Reasons for retail optimism amid the gloom

by Kate on September 24, 2012

As we approach the Christmas season, is there any  reason to be optimistic about the state of Australian retailing?

Over the course of this year there has been consistent reference to the sorry state of retail in Australia. The latest results from David Jones show one of our leading retailers with a staggering 40% decline in profit, and 4.8% decline in sales despite shifting a lot of inventory. It’s enough to have small retailers in panic. If DJ’s can’t make retail work, what hope for the others?

It should probably be no surprise that it’s tough to make a quid when your business ends up discounting stock to chase sales and address an overstocking problem. If you reduce selling price you’ve got to sell more units of ‘stuff’ to cover your costs – and in the case of big retail, these costs (of rent and so on) are high and hard to reduce in the short run. DJs also reported a reduction in sales of electronics, so they’re grappling with changes in business mix too.

It is basic business economics that when adverse changes like this occur, things financial won’t look pretty. Looks like it is well and truly time to recognise that the past (the days of rivers of gold for retail) is gone and we are in a new world.

So should retailers shut up shop and find something else to do? In some cases, yes.

It’s looking like we are over-retailed, as we start to pull back on the excess consumption of recent years. It’s time to reinvent ourselves find more creative, valuable ways to work and build the wealth of our nation. Here’s what John Ralston Saul wrote in an opinion piece in the SMH recently.

Our idea of growth is half a century out of date. We can’t produce solid growth because we don’t need it. Why? Because developed economies in particular have been in a production surplus since the 1970s. The old capitalist/socialist model of mass production is out of date because it worked. It is true that we do not distribute goods fairly. Nevertheless, we produce too many. We should have celebrated the success of mass production – scarcity defeated at last! – and focused hard on fairer distribution, then moved on to new ideas. Other forms of production. Other concepts of consumption. We must move on to ideas of social and economic wellbeing not dependent on growing consumption.

So far, so gloomy. Is there any hope?

I believe there is, but first, the gloomy side.

Last week I had at least two shocking retail experiences, one of which was in David Jones. The DJ’s problem was this: they had plenty of staff around, but none of them seemed interested in customers and serving their needs. It was the too often seen story of retail staff chatting with each other rather than looking to help the customer and make a sale.

I got what I went in to the shop for, but the experience was disappointing, and they missed out on add-on sales simply by not asking and by not knowing their inventory. The sense was that the customer was an inconvenience. Given this, is there any wonder we are flocking to on-line, and shareholders (which includes you, in your super fund) are feeling pain.

It’s not the fault of the staff, of course. That they neither seemed to care about me, or the economic fortunes of their employer is most likely the fault of a training and leadership environment which treats them as cogs in a wheel. There are awesome sales people in retail, of course, and they are a joy to buy from and an asset to their employer. When I encounter these people I hope that they are being rewarded with bonuses, though I doubt it (and no doubt they eventually bail on retail and go find more rewarding places to use their talents)

So there we have the opportunity for retailers. Want to sell more, at a good price, and create loyal customers? Then invest in management and staff training, teach your people basic business economics (like what it takes to pay their wages, and how their efforts contribute to this) and the value of being of service.  Help them understand the value of an add-on sale and a repeat customer, and reward them well when they contribute to this. You’ll be helping your business, and providing your staff with a lifelong lesson in what it takes to make a business work.

When I lived in the USA, I shopped a few times at Nordstrom. I’d heard about their legendary service, but was amazed to see it in action for myself. The sales staff I dealt with understood service, were motivated to sell, and know the difference between trying to sell you stuff you don’t want or need, and understanding and serving your needs. I believe that even in these times that approach can succeed, and perhaps it is the way of the future in many businesses?

Here are a couple of reasons not to despair about the future of retail, though I do tend to agree with Ralston Saul that we need fresh ways to support our future economic wellbeing.

  1. Australia’s leading retailers and the large franchise chains are fortunate to have potential access to a big share of our wallet, and the capacity to use the strength that comes from their size to educate people on service and sales. These are skills that will serve their staff well throughout their lives.
  2. Smaller retailers have the chance to stand out simply by providing great personal service and implementing some basics of good business management: buy well, track customer numbers, conversion rates and spending levels – then improve them through great service and repeat customer contact.

In a conversation last week, a colleague of mine in the franchise sector remarked that he senses many businesses are doing little more than hope for a good Christmas. It takes more than hope to build a business, but to those who get on and drive their business forward with intelligence, there is still reason to have a glimmer of optimism.

 

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