Retail must move fast to the ‘connected store’

Greg Doone is PwC’s digital Strategy and Data Leader.

As published in the Sunday Star Times

Traditional retail models face an unprecedented challenge, writes Greg Doone.

I sometimes picture a smoky room circa 1998 where the major New Zealand retailers made a secret pact not to invest in ecommerce. Anyone who has lived abroad in the last 10 years will bemoan New Zealand’s lack of online shopping options.

When you dig deeper, however, you recognise what a challenge it has been for our retailers to replicate the models that now routinely deliver more than 20 per cent of total sales for major United States and British retailers.

If we start with basic economies of scale – four million customers is a lot less than 60 million and a heck of a lot less than 300 million.

Add to that, the rather unforgiving geography of New Zealand when it comes to developing a scalable, centralised distribution model. If we then consider the favourable dollar for imports which has propped up a “60 per cent off’ discounting model over recent years, and the fact that it is still pretty easy for the average Kiwi to nip out to the local shops, it becomes easier to understand why there is no John Lewis-like success story here.

John Lewis, a chain of upmarket department stores operating throughout Britain, is the British online department store market frontrunner. With its multichannel proposition propelling growth, it’s set to extend its ecommerce lead in 2014, with online channel forecast to grow by 71.9 per cent in the next five years.

It leads the British market with sales growth and market share supremacy, John Lewis has set the standard in the market for convenience, fast delivery and website functionality. In contrast, New Zealand is only just getting to the tipping point where buying online is seen as a default behaviour. The statistics support this, with 56 per cent of New Zealand’s internet users purchasing online compared to 66 per cent in the US and 72 per cent in Britain. Our total spend per year is also significantly less, at about a third of that of our US equivalents.

So when a publication from PwC Australia came across my desk, I read it with interest. “The store is dead, long live the store.”

Well, the stores in New Zealand never died, but there is a critical cautionary tale here.

One factor omitted from the analysis is the lack of a strong viable competitor in the New Zealand market; however that has now arrived, with international merchants such as Marks & Spencer, which offers free delivery to New Zealand.

Domestic retailers should be disturbed to learn that according to a BNZ study, in February 2014, online purchases at offshore merchants were 21 per cent higher than in February 2013, with domestic sites just 6 per cent higher. The same study indicates that 42 per cent of online retail purchase in that month came from international merchants.

New Zealand retailers have an opportunity to catch up. But can the “connected store” give us the opportunity to fight back? We believe it can.

Let’s hope New Zealand retailers embrace the opportunity, before they get buried under an avalanche of Marks & Spencer underwear.

Greg Doone is PwC’s digital Strategy and Data Leader.

As published in the Sunday Star Times

More ideas

Want to know more?