands, fast food outlets and many more have introduced self-service options Source: Reserve Bank of Australia

26 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au BUT MILLENNIALS LOVE BUY referrers in Australia. purchasing experience. NOW PAY LATER As a result, retailers are today Amazon has also taken steps to It is impossible to avoid the impact that accepting payment processing fees integrate digital payments and the Afterpay and its competitors are now at double, even triple, their regular e-commerce experience into physical having on the retail industry, and this merchant service fees, in order to offer stores such as Amazon’s bookstore, trend shows no sign of slowing down. their customers these services. which replicates its online store in a Initially disrupting e-commerce, Even Australia’s larger online retailers physical form, and Amazon Go, its taking 10 per cent of e-commerce are signing on, with Ebay partnering cashier-less store. payments within two years of listing with Afterpay in November and Zip In Australia, Woolworths has begun on the ASX, Afterpay has moved partnering with Amazon Australia. testing a similar experience with its quickly into physical stores which now Afterpay in particular is succeeding Scan&Go application that allows accounts for 21 per cent of its $4.3b in in globalising its BNPL product, with shoppers to scan items as they move processed transactions. 2.6 million US customers after just throughout the store, a move that has Approximately 27 per cent of over a year of operating and 400,000 been followed by 7-Eleven trialling its Australian millennials and 16 per cent UK customers after just six months own click-and-go store. of all Australians now have an Afterpay of operating. Within stores, mobile point-of-sale account alone, not to mention the The company has ambitions to terminals are offering a simple, initial myriad of other competitors such as Zip connect its international solutions, step to providing a more intuitive Pay, Humm, and LatitudePay. eventually offering retailers the ability in-store payment experience by allowing Not only are more people using these to accept international payments from attendants to complete transactions services, they are using them more global customers through its platform. anywhere in-store. often. Afterpay recently revealed that its BNPL has become the modern Retail experiences such as those recurring users – users who have been example of a payment platform owning created by Apple remove the need for on the platform for one year – made 4+ the customer relationship. a single checkout location but instead transactions which increased to 10+ after Accepting these higher cost payment allow personalised interactions and two years and 20+ after three years. channels is increasingly demanded by on-the-spot payment experiences. While BNPL is not a new service, customers who not only want to use As consumers begin expecting the millennial-focused, digital first BNPL for their purchases but will also shopping experiences that replicate the solutions that have entered the use the provider’s platform to seek out ones they experience online, retailers payment industry demonstrate the retailers and make purchasing decisions. have an opportunity to innovate their appetite for a service that offers a in-store experience to both improve simple checkout, easy sign up and PAYMENTS ON THE MOVE efficiency and drive customer sales. So point-of-sale credit option. The opportunity that digital payments what’s next? The outcome is that these services provide is to make payments seamlessly Digital payments will continue to become more than simply payments and anywhere in a transaction process. support an evolving retail landscape in credit. Afterpay is a massive marketing Until very recently, Starbucks was the Australia. As we move further towards machine running bi-annual sales most popular payment application the a cashless and digital-first society, promotions, driving transaction values USA, combining loyalty, pre-ordering payments will continue to support new, and becoming one of the largest lead and payments to create a seamless innovative customer experiences.

Accepting these higher cost payment channels is increasingly demanded by “customers who not only want to use BNPL for their purchases but will also use the provider’s platform to seek out retailers and make purchasing decisions.”

www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 27 RETAIL TRENDS

Is e-commerce priming to boom? Cautious consumers under increased economic pressure and a system of investments to improve experience are setting the stage for the next wave of rapid e-commerce growth.

BY JANE COHEN, Partner, Global Strategy Group, KPMG

UNCERTAINTY IS NOT THE ONLY imperative for traditional retailers to keep were shopping online. The savings CERTAINTY FOR THE AUSTRALIAN pace with disruptors to create compelling and convenience available online had retail industry in 2020. We also know multi-channel consumer experiences. surpassed the consumer’s tipping point that e-commerce will continue to outpace In the wake of the GFC, Australians had and offset the perceived risks regarding overall retail growth. The question is, permanently changed how they shopped online shopping at the time. how fast will it grow under the ongoing and as the purse strings eased, e-commerce There are some interesting parallels subdued economic conditions expected growth rates accelerated. with today’s retail conditions that could in 2020? Of course, a mass change in consumer be signalling that a new wave of rapid If past experience is any indication – in behaviour is rarely the result of a single growth in online shopping is on the a market that is still so young – the answer factor. A system of factors were at play horizon for Australia. is that it could accelerate. In the five years at the time, such as lower cost and following the Global Financial Crisis easier access to high speed and mobile A WANTING MARKET (GFC), e-commerce boomed. While total internet, a strong Australian dollar and Until recently, Australian e-commerce retail growth fell to 3 per cent over the five media attention on the GST-free status of growth had returned to the level years, e-commerce grew at 21 per cent – international inbound parcels. experienced before the boom. Yet even at a hitting peak growth in 2011 at 30 per cent. These factors made the reward for healthy 13 per cent CAGR, many observers Why? Because when you start battening changing your shopping behaviour in of the industry continue to believe down the financial hatches, you are open favour of online shopping even more that there is strong potential for online to not only consider, but act on changing enticing to Australian consumers. shopping to accelerate once more. your shopping behaviours. The post-GFC consumer, predisposed Online retail penetration here is far Cautious consumers do more research to seek out opportunities to buy smarter from reaching the levels experienced in prior to purchase and will wait for sales during a time of financial insecurity, other parts of the world. In 2018, online events, favouring retailers with a strong rushed online to experiment. sales penetration reached 10 per cent of online and social presence. This raises the Suddenly everyday Australians Australian retail turnover excluding cafes,

28 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au restaurants and takeaway food services. There is certainly evidence that $900 million in parcel automation Meanwhile, markets like the UK are e-commerce growth is building initiatives and has recently launched a reaching penetration levels three times momentum. Online spending picked up new flat rate parcel product, If It Packs It higher. The UK is the leading global pace in 2018 growing more than 20 per Posts, that takes the guess work out of the e-commerce market, and its growth is cent, and commentary regarding growth cost of delivery. showing no sign of slowing down – in 2019 is even more positive. with approximately 31 per cent of non- At the heart of this recent uptick is that …AND A RACE food retail spending made online in the Australians now have a strong grasp of Amplifying this further, is a race to three months to October 2019 according the global online promotions calendar – build a winning ecosystem connecting to IPSOS. increasing the perceived value for savvy all parts of the end-to-end online Although there are some significant online shoppers. For example, the day shopping journey. structural differences between Australia after the 2019 Black Friday promotional Amazon Australia just announced the and international markets like the UK, event, Kogan announced that its sales launch of Amazon Hub to the Australian such as population density and a public for the day were up over 80 per cent. The market and a partnership with Zip, Ebay transport culture, examples such as this retailer was quoted by The Age and The Australia and Afterpay announced a demonstrate the high latent demand for Sydney Morning Herald saying, “Black partnership, and we will be watching online shopping. Friday was massive. It’s clear that more the recently combined Kmart, Target and and more Aussies are turning online for Catch Group to see if they can accelerate A PRIMED CONSUMER their Christmas shopping”. their multi-channel strategy to create a Against the current backdrop of winning ecosystem. increasing consumer concern regarding ALL HANDS ON THE EXPERIENCE If these conditions do precipitate a the cost of living and the economy, even Similar to the post-GFC e-commerce second boom in Australian e-commerce it a small positive change in the perceived boom, there is a concurrent system of will look quite different to the first. Today value or experience offered online could surrounding factors making online 70-80 per cent of Australian households result in acceleration. shopping increasingly more attractive to shop online and the Australian dollar is consumers – focused on the consumer’s weak. Boom level growth will not come end-to-end shopping experience. from more people shopping online or The ubiquity of buy now pay later offshore, but from people shifting more of As they strive schemes, the growth of click-and-collect their shopping wallet online. models, the proliferation of marketplaces, As they strive to buy smarter, shoppers to buy smarter, and increased access to easier returns and could be more receptive to making shoppers could be faster delivery choices, are expected to purchases from product categories that fuel the next wave of online growth. they have rarely bought online in the past. more receptive to However, perhaps the most positive Staple product categories that have been sign of where e-commerce is headed is slower to shift online could accelerate making purchases the scale of Australia Post’s investments such as health and beauty, recreational “from product in parcel capacity and capability. These goods, liquor and groceries. include striking a $1 billion deal with We are already seeing a significant categories that they Qantas to purchase three dedicated air uplift in the growth rates in some of these freighters and secure priority access to everyday product categories. Will we soon have rarely bought cargo space. see everyday Australians buying more of online in the past.” The postal corporation is also investing their everyday products online? A Ashort short history history of of e-commerce e-commerce growth growth in in AustraliaAustralia

Post GFC eCommerce Boom 30 30

25 25 Annual growth rate (%)

21% >20%? 20 20

15 15 13% 13%

10 10

6% 5 3%? 5 Total online retail spend ($b) 4% 3% 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Year Online retail 2.6 2.8 3.0 3.3 3.4 3.8 4.8 5.8 6.5 6.9 7.6 8.3 9.1 10.4 penetration* (%)

Annual growth : Online retail spend Annual growth : Total retail spend Total online retail spend ($b) Period CAGR : Online retail spend Period CAGR : Total retail spend

Notes:Notes: * Online*Online retail retail penetration penetration calculated calculated as total as totalonline online retail retailspend spend divided divided by total by retail spend excluding cafes, restaurants and takeaway Sources: foodtotal services retail NAB spend Online excluding Retail Salescafes, Index; restaurants Australian and takeawayBureau of foodStatistics services (ABS)

Sources: NAB Online Retail Sales Index; Australian Bureau of Statistics (ABS) www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 29

© 2019 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Liability limited by a scheme approved under Professional Standards Legislation. 1

Document Classification: KPMG Confidential RETAIL TRENDS

Invest in CX – but not for CX sake Customer experience strategies are about more than the ‘fun’ stuff – so why are retailers still getting it wrong?

BY LISA BORA, Partner, Customer, Brand & Marketing Advisory, KPMG

RETAILERS DON’T HAVE INFINITE POOLS NOT ALL PILLARS ARE OF EQUAL VALUE OF DOLLARS, TIME OR TEAMS TO DEDICATE In Australia, personalisation is the most important driver towards all great ideas with customer experience enhancement for advocacy and loyalty, followed by integrity and time & in mind. effort levers. So where do you invest for the greatest bang for your buck? While the numbers speak for themselves, many c-suite The key outcomes you want to strive for are the key levers executives still struggle to drive an enterprise-wide to materially impact your brands advocacy; and also your commitment to customer-led transformation, even when the customers loyalty – these are what we coin the six key pillars or economics stack up. the DNA for customer experience excellence. Our six pillars provide a valuable prioritisation framework For instance our global research demonstrates: which can support a retailer’s CX program focus and shape a • Customer-centric organisations are 38 per cent more likely new way of organisational thinking. to report greater profitability than competitors The power in practice lies in supporting traditional pain and • The revenue growth of the top 50 brands is 54 per cent gain point analysis and building out customer-focused solutions. greater than the bottom 50, at an aggregated level The framework enables retailers to develop the “on-stage” and • The EBITDA growth of the top 50 brands is 202 per cent “off-stage” delivery of experiences that are both co-ordinated and greater than the bottom 50, at an aggregated level continuously optimised. • Customer-centric organisations are 38 per cent more likely Too often organisations focus on the shiny “on-stage” to report greater profitability than competitors programs, which of course are lots of fun. • The top 25 CX leaders in the US achieved double the However, these programs also command significant percentage revenue growth of the top 25 F500 companies management focus while often lacking seamless connectivity to • The percentage revenue growth of the top 25 CX leaders in the middle and back of house functions that are critical the US over one year alone was more than seven to delivery. times that of the CX laggards – the bottom 25. KPMG’s Australian research is based on evaluation of 114 brands across 11 sectors, painting a clear picture of the outcomes Then there are the people, which in retail is critical to service required within each of the six pillars, to help ensure the brands delivery. Organisations with great CX put employees at the products and service propositions are conveyed effectively. centre of their CX architecture. KPMG’s Six Pillars of Customer Experience Excellence

Source: KPMG Australia 2019

30 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au Source: KPMG Australia 2019

HAPPY EMPLOYEES = Customer expectations are higher than enabled, integrated seamless shopping HAPPY CUSTOMERS = ever before, are conitnuously evolving operations. HAPPY SHAREHOLDERS and are industry agnostic. We often say silos should remain on Happy employees produce 37 per cent Excellence in retail service farms, but unfortunately they still exist more sales and are 12 per cent more design can come from disruptors across inconsistent channel delivery. productive. The result? or financial services such as new We believe retailers should prioritise • Companies with happy employees payment platforms. removing friction, such as repetition outperform their competition by 20 of information that is requested and per cent THE ECONOMICS OF captured throughout the business. • The most engaged employees are CUSTOMER EXPERIENCE The customers expectation is that 87 per cent less likely to leave the The key challenge for retailers once they share their information with company, make 60 per cent less is ensuring the economic value you once, they shouldn’t need to errors at work, and absenteeism is maximised when customer keep sharing it (unless they choose rates are reduced by 37 per cent expectations or the brand promise too of course). • Companies that lead in CX is met. Moving from delivering a great CX typically have 1.5 times as many Exceeding these unnecessarily to now predicting customer needs is engaged employees through over investment can lead to “the new black”. • Engaged employees are more minimal incremental ROI. At its core, it’s a CX strategy that is motivated to go above and beyond Expectations in an omnichannel underpinned by connected operations to satisfy customers, leading to retail world are anticipated to grow and data analytics across all channels improved customer experiences. in overall service levels – think to match business outcomes with the Of course CX is a dynamic roadmap. delivery options, speed and digitally- front-end design.

The economics of customer experience. Investment versus expectations

Source: KPMG Australia 2019 www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 31 RETAIL TRENDS

The power of putting customers first with advanced analytics

Retailers can use data to solve the questions keeping them up at night, not just push a sales algorithm.

BY DAVID EVANS, Director, Data Science, Deals Tax & Legal, KPMG

A ROBUST AND METHODICAL WAY ultimately all successful businesses exist you can provide the right incentives OF COLLECTING, MANAGING solely to serve somebody. to maintain or improve your and interpreting data, then linking those Much of what is written about data relationship with them. This is more insights to better serve your customers science in retail often has an inward- than just product recommendations isn’t something that’s only reserved looking focus on revenue and cost. or discounts – you may be surprised for those retailers with deep pockets or However, with a genuine commitment why they stay or leave. dedicated analytics departments. to customers as your first priority, In fact, any retailer with a point-of- revenue and costs should move in the These are just three practical sale (POS) terminal or computerised right direction as a natural by-product. examples that can be used by any stock system has the beginnings of Rather than using algorithms to just retailer, regardless of the goods or being an analytics leader. And those push more ads to more people to buy services you offer. who sell online have access to even more things, these examples take a more more useful data. outward-looking approach and put your Information such as where a retailer’s customers first: customers prefer to shop, what products Much of what they are buying at what times, or where • Staff rostering – using optimisation is written about data and when they’re being disappointed by algorithms to construct the most unmet commitments or expectations are efficient and effective schedules, given science in retail has several examples. a set of defined constraints. For the Availability and access to data is not best service, making sure you have the an inward-looking the main challenge. What matters is right mix of staff in the right locations focus on revenue the commitment to collect and store at the right time. the right kinds of data to guide better • Quality and consistency – collecting “and cost.” decisions to benefit your business. operational and usage data to So as a retailer, how can you get understand product quality and Executed properly, they will not the most out of data? Data alone service consistency, then creating only lead to lower costs, but increased won’t hold the answers. The key is to predictive models to take action customer satisfaction and the flow of define the handful of questions about on emerging trends opportunities revenue – hitting all three metrics your business that are ‘keeping you up before the market catches on. that matter. at night’. • Customer behaviour – Collecting So, how can your data be used in your Each question must be linked not only and mining raw POS data to business to guide the decisions that to your business strategy, but also to understand what motivates your best serve your customers? You’ll be serving your customers’ needs, because customers to remain loyal, so that surprised by the potential.

32 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au With Poplin, make data the fabric of your organisation

Data AdData Data Strategy Governance Management Define and design Building your data Partnering to your data vision and policies and governance solve and execute strategy; designing frameworks; ensuring everything data, strategies for data data privacy, empowering teams so first businesses compliance and data becomes the key security operational function of your business

“Poplin Data has the knowledge to facilitate, support and guide you through the process of getting your data right.”

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www.insideretail.com.aupoplindata.com/retailweek2020 2020 AUSTRALIAN RETAIL OUTLOOK | 33 RETAIL PROFILES

34 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au RETAIL PROFILES

Coles’ transformation journey gathers momentum

The supermarket giant’s four-year transformation journey is well under way – with technology investments and key partnerships giving the retailer confidence to meet challenges head-on in its second century of doing business. Here, Coles CEO Steven Cain talks about the year that was, and what to expect in the year ahead.

HOW WOULD YOU DESCRIBE Coles has an important role to play proposition this year. THE PAST YEAR AT COLES? in sustainably feeding all Australians. We launched several new exclusive The past year has been one of major From food waste to a sustainable food Own Brand ranges, including Wellness change at Coles Group, as the Australian chain, this year we set the foundations Road health products, Nature’s Kitchen food and beverage market continues to ensure we’re here for another vegan range and the allergy-friendly to grow, and customer needs and our century, creating jobs, working with ‘I’m Free From’ varieties, offering competitive set change faster than our suppliers and making a positive customers more choices than ever before ever before. difference in our local communities. across Coles Own Brand. In 2019, we set out on our four-year To deliver on our strategic goals at transformation journey, launching WHAT HAVE BEEN THE pace, this year we focused on investing our refreshed strategy to become the HIGHLIGHTS OVER THE PAST in new partnerships and agile ways most trusted retailer in the country by YEAR AT COLES? of working. In the past 12 months we sustainably feeding all Australians to Value and everyday low-prices have formed new agreements with help them lead healthier, happier lives. remained central to our customer technology leaders including Microsoft, www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 35 Accenture, SAP and Optus. the needs of the local community, while get customers’ orders to their kitchen Together, these partnerships will help making store operations more efficient. benches quicker and at a time that us improve our systems and processes Finally, strong double-digit meat suits them. to be more efficient. export sales growth has cemented Ocado will also build two automated As part of our exclusive agreement Coles as one of the one of the biggest customer fulfilment centres, one in with automated warehousing leaders meat exporters in Australia with Victoria and New South Wales. These Witron, construction began in customers in more than 40 countries. facilities will increase our capacity to October on the first of two automated We are looking to develop this fulfil online shopping orders from a distribution centres to be built in business further to build on the brand wider range of products while reducing Queensland and New South Wales. credentials we have already established costs – solving a problem faced by We believe that when these in key Asian markets. retailers around the world looking to distribution centres open in 2022, they grow their online sales. will be the most advanced facilities of HOW HAS E-COMMERCE their kind in Australia. AFFECTED COLES’ OPERATIONS? HOW WOULD YOU DESCRIBE THE We’re also proud that this financial As customers increasingly shop across AUSTRALIAN RETAIL MARKET? year our community contributions rose multiple channels, we are building a The Australian food and beverage by 26 per cent to a record $115 million, compelling digital experience that will market is resilient and continues to including our major partnerships with enable us to lead in online shopping. grow, however it’s clear that new SecondBite and Redkite, helping provide Our recently-announced exclusive international entrants, rising costs of meals for those in need and support for partnership with online retailer Ocado doing business and an ongoing shift families of children with cancer. will include an end-to-end online towards online shopping present shopping solution, from website to potential headwinds to the sector. WHAT HAVE BEEN efficiently mapping delivery routes to There has been incredible growth THE CHALLENGES? The range of customer expectations is increasing rapidly. While time-poor Coles Group CEO customers demand healthier and more Steven Cain says convenient solutions, there are also new technology and many in Australia who are struggling automation present to make ends meet each week and we significant growth must continue to deliver better value opportunities. and keep prices low. The long-term effects of the drought are having an impact on our suppliers and has contributed to price inflation in FY19. Coles continues to play a collaborative role in partnership with our suppliers and committed more than $17 million to drought relief in FY19. In the past financial year, Coles delivered a solid performance despite increasing competition and higher costs across the retail sector. Supermarkets, the biggest contributor of Coles Group’s revenue and earnings, continued to show resilience in an increasingly competitive market.

HAVE THERE BEEN ANY INTERESTING SHIFTS IN CONSUMER BEHAVIOUR IN THE PAST YEAR? We know our customers are increasingly becoming time-poor, with 50 per cent saying they don’t have time to cook from scratch. That’s why this year we’ve significantly expanded our range of ready-to-eat and ready-to-cook foods, so they can grab breakfast on the way to work or make a fresh and delicious dinner without having to give up time with the family. We believe that when these Our new ‘food for now’ and ‘food for later’ offer has now rolled out to more distribution centres open in 2022, than 100 supermarkets, complementing they will be the most advanced our tailored store format strategy, aligning our store layouts and ranges to facilities of their kind in Australia.” 36 | AUSTRALIAN RETAIL OUTLOOK 2020“ www.insideretail.com.au Supermarkets, the biggest contributor of Coles Group’s revenue and earnings, continued to show resilience “in an increasingly competitive market.”

in meal kits and extreme convenience, which are becoming increasingly mainstream, as our customers choose for pre-prepared ingredients to cook effortlessly at home. The market is also increasingly moving towards delivery services, offering instant gratification and complete meals delivered in under 30 minutes. The adoption of new technology and automation, and analysing increasing amounts of data, present significant growth opportunities for the sector and retailers like Coles who are prepared to meet these challenges head-on.

WHERE DO YOU HOPE TO SEE COLES THIS TIME NEXT YEAR? Coles’ partnership with Accenture and the rollout of new technology will deliver cost savings As we embrace the opportunities of the of $1 billion over four years. next 12 months, it is vital that we continue to maintain the customer focus and appetite for innovation that our customers and stakeholders expect from Coles. In the next year, we will continue to execute our strategy at pace as we rise to the challenges of the increasingly competitive Australian retail sector. The changes we are making to inspire customers are making a difference, and we will continue on this path to make our customers’ lives life easier by lowering the cost of living. We will continue our investments in new technology and partnerships, ensuring we progressively transform our capacity to operate quickly and efficiently. We’ve made good progress on driving sustainability in all aspects of our business, and the team will work to make great strides in this area over the next 12 months. Very few organisations in Australia can lay claim to a history of more than 100 years, this energy and dynamism will help us to deliver over the next year, and indeed into Coles’ Coles has significantly expanded its range of ready-to-eat and ready-to-cook foods, to second century. cater for increasingly time-poor consumers. www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 37 RETAIL PROFILES

Ebay’s big buyer push accelerates growth Despite all the fanfare about rival e-commerce players entering Down Under, Ebay is still the largest online retail concern in Australia and New Zealand – by a long shot. Ebay ANZ Managing Director Tim MacKinnon reflects on the year that was.

HOW WOULD YOU DESCRIBE and Black Friday which have driven However, we have been strong THE PAST YEAR AT EBAY? traffic, promoted the sales and deals acceleration in shopping moments It’s been a dynamic year; a big year. from thousands of retailers and grown like Black Friday, which for the first One which saw us launch Ebay’s Ebay Plus members. time was our busiest online shopping world-first grocery offering, Coles Ebay Plus has continued to grow day and exceeded our expectations in on Ebay, providing even greater as a shopping membership where visitors to the site and spending. convenience, selection and value to Australians can get millions of items We get up every day with the Australian shoppers. with free shipping, free returns and ambition of growing Australian retail As a result, Coles has increased its exclusive discounts. and the 40,000 Australian businesses reach to incremental customers. We have also built more partnerships on our platform, especially when times In addition to Coles, we welcomed to help our sellers compete. Last year are tougher. thousands of new major retailers to we launched our Ebay fulfilment Ebay including a relaunched Toys”R”Us partnership with Australia Post helping HOW WOULD YOU DESCRIBE THE as their exclusive marketplace, Adidas, sellers to lower their costs and improve AUSTRALIAN RETAIL MARKET? Cotton On and Best & Less. their delivery speeds. Both dynamic and challenging. As we continue to bring new selection For sellers who want to use their own Australian retailers are facing and great prices, we have seen an warehouse, we launched a lower cost more competition and a more acceleration in our buyer growth. and alternative shipping option, with challenging environment. We have 11 million unique monthly sellers able to print Sendle labels in bulk But overall, they are responding to visitors to Ebay and remain the number and book deliveries directly from the competition better than other markets, one shopping destination in Australia. Ebay dashboard – all at great rates. they are delivering better prices and better selection than overseas entrants. WHAT HAVE BEEN THE WHAT HAVE BEEN HIGHLIGHTS OVER THE THE CHALLENGES? HAVE THERE BEEN ANY PAST YEAR? Online retail has seen the lowest growth INTERESTING SHIFTS IN We have had some record shopping in 20 years and retail has slowed, driven CONSUMER BEHAVIOUR IN THE days like Ebay Plus Weekend in June by cautious consumer spending. PAST YEAR?

38 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au There are two factors that haven’t changed – with price and range still top of mind for consumers. We have seen an acceleration of shifts that started in previous years like the importance of shopping events like Black Friday, increased importance of apps and app notifications along with click-and-collect.

WHAT PLANS DO YOU HAVE FOR THE BUSINESS OVER THE NEXT 12 MONTHS? We have many exciting initiatives in the pipeline, including our partnership with Afterpay and enabling it as a payment option for our users in 2020. It will be a game changer for both Ebay buyers and sellers.

DOES BRICKS-AND-MORTAR PLAY INTO EBAY’S STRATEGY AT ALL? First and foremost, we are an online marketplace. However, bricks-and- mortar is an important component for our sellers as we offer shoppers the option to pick-up items in store from over 40 retailers like Myer and The Good Guys, which helps to drive traffic into stores, as well as offering parcel collection at Woolworths and Parcelpoint locations.

ARE THERE ANY KEY TRENDS IN THE E-COMMERCE SPACE? Price and selection will remain the number one concern for consumers. However, shoppers are always looking for ways to get more value, and loyalty is the most significant shopping trend in recent times. Our loyalty program, Ebay Plus, has grown as consumers look to be rewarded We get up everyday with the through savings and access to exclusive benefits. When retailers sell on Ebay, they ambition of growing Australian get access to those customers who are loyal to Ebay. retail and the 40,000 Australian In line with the growing trend for businesses on our platform, convenience, we expect to see more people using online to shop for everyday especially when times are tougher.” essentials such as groceries. “ And then there’s the way people are shopping. We’re the most downloaded and highest rated shopping app in Australia. More than 70 per cent of our shoppers access Ebay via their mobile phone – either Mweb or via the Ebay app. It’s a quick and convenient way to shop on the go.

WHERE DO YOU HOPE TO SEE EBAY THIS TIME NEXT YEAR? Ebay is keen This time next year, I hope Ebay to cultivate continues to be Australia’s number one customer online shopping destination – for both loyalty with its buyers through our unrivalled range membership of products at the best price and sellers program. through our partnership and support. www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 39 RETAIL PROFILES Writing the blueprint for growth

After another year of It’s been a year of positive progress the safety of our customers. strong sales growth, for us in our 25th year of business. We’ve build great momentum in We grew our business by acquiring this space and I’m proud of the real Officeworks are set Geeks2U and helped our team members care and focus our team have given to for a big 2020, with wanting to grow their families by ensuring our team go home safely. launching our new paid parental leave We’ve built great momentum in the continued rollout policy ‘Growing Families’. this space and I’m proud of the real of its refreshed We opened the biggest office supplies care and focus our team have given to strategy. Here, acting store in the world at Mentone, Victoria. ensuring our team go home safely. We also implemented a new enterprise There is always more for us to do Managing Director agreement for 7,000 of our store team and we are absolutely committed to Michael Howard talks members to ensure certainty around continued improvement. their pay and conditions. We set new fundraising records about the retailer’s Our every channel strategy continues through our Back to School Appeal expectations for the to resonate well with customers, as we in January, Round Up to Make continue to deliver strong sales growth a Difference and Wall of Hands year ahead. in both stores and online. initiatives in 2019, raising over $2.1m. With the help of our customers, we HOW WOULD YOU DESCRIBE THE WHAT HAVE BEEN THE donated over $1.5m to our national PAST YEAR AT OFFICEWORKS? HIGHLIGHTS OVER THE partners The Smith Family and It’s been a rewarding year of PAST YEAR? Australian Literacy and Numeracy helping make bigger things happen We’ve had our safest start to the Foundation (ALNF). for our team, our customers and in financial year. The safety of our team is With our planting partner Greening our communities. always our absolute priority, as well as Australia, we have now planted more

40 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au than 570,000 trees on behalf of our We’re currently developing a health creating a true every channel strategy. customers to help restore woodland and and wellbeing strategy and will have We put ourselves where we believe wetland ecosystems, improve habitats an increased focus on diversity and our customers expect us to be, whether of threatened species and rejuvenate belonging, as well as training and that’s online, mobile, in the store, via existing bushland. skills development. phone or social media. We will enhance our data analytics As part of our every channel strategy, WHAT HAVE BEEN capability and upgrade our every we are modernising our supply chain THE CHALLENGES? channel functionality and features. network through distribution centre Consumers have been cautious and We will launch our Positive Difference consolidation and the use of technology competitive pressure has been strong, Plan 2025 targets, including a continued to ensure that we will have the capacity but Officeworks remains well placed to focus on reducing our operational to meet the future growth, strategic drive growth in this environment. impact on the environment and sourcing requirements for both store and online Our job is to continue to execute on responsibly, building closer connections fulfilment, with improved service levels and invest in both our in-store and with the communities we live and work and cost outcomes. online offer to ensure we are able to in and continuing to do more to help serve our customers however they want educate disadvantaged students WHERE DO YOU HOPE TO to interact with us. We are focused on modernising SEE OFFICEWORKS THIS TIME our supply chain and improving NEXT YEAR? HAVE THERE BEEN ANY our inventory planning and Officeworks will continue to drive INTERESTING SHIFTS IN stock management. We will also growth and productivity by executing CONSUMER BEHAVIOUR IN THE be implementing a new people its refreshed strategy, which will enable PAST YEAR? management system us to continue to grow and deliver Officeworks has a diverse mix of We are ambitious in driving growth strong results for shareholders over the customers; from parents, students and and will continue to evolve and long-term. personal shoppers to micro, small and expand product and service offers We see three major areas of future medium businesses. including growing the Geeks2U offer for growth: education, business and Our customers come to us because our customers. services. We are already an important they have a problem to solve, We will upgrade our print and part of the education of future something they would like to create copy online platform and also roll generations through our extensive Back or an opportunity they would like to out our store renewal program, open to School range. make happen. new stores and invest in our click-and- We can offer parents and schools While our customer’s core desire collect offer. even more of what they need to to be provided with a solution educate and grow young minds, remains, technological advancements, HOW HAS E-COMMERCE including art and craft, online resources economic pressures and generational AFFECTED OFFICEWORK’S and learning aids. progression means that their SUPPLY CHAIN OPERATIONS? Solving more and bigger problems expectations are changing. Officeworks has a history of innovation for our business customers is important Our customers expect to be able and of listening to our customers, being to us, which we can do by building to shop whenever and however they responsive to their needs which has on our base, such as evolving our want, be it online, in-store, with one of meant we’ve always stayed on top in successful print and copy business to our business account managers, or on terms of our range and relevance across become print, copy and create. their phone. every channel. We are already working on Customers often bring us problems This relevance encompasses expanding our services offering, with to solve that are complex; everything – from being one of the Geeks2U being a great example of a increasingly these problems are not first large-scale bricks-and-mortar complementary service to help our solved by individual products, but retailers in Australia to drive an customers with a broader range of require knowledgeable advice and online proposition, or our evolution to technology-related needs. coordinated solutions. The customers tell us they want to shop with a business that is making a positive difference in their local communities and for the environment. Finally, customers have choice not just about how they shop, but also who they shop with, and therefore we must ensure our offer continues to deliver great value.

WHAT PLANS DO YOU HAVE FOR THE BUSINESS OVER THE NEXT 12 MONTHS? We will continue to evolve and rollout our refreshed strategy with a focus on our team, customer experience, connecting with communities, operational excellence and growing our business. www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 41 RETAIL PROFILES

Swarovski sparkles

AsDown the global jewellery retailer enters itsUnder 125th year of business, Swarovski Australia and New Zealand Managing Director, Brett Spinks, is keen to build on the company’s strong local growth.

HOW WOULD YOU DESCRIBE bronze, silver, gold and platinum levels has evolved, we’ve recruited several new THE PAST YEAR AT SWAROVSKI? for new benefits and rewards with each store managers and have had a number 2019 was a fantastic year for Swarovski tier level. of promotions within head office. Australia with record sales. The focus We’re also speaking to younger We’ve generated an environment for has been on people; our customers customers on their terms, reaching them collaboration across functions and teams, and employees. via influencer collaborations, as well as all united with one common goal for Our customers come first, providing increased presence on social media and the business. unparalleled service and delighting our digital platforms. Australia and New Zealand customers is non-negotiable. Driving talent development within continue to grow, offering us consistent We’ve continued to build on our the business is also paramount. opportunities and learnings across loyalty programs and 2020 will see At Swarovski, we aim to empower the board. the complete evolution of Be Swarovski each and every individual in the to the Swarovski Club, a new style business to achieve their professional WHAT HAVE BEEN community and tiered rewards program. and personal goals. THE CHALLENGES? Customers can advance through Throughout 2019, our leadership team The consumer landscape continues to

42 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au evolve at a rapid pace, it’s vital that we seize every opportunity to learn about our customers; the way they shop, consume media, follow trends and what We’ve also they are looking for when they shop. Black Friday is a great example, we’ve seen growth seen exponential growth in sales in in the number 2019 in comparison to 2018. Swarovski remains agile as a retail business; we of Chinese review and learn from each execution and program to continuously improve. customers, they’re We’ve also experienced a shift and “ growth in our e-commerce business, we more digitally will continue to optimise this channel, exposed than but we are focused on doing this while growing and improving our bricks-and- ever and their mortar stores. shopping behavior HAVE THERE BEEN ANY INTERESTING SHIFTS IN continues to CONSUMER BEHAVIOUR IN THE evolve.” PAST YEAR?? Our CRM programs, Swarovski Club empowerment, water stewardship, fair future generations to treasure and and Swarovski Crystal Society, allow us partnerships, conscious design and protect the world’s most precious to understand our customers’ behaviors sustainable innovation. resource and inspire them to become and what motivates them to purchase. Via this strategy, we are also leaders in sustainable development. With this information, we’re able to implementing two key programs. Sustainability is an ongoing tailor promotions and benefits to retain Firstly, there is the positive production commitment for us and will be a key loyalty and reward them for shopping program, an initiative that aims to focus in 2020 and beyond. with us. ensure excellence in sustainability Millennials are the fastest growing in all Swarovski manufacturing and HOW HAS E-COMMERCE customer group in our loyalty production locations – from Austria and AFFECTED SWAROVSKI’S program and we’ve seen a huge shift to Serbia to India, Thailand and Vietnam – OPERATIONS? self-purchase. by 2020. There’s huge growth opportunity within We’ve also seen growth in the number It enables us to invest in our e-commerce. Our Australian and New of Chinese customers, they’re more workforce and make a positive impact Zealand websites continue to grow. digitally exposed than ever and their on the planet, our people and the wider Online partners such as The Iconic shopping behavior continues to evolve. communities in which we operate. and Myer have also experienced growth. Secondly, the conscious design Online shoppers have expectations WHAT PLANS DO YOU HAVE FOR program, which was developed and is and needs that we need to meet, the THE BUSINESS OVER THE NEXT being driven by Nadja Swarovski and introduction of Afterpay and express 12 MONTHS? the sustainability team. delivery options are just a couple 2020 is the 125th anniversary of This initiative focuses on how we of capabilities we’ve introduced that Swarovski, it’s a significant milestone can build sustainability into design do this. that celebrates 125 years of rich heritage through our engagement with and mastery. in-house designers and through our ARE THERE ANY KEY TRENDS IN We are the current day ambassadors collaborations with external designers THE JEWELLERY SECTOR? of the brand and we want to bring and design schools. We create extraordinary designs for Swarovski to life through our products This program inspires designers to every day and every occasion. and our people. adopt sustainable practices and we have We’ve certainly seen a trend and Development and engagement will provided the wider design community affinity towards personalisation. continue to be a priority as we seek to with over 6 million upcycled crystals Our remix collection caters to every empower and build trust within our in the last five years to promote the customer, you can create a one-of-a-kind team and with our customers. circular economy. jewelry piece by mixing and matching We’re aiming for another record year In addition to striving for sustainable strands and pendants. in traffic and sales by remaining nimble business practices, Swarovski is always Our customers are looking for value and cultivating talent. keen to play its part in society. and style, every Swarovski piece tells Daniel Swarovski founded this In 2000 we established the Swarovski a story, boundaries are constantly company with the strong belief that a Waterschool, an education program pushed with new cuts, shapes and sizes business will only continue to thrive as which has expanded globally and conceived every day. long as the people and natural resources reached more than half a million young Our advantage is that our products that it depends upon can also thrive. people to date. are truly unique and brought to life Today, Daniel’s legacy lives Using innovative teaching methods, through our innovative technology – on through Swarovski’s global the program works with local our engineering abilities, cutting-edge sustainability strategy. partners to address global water and processes and expertise in making This strategy prioritises five sanitation issues. crystal, which have been perfected over key themes, including women’s Its mission is to educate and empower the years. www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 43 RETAIL PROFILES

Domino’s delivers: More innovation on the menu After another successful year of business growth, the QSR leader is targeting a big 2020. Domino’s Australia and New Zealand CEO Nick Knight gives us a glimpse into the food firm’s plans.

HOW WOULD YOU DESCRIBE THE Domino’s ANZ PAST YEAR AT DOMINO’S PIZZA? CEO Nick Knight This was another milestone year for Domino’s says the DOM Pizza Pizza Enterprises Ltd (Domino’s) where we Checker resolves a continued to expand our footprint, launch quality assurance world-first technology, introduce innovative tension point. menu items and break records. We are now the master franchisee for the Domino’s brand in nine countries, on three continents, with a combined population of more than 340 million people. We have a significant opportunity for further growth and to bring more people closer through the world’s best bonding food – pizza.

WHAT HAVE BEEN THE HIGHLIGHTS OVER THE PAST YEAR? Where do I begin? Working with an amazing team of more than 18,000 people; franchisees, team members and corporate staff, I’m so proud of everything we have achieved together over the past 12 months. From opening our 700th store in Australia, to launching world-first technology like the New Pizza Chef with augmented reality, which allows customers to create their favourite pizza before their eyes. Then there’s DOM Pizza Checker, which checks the quality of every pizza before it goes out the door and developing an award-winning plant-based pizza range so that everyone can share in the joy of pizza. It’s certainly been a year full of highlights.

WHAT HAVE BEEN THE CHALLENGES? The Australian retail environment continued to challenge many businesses in 2019, and ours was not immune to these challenges. The economy has seen more and more Australians tighten their belts, with consumers

44 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au looking to pay less, for more. customers any pizza delivered for $15, That’s challenging. To continue to no hidden charges. succeed, we will keep listening to our At Domino’s, we’re always looking customers and delivering an experience for ways to enhance the customer ...I hope to that is rewarding, and unlike any of experience, alleviate tensions and see Domino’s our competitors. generate efficiencies. Keeping a finger on the pulse of continuing to HOW WOULD YOU DESCRIBE THE consumer needs, we are proud to AUSTRALIAN RETAIL MARKET? raise the bar within the QSR industry, crush convention, Customers are consistently demanding and drive change towards a more better quality, at better value, and we’re transparent, quality-focused approach to embrace“ proud to deliver on that. meet the demand from customers. More than ever before, customers challenges want honesty and transparency from WHAT PLANS DO YOU HAVE and push the companies and believe they have a right FOR THE BUSINESS OVER THE to ‘no more surprises’. NEXT 12 MONTHS? boundaries That means receiving the meal they Our strategy for the next 12 months ordered. A meal that looks like the remains unchanged; delivering high- of what’s advertisement. A meal that is hot, tasty quality meals to customers, at an and satisfying. A meal that offers real affordable price, as quickly and safely possible for our value and can feed the whole family. as possible. I believe that our latest innovation Our focus on Project 3TEN remains customers.” DOM Pizza Checker has provided a key to this strategy, which is why we platform for transparency and is an plan to open more stores closer to our DOM Pizza Checker – which we will innovative solution to this customer customers over the next 12 months. continue to innovate and iterate over the tension point. These stores will almost exclusively next 12 months. We will continue to listen to our be delivered by existing franchisees or We have also been trialling a loyalty customers and give them more of what store managers. program in Europe and Australia and they love. I often hear people mistakenly call look forward to sharing the results of this us a ‘tech business that sells pizza’. trial and the benefits it can provide to HAVE THERE BEEN ANY However, we’re proudly a pizza customers in due course. INTERESTING SHIFTS IN business that uses tech to make things Ultimately, 2020 is primed to be an CONSUMER BEHAVIOUR IN easier, and we want to ensure each of exciting year for our business, and I THE PAST YEAR? our stores is equipped with technology can’t wait to share with everyone what Customers don’t like surprises. While that benefits both our customers and we’ve been working on. that’s always been the case, it’s more team members. pertinent than ever before. This includes e-bikes, fast bake ovens HOW HAS E-COMMERCE That’s why we launched our War and world-first technology like GPS AFFECTED DOMINO’S on Charges campaign, offering Driver Tracker, Predictive Ordering and PIZZA’S OPERATIONS? ► www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 45 Technology and innovation are key out opportunities to be first movers, and voice assistants, artificial intelligence pillars of the Domino’s business, and most importantly to always develop for, and augmented reality, and I hope the company is committed to the and evolve with, our customers. to see Domino’s continuing to crush e-commerce and digital space. convention, embrace challenges and In FY19, Domino’s delivered $1.9 ARE THERE ANY KEY TRENDS push the boundaries of what’s possible billion in digital sales, accounting for IN THE FAST FOOD SPACE? for our customers. more than 65 per cent of all sales globally. Artificial intelligence and augmented My hope is that, as Domino’s and Additionally, our online platforms reality continue to transform the our franchisees continue to succeed processed 65 million orders, which is retail industry. and grow our market share, we will more than two orders every second. In We’re always looking for innovative continue to disrupt ourselves – making Australia and New Zealand, we saw technology solutions to increase courageous decisions that propel both record usage of our online platforms, efficiencies and improve the customer our business and the industry forward. selling more than 2 million pizzas and experience, and will continue to Bold actions that transform sides in one week alone. experiment in this space. challenges into exploration, and risk Retail is an ever-evolving industry into reward. and I’m excited to be leading a team WHERE DO YOU HOPE TO SEE They say fortune favours the brave – committed to being at the forefront of DOMINO’S PIZZA THIS TIME I hope that Domino’s continues to industry innovation. NEXT YEAR? take brave, industry-leading steps With the ever-increasing pace of As a leader in the food-technology that challenge the status quo and pave emerging technology, we strive to keep space, we’ve proudly achieved industry the way in the Australia and New our finger on the pulse and actively seek firsts in drone delivery, app ordering, Zealand market.

46 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 47 EXPERT FORECASTS

48 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au EXPERT FORECAST

Why do retailers fail? Business owners and boards don’t always like hearing some harsh truths, particularly when they’re struggling. Here’s a deep dive into why retailers don’t survive.

BY JAMES STEWART, Partner, Joint National Leader, Restructuring Services, KPMG GAYLE DICKERSON, Partner, Restructuring Services, KPMG DAVID HARDY, Partner, Restructuring Services, KPMG

RETAIL ISN’T EASY. NEVER acknowledge in the heat of battle. physical, digital and global. HAS BEEN. NEVER WILL BE. Consumer expectations have changed. So what are the symptoms of a brand External challenges facing Australian The evolution of online shopping, losing relevance? retailers are well documented, invasion of new competitors, both record low wage growth, household domestic and international, and the Product and product debt, volatile housing prices, global rapid pace of technological change has 1 mix becomes fatigued uncertainty and stubbornly low changed the game for Australian and Unsurprisingly we see this in declining consumer spending to name a few. New Zealand retailers. sales and margin. The customer has A common misconception is that a Customers now expect more; more started to lose interest in the number one retailer’s success – and survival – can be value, more engagement, and more from thing they care about – what the retailer a product of its external environment. their shopping experience. They expect a actually sells. Popular quotations expressed by seamless experience across the physical management teams include, “consumers and digital world and they will vote with Customer engagement aren’t spending because the banks aren’t their wallets when they don’t get it. 2 fails This is an interesting one. It lending”; “online competition is really Customers have a virtually unlimited used to be all about the store experience. hurting us”; “we had a really warm landscape to search for new and fresh Now it’s also about the digital winter…”. product, where ever it exists – on a experience. Think Instagram; Facebook In our experience, it is often a retailer’s global scale. marketplace and direct online channels. failure to address factors within their The days of bricks-and-mortar stores The digital world is the new world of control that ultimately makes the being a customers’ shopping temple are measuring customer engagement. difference between success and failure in over. The physical store environment a tough market. needs to be relevant to stay viable in the Brand strategy and So, why do retailers fail? new retail world. 3 execution becomes At its core, retailer relevance has confused In reality, responsibility for BRAND RELEVANCE always been about great product at this (and product mix above) rests with The number one reason most retailers a great price that resonates with the management. The most critical people for fail is because their brand, and by customer intuitively. any retailer are the CEO and the head of definition product proposition, loses In the old world of retail, there was merchandise (product); digital (customer market relevance. only one channel to market. The store. experience) and marketing. This team is Unfortunately it’s a harsh truth that So retailer relevance in the new world the heartbeat of retailer relevance. If they is often difficult for business owners or is still about great product at a great don’t understand their customer and management to see, much less actually price, but now the channel to market is what they want from the brand then a ► www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 49 retailer’s relevance is squarely in play. The importance of brand strategy is drives the range architecture, product not lost on many in retail board rooms. mix, and qualification to produce your Technology is outdated While this is the case, it doesn’t mean targeted sales and margin outcomes. 4 Technology (think digital) has retailers take the time to actively think become a cornerstone of retail success. about their brand in the market, how Whether through the use of data to their customer is changing and the understand customer wants; or to impact of new competitors. …it is often a drive product range selection; supply Too often the heat of battle is all about retailer’s failure to chain; sourcing and more recently the day-to-day execution and time is within how customers pay (think contactless not made to consider the longer term address factors payments technology) is now a position of the brand; the bigger picture. their control that serious strategic and tactical point of It is a lack of forward-thinking strategy ultimately makes the difference for best practice retailers. where retailers often come undone. Many retailers have significantly Of course, execution is the link difference between underinvested in technology (customer between planning and results. While “ success and failure in facing and supply chain) over a long planning and developing a strategy can period of time, meaning they operate be hard work, turning a plan into action, a tough market.” off antiquated legacy systems which sustaining, and evolving that action can do the job, but don’t deliver a customer be even harder. Too often we see retail failures where experience that matches the expectation The successful execution of a strategy is product and range planning is too of what is possible. This just annoys the highly contingent on the capabilities and simplistic or lacks the attention and customer and eventually they drift off effort of your senior management team. resources it requires. Retailers will select to competitors. Execution of strategy can only be products and purchase a range purely achieved if the management team driving based on last year, rather than with any Each symptom in isolation poses its it are equipped with adequate skills (and strategic thought in mind. own threat, but in unison these can be motivation) to sustain it. For retailers, The consequences can be damaging. truly detrimental to a brand. this means identifying and filling key A weak product planning process can Constant brand reinvention is more resource gaps to meet short term needs see brands fail to meet sales and margin important now than ever before. and ongoing investment in your people objectives as a result of fragmented to ensure new and existing skills are ranges, poor merchandising, and lack or STRATEGY: DEVELOPMENT continually developed. confusion of brand identity. PLUS EXECUTION Even if management possess the In our view, strategy execution is A brand is guided by its strategy. necessary skills, the challenge can often critical to a brand’s survival and Developing a brand strategy is lie in their ability step back from day-to- success. Why? more than a few loose words on day tasks and look at the bigger picture. It comes back to our earlier comments what the brand does and where it is This is where having the right mix of about consumers demanding more and going. Defining a brand strategy is the skills and experience on retail boards having more options. fundamental reason for being and creates becomes increasingly important. Changing consumer demands and a purpose, the why behind day-to-day increasing competition have created activities. This establishes brand identity POOR PRODUCT PLANNING a generation of “serial switchers” and which customers intuitively engage with. At its core, product and range planning research indicates that nearly half of

Many iconic Aussie retailers have succumbed to market pressures recently.

50 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au shoppers are likely to abandon a brand after just one bad experience. For retailers, this means getting it right, and getting it right the first time, is critical to sustained success.

The physical store environment needs to be “relevant to stay viable in the new retail world.” WHAT CAN BE LEARNT FROM FAILURES? The first lesson is that the customer is almost always not surprised. They can see what has been happening to their favourite brand from a long way out. They feel the slip in service or product standards often well before management does. Secondly, brands need to continually reinvent themselves to keep up with dynamic modern consumers, adapt to market changes and maintain their relevance. This means ongoing engagement with customers, providing a fresh product and product mix, and ensuring technology within your business is able to meet the demands of today and tomorrow. The challenge here is both strategic and financial. When a retailer is having a good run, that is the time to really double down on any strategic point of difference and invest further in maintaining their market differentiators, not just take the profits from the good times off the table. Finally, a brand’s business strategy should be looked at as a dynamic piece of work. Something More than ever, to be revisited and challenged providing a fresh regularly by more than just the product mix is integral management team. for successfully meeting Open and collaborative retail consumer demands. organisations function well because of the diverse range of inputs they get into what the customer wants and how to maximise customer centricity. Execution, of course, needs to be delivered through the correct people, planning and resources. www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 51 EXPERT FORECAST

Economic update: Looking at 2020 Growth could be hard to come by at the start of the new decade – but it’s not all bad news.

BY DR BRENDAN RYNNE, Partner and Chief Economist, KPMG

IN MY VIEW, THE OUTLOOK FOR two consecutive quarters of current Australia, like most other developed, THE AUSTRALIAN ECONOMY account surpluses – the first time in and in some cases emerging, economies going into 2020 appears weak; more than 40 years. has seen real wages growth decline over which is a significant contrast to our KPMG Economics are anticipating the past decade. Various commentators national experience of strong and real GDP growth to lift as the year are suggesting the ‘wages bargain’ uninterrupted economic growth for the progresses, with annual growth to June between employers and employees has past two decades. 2020 forecast to be 2.1 per cent, and broken down, with returns to labour The September quarter national increasing marginally to 2.3 per cent by losing out compared to return to capital. accounts show the weakness in the the end of the calendar year. Our analysis shows this is not economy is across households and The implication of this the case, and that the relationship businesses, with consumption and macroeconomic outlook for the retail that drives wages growth, being investment expenditure showing 1.2 per sector in particular depends on a productivity, the mix of capital and cent and -4.8 per cent over the previous confluence of factors, including whether, labour used by an industry, and the 12 months. and by how much, wages grow; role of high tech capital in generating Despite a significant rise in changes in employment; population an industry’s output, continues to hold, international geopolitical risks over the growth; dwelling investment and churn; albeit the role of high tech capital has past few years, one area of strength in movement in interest rates, inflation, become increasingly more important in the economy has been our export sector, and exchange rates; and the level of driving wages growth during the past which has enabled Australia to record household debt. few years.

52 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au This practically means for real decline by 30,000 in the number of household consumption is anticipated wages to grow in Australia, and then people eligible to participate in the to remain weak, driven in part get subsequently spent on goods and Commonwealth Government Overseas from a combination of low wages services, businesses need to achieve Migration Program in 2019-20 from growth, reduced new employment improvements in productivity, and 190,000 in the year before; which is activity, lower migration and soft new look to employ a greater proportion of equivalent of around 10,000 to 15,000 household formation. technology in their production processes. households that aren’t drawing on the On the bright side, as household retail base of Australia compared to the wealth improves through the recovery AUSTERE SENTIMENTS previous year. in house prices consumers are likely The latest multifactor productivity On a positive note however it seems to be more open to major purchases, estimates prepared by The Australian the housing market in Australia has like furniture, whitegoods and Bureau of Statistics for 2017-18 shows turned the corner and is now seeing motor vehicles, albeit there is unlikely negative productivity growth for the accelerated price growth in most cities, to be enough of this activity to drag the first time since 2011; which suggests especially in Melbourne and Sydney. sector up. wages growth for the coming 12 months While this brings with it its own This downbeat assessment though will continue to be austere. challenges in terms of pricing first has the potential to be turned around While how much people are getting home buyers out of the market, it is quickly should the current tetchy global paid is an important factor in the also likely to help the retail sector. economic environment settle down and outlook for the retail sector, even more That is, as household wealth returns world trading activity rebound. important is how many people are consumers will feel more confident Australia, as a small open economy, employed and earning a wage or salary and comfortable loosening their purse gains when the world economy is to spend. Australia has maintained a strings buying major items, such as cars strong, especially so when our major robust labour market despite a general and consumer durables. trading partners, including China and weakness in economic conditions, Japan, experience improvements in their with more than 250,000 new jobs being TOUGH TIMES, BUT GLIMMERS aggregate demand. created over the past 12 months to OF GROWTH While this outcome may seem remote, October 2019. Overall the economic environment it is important to recognise the key There are now nearly 13 million facing Australia in 2020 is likely to be economic factors in this equation can people employed across the nation, a continuation of the current tough quickly change pace and position, and if and there continues to be a positive trading conditions. this happens, Australia should be able to sentiment towards the labour market From a retail sector perspective gain on the upswing. by potential workers given Australia’s participation rate remains at close to a 40-year high. The expectation however is that The downbeat assessment though this strength in new employment generation will also wane over the has the potential to be turned around coming year, with the unemployment rate stabilising in the low five quickly should the current tetchy global percentages; a rate still too high for the economic environment settle down and Reserve Bank of Australia (RBA). This, combined with the fact that world trading activity rebound.” inflation remains below the RBA target “ band of 2 per cent to 3 per cent, will push the RBA to continue to reduce the cash rate by at least one, most likely two, 25 basis point cuts in the first-half of 2020. The challenge with this remains – consistent with research conducted by KPMG – that the stimulatory impact of monetary policy becomes more muted when the cash rate is already low. This opens the door for unconventional monetary policy, like quantitative easing, but we remain doubtful that the RBA will go down this path. Australia’s population will continue to grow not only through natural increases but also through the overseas migration, who generally arrive ‘spend ready’ to purchase a range of goods and services for living in a new country. Unfortunately there has been a

www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 53 EXPERT FORECAST

NZ retail: Black cloud or Silver Fern?

The New Zealand retail market has been relatively resilient to date when compared to overseas markets – is it an outlier or will global trends manifest in the kiwi retail scene?

BY NICK MCKAY, Partner, Deal Advisory, KPMG LEON BOWKER, Director, Deal Advisory, KPMG

MEDIA ARTICLES IN THE US AND population growth. While this is partly attributable to UK ARE FULL OF HEADLINES The buoyant economy has helped growth in online retail, which is now proclaiming the retail market is currently deliver year-on-year growth in retail estimated to be approximately 8 per cent facing a ‘retail apocalypse’, with record spend. Between 2013 and 2018, across of total sales value, domestic retailers numbers of store closure and failures of core industries (excluding fuel and motor account for approximately 55 per cent of prominent businesses including Sears, vehicles and parts) retail spend in New total online spend. Toys “R” Us, Debenhams, House of Zealand has grown annually by 3.8 Furthermore, domestic retailers are Fraser, and Mothercare. per cent. set to benefit from new sales taxes and The key drivers of these global trends are the continued growth in online retail, cost pressures from wage growth, investment in online infrastructure, and the excess supply of physical stores. While New Zealand has seen a number of recent failures such as Pumpkin Patch, Andrea Moore and Ziera, and the market remains challenging for retailers, the retail market appears to be relatively resilient by comparison to international markets. Is the kiwi retail market an outlier or is it simply a matter of time before overseas trends manifest in New Zealand? New Zealand’s economy has delivered consistent GDP growth with relatively low unemployment rates, supported by infrastructure investment, tourism and Source: Stats NZ

54 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au import duties on offshore purchases. At BLACK CLOUDS ON THE HORIZON spaces, retailers in sub-prime locations present, for goods sold below certain However, for all the positive signs may struggle as shoppers are drawn thresholds, foreign retailers have not in the New Zealand economy and to new locations which can offer an had to pay GST or import duties but increased retail spend, there are clouds enhanced retail experience with a domestic retailers have. on the horizon. While the retail market greater array of shops and food and This has created a competitive has continued to grow, this growth has beverage outlets. advantage for overseas retailers. not necessarily equated to an improved In order to level the playing field, bottom line. WHAT DOES THIS MEAN FOR most overseas retailers will be required Increased competition (from foreign LOCAL RETAILERS? to charge GST on goods sold to retailers entering the NZ market) and With the threats on the horizon, New Zealand consumers from minimum wage growth has continued domestic retailers need to review the December 2019. to impact margins for the sector. The potential impact on their business and Over the last five years there has Warehouse, for example, has delivered look for opportunities to adapt and been, and continues to be, considerable revenue growth annually between improve their business. Some retailers investment in A-grade retail outlets, 2014 and 2018, but operating profit has are doing this either organically via including Westfield Newmarket (~230 declined over the same period, with revised strategies or via M&A. stores); Commercial Bay (~100 stores); rising wage costs a key driver of this. The Warehouse, for example, is and the Sylvia Park expansion The recent decision of the undertaking a multi-year overhaul of (~60 stores). Employment Relations Authority that its operations, including investing in While much of the expansion is Mitre 10 must pay its staff a living wage its e-commerce platform and a new focused on the Auckland region, due (approximately $3 above the minimum platform, The Market, which offers to strong recent population growth wage) and industrial action from other a platform for individual retailers to in the region, there is also investment retail staff suggest wages are likely to sell to consumers. The Warehouse is in other regions including Tauranga, continue rising. seeking to become a more efficient, Christchurch and Queenstown. Globalisation has also resulted in the omnichannel retailer with a local The new retail space is proving international expansion of large global platform that can compete with attractive to retailers, with many retailers, including Zara, H&M, and international platforms. established New Zealand retailers Chemist Warehouse. Meanwhile there Others are diversifying through acquiring footprints in these new are rumours of others entering the M&A and we have seen several recent retail precincts, illustrating a degree of market shortly including Decathlon, examples of portfolio expansion over confidence in both the New Zealand Aldi, Costco and Ikea, in addition to the the last year or so – Super Retail retail market and new mall offerings. looming threat of Amazon setting up a Group’s acquisition of Macpac, Also, by comparison to international distribution centre in New Zealand. Carpet Court’s acquisition of Curtain markets, New Zealand has a These new offerings will Studio, Kathmandu’s acquisition of Rip considerably smaller retail footprint; undoubtedly impact the local retail Curl, and Barkers acquisition of the US for instance is estimated to landscape and put pressure on local Max Fashions. have more than five times more mall offerings, many of which will struggle While there are clearly black clouds space than New Zealand (on a per to compete with the supply chain and on the horizon for NZ retail, best capita basis). margin of these large players. practice retailers are already adapting Therefore, the investment in retail Lastly, while the growth in A-grade their business models and have no space largely represents a supply side retail space will likely deliver growth intention of being caught in the storm catch up. for retailers located in these new that may be to come.

New Zealand’s largest retailer is revitalising its strategy to compete with international players.

www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 55 EXPERT FORECAST

The power of perpetual inventory Poor, out of date supply chain management systems continue to plague retailers.

BY ANDY BUCKLE, Director, National Lead for Retail Technology, KPMG

IN TODAY’S FAST-PACED Many retailers have detailed plans for recorded, and the inventory ledger is AND COMPETITIVE RETAIL a new omnichannel operating model, updated across the retailer’s environment, being at the forefront but cannot enact the plan due to poor entire network. of technology has never been inventory systems. The benefits for retailers are powerful. more important. Technological advances are creating VISIBILITY LOCATION, LOCATION, LOCATION unprecedented opportunities for For a number of retailers, manual Customers can go online, see a retailers to connect with their customers stocktakes are the only time when product, and use location services to over a variety of mediums. they know what stock they have and see where the closest store is that has Consumer expectations have changed where it is within their network. it in stock, in what sizes and styles as and offering an omnichannel shopping The inability to instantly see and well as in what quantities. experience is now an expectation and update inventories will often lead They can order and collect from the considered the norm. retailers to miscalculate their online local store immediately. This resonates However, sustaining an omnichannel inventory with stock that isn’t actually with millennials and a growing offering requires the support of available and customers ordering items generation of time-poor consumers. a modern approach to inventory that are not available. management. Retailers need to know This can be damaging, informing ONLINE ORDERS what stock they have, where it is, customers they are unable to fulfil their When a customer places an order, by and to make sure that information is orders and potentially issuing refunds. looking at the postcode, a local store accessible throughout the business, and can immediately be allocated to as necessary, to customers. HIDDEN COSTS provide the product. Despite this need, inventory Online sales often involve hidden This means the retailer doesn’t need management is one of the most costs. For example, as goods move to invest in a separate online warehouse underinvested areas in retail. through the value chain, their cost for the purposes of dispatching online Many retailers rely on legacy can be inflated due to duty or orders. Savings on capital expenditure systems that do not provide a real freight charges. unlocks greater investment across other time or accurate way of knowing Without accurate inventory parts of the business. what stock they have on their shelves, management, those costs are not fully in backrooms, in transit and at managed and the true item profitability PREDICTIVE INSIGHTS the warehouse – that is, perpetual is unknown. The implications of this are Smart systems and technology know inventory – resulting in inefficiencies far-reaching and can influence pricing when the goods are expected to arrive. and potential misdistribution of stock. and product mix decisions. The retailer has a better way of seeing Additionally, we often see what is coming and keeping the legacy technology with multiple FAILURE TO DELIVER customer informed. add-ons, complex customisations Consumer trust is paramount to It is also much easier to track what and workarounds. the ongoing success of any retailer. is selling well, what stock needs to be The result is a technology system Customers expect that when an order quickly reordered, and what stock isn’t that is disjointed and not fit for has been placed, it will be available, in moving and could go on sale. purpose, restricting a retailer’s ability to the correct style and size, and delivered In an increasingly competitive and meet the fast paced and agile demands at a convenient time and location or challenging landscape, retailers need of the market. ready for collection. to offer a unique value proposition to Very few of Australia’s top retailers Every time a customer’s order is customers. This is supported through have perpetual inventory – a near unfulfilled, it dilutes trust in the brand. convenience and speed, ongoing real-time and ubiquitous approach to This is why perpetual systems are vital. engagement, and delivering on inventory management. With perpetual inventory, the promises – the what, when, and where. The consequence? technology tools enable a business to While addressing these areas can be A lack of accurate and up-to-date know where all of its stock is, in almost achieved in different ways, the power inventory management has ripple real time. Whenever a sale is made, or of perpetual inventory should be not be effects through all aspects of a business. new stock arrives, it is immediately lost on retailers.

56 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au EXPERT FORECAST

Bright sparks in a tough M&A market

The merger and acquisition market in retail has remained resilient despite broader sector challenges – but what sets the successful apart from the struggling?

BY JAMES HINDLE, Partner, Mergers & Acquisitions, KPMG

have met the customer brief and continue to grow well in-excess of the overall retail sector and their listed peers. Common themes surrounding these businesses include:

• Clarity on their target customer • A customer focused approach, through the delivery of great products or services first and the use of marketing to convey the message (not the other way around) • Data driven intelligence is at the core of business decisions to provide selling, up-selling and re-selling to the customer (not just growing the customer base) • Technology used to improve business efficiencies • Strong financial management, E-COMMERCE CONTINUES TO retail sector M&A activity remains including the capacity to move BE A PRIME DRIVER OF RETAIL challenging as directional certainty have inventory quickly transaction volumes. forced resources to be stretched. • An overall ability to be nimble and As fundraising initiatives gather Over the past decade, a wave of swift in decision making by adapting pace and availability of capital online businesses, including The Iconic to new customer preferences. increases, private equity’s search for and ASOS, followed by the entry of high quality, high growth and scalable international retailers Zara, H&M and investments have been largely directed most recently the Amazon effect, have Scarcity of to e-commerce businesses. continued to keep traditional bricks- Online businesses have been highly and-mortar retailers guessing on ever- available funds and sought after for their nimble and changing customer preferences. low confidence in scalable characteristics including; a As these resource constraints become lower level of committed lease costs more pervasive, traditional retailers outlook have impacted associated with a store network; have focused on re-investment rather valuations which is and the ability to reach a larger, and than mergers and acquisitions or often, international audience without expansion activity. A lack of appetite reflective in domestic- significant infrastructure investment. “ from financiers has exacerbated funding listed retailers.” Additionally, e-commerce businesses constraints, as financiers themselves have typically transacted on revenue navigate risk exposure and regulatory Consumers are increasingly supporting multiples, which has catalysed high changes forcing traditional retailers to businesses with purpose, putting the quality operating vendors to explore fund any investment or growth with onus on the business owner to bring potential investment discussions. their own equity. their brand to life. Recent evidence in the market Scarcity of available funds and low Businesses have successfully include US private equity fund Summit confidence in outlook have impacted done this through ethical sourcing, Partners’ investment in fast fashion valuations which is reflective in technical aspects or even providing online retailer, Princess Polly and domestic-listed retailers. a perceived lifestyle. Quadrant Private Equity’s investment in Most importantly, a collaborative Australia’s largest online beauty retailer, SUCCESSFUL TRAITS approach to educate and empower Adore Beauty. Some bright sparks have been observed the customer rather than marketing Traditional bricks-and-mortar in the private markets, where businesses just to sell. www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 57 EXPERT FORECAST

How to generate more cash flow Leading retailers have one thing in common – they all constantly focus on cash and working capital.

BY VINCE DIMASI, Partner and Australian Lead – Working Capital Advisory, KPMG

WE HAVE ALL HEARD THE Adopting a long term view is key. SAYING BEFORE – ‘CASH IS KING’ and ‘profit is vanity but cash is reality’ Measure what matters – many and so on. 2 corporates fail to have reliable However, despite all the slogans, visibility over the key working capital many retailers still seem to spend an metrics. At a minimum, retailers should inadequate amount of time focusing on be monitoring key metrics such as those parts of their business that make Days Sales Outstanding (DSO), Days up working capital. Payable Outstanding (DPO), Days Reasons for this include: Inventory Outstanding (DIO) and • As a concept, working capital is Cash Conversion Cycle. In addition to often less tangible than other parts of these metrics, ageing profiles of debtor, a business – such as revenue or costs creditor and inventory ledgers are also • Many corporates and metrics within key as they can be an early warning sign are not well understood of operational problems in a business. • Businesses often don’t have the capacity, skill sets, analytics Focus on changing the cash and expertise to understand and 3 culture. While this is often one optimise working capital. of the most difficult areas of working capital improvement, it can be the most THE CASE FOR CHANGE rewarding. Shifting the mindset of a Working capital optimisation is a free business so that cash is just as important source of cash – every dollar released as revenue and profit is key. from working capital is one that a business doesn’t need to tap the debt or Look widely at a business. There equity markets for. 4 are many different ways to improve Releasing cash from working capital working capital. While many corporates can also be one of the fastest sources of Working default to focusing on payment terms, cash in any business and achievable at capital optimisation this is really just one of many strategies zero or close to zero cost. For example, available. The best working capital conducting an active internal is a free source of improvement programmes will take campaign to collect customer debts a broad look at a business and deploy aged beyond agreed payment terms cash – every dollar numerous strategies touching multiple takes very little cost to achieve and can released from different parts of a business. provide cash quickly. “ For many retailers, reducing working capital is Use data to dispel cash myths – working capital will continue to be 5 when it comes to working capital important in 2020. Some of the many one that a business there are often many myths that are reasons include: shared throughout different parts of a • Continued tough consumer doesn’t need to tap business. Examples include assumptions spending conditions the debt or equity regarding customer behaviour, • Ever growing margin and cost inventory stocking policies and system inflation pressures markets for.” related constraints that may be used • A constant need to keep investing in to prevent operational changes to a capex ranging from physical stores business. Often, the best way to navigate through to digital and e-commerce to start. Here are some tips for retailers these myths is to truly understand what • Increased market and stakeholder when thinking about improving their is really happening via data analysis. pressure on how well management working capital. Very often, there can be a difference is managing its capital employed. between management’s perception of Consider working capital reality and what is actually happening TIPS FOR RETAILERS 1 improvement a journey and not a in the warehouse or store. The best Improving working capital is rarely destination. As businesses grow and defence to any resistance to change is straightforward and often one of the evolve over time, so do their working often the truth and an understanding of biggest challenges is knowing where capital requirements and challenges. the data is a source of that truth.

58 | AUSTRALIAN RETAIL OUTLOOK 2020 www.insideretail.com.au www.insideretail.com.au 2020 AUSTRALIAN RETAIL OUTLOOK | 59 KPMG.com.au insideretail.com.au