The retail year in review

I looked back at the SmartCompany website last week, and revisited some of the calls, predictions and future-focused observations I made in 2010.

I missed some: I thought JB HiFi would buy Clive Peeters, I was wrong. But I hit a couple of the major ones fairly cleanly: the true coming of age of online retailing and the drop in prices for all goods in retailing.

On November 29 last year I opined on Christmas 2010 that: “this will undoubtedly be the year when we hit the tipping point and substantial amounts of product are purchased online and delivered to our doors. Not an incremental growth on last year or the year before, but a truly significant step change in volume. The retailers who offer that choice will have created happy shoppers who will buy just as much through their stores as they did last year. They are also likely to buy last minute gifts via the online store and have it delivered to their homes or direct to their loved ones’ homes.

If you’re a little sceptical of the magnitude of this change, watch for Nordstrom’s sales results in mid-January. Then look at its Christmas trading results during the first quarter of 2011.”

In October I looked at the future of retailing, and wrote: “the ‘coming together’ of bricks and mortar retailing and online retailing had ‘been coming together’ for almost a decade. With the advent of the internet, the premature death of retailing was called. However, retail stores haven’t closed their doors, a number of large and successful pure online businesses have emerged, and retailers have spent the past three years really trying to hone their business models around online retailing to provide a great experience AND make money from it.

This online retailing space will be a significant contributor to all retailers’ sales and profit numbers going forward. If you have a retail store and don’t have an online service you need one. If you own shares in retailers, have a look at their online offerings. If you like the experience as a shopper, and the back end is being managed well, chances are they will improve dividend payouts and share values will increase going forward.”

Also about this time last year, I discussed why retail prices would drop in 2010. I wrote: “having built very strong brands, supported by high quality, lower priced own labels plus sophisticated sales and shopper data systems, the latest thrust is on further improving productivity in order to lower prices to shoppers.

I’ll just restate these retailers’ objective: to lower prices for shoppers. These retailers, having created great shopping environments supported by very slick inventory systems, now want to grow the amount of money shoppers spend in their stores. They want to grow the amount of money shoppers spend on the items in their stores faster than the population base is growing. There is no mention of product or gross margin improvement, as improvements in same store sales volume via big retailers transfers into improved CASH margins. This in turn drives EBITDA returns as the retailer’s fixed cost base doesn’t move.

Cynical? Of course you are.

Over the coming 36 months around the world, the price for a basket of food will drop significantly. And why? Well, prices won’t drop because lobby groups shout ‘foul play’.

Prices won’t drop because politicians ‘publically shame’ retailers and manufacturers.

Prices won’t drop because retailers ‘lean on’ suppliers or farmers.

Prices won’t drop because retailers lower their overall profit returns.

Prices will drop because clearly planned productivity improvements from farm, through factory, through warehouse, store and into our homes continue to lower the cost of food items. Why?

Because productivity improvements mean that less of the price of an item includes duplicated or non-value add costs. This will lead to more people being able to shop for items that were previously a luxury, and they’ll shop for these items on a daily or weekly basis. The overall market will grow in value.

I know you don’t believe me yet, but collect your receipts, put them in a shoe box and we’ll take a look at them this time next year.”

Let’s see how widely these new ways become mainstream in 2011.

In his role as CEO of CROSSMARK, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia, NZ, the US and Europe. His international career in sales and marketing has seen him responsible for business in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands. CROSSMARK Asia Pacific is Australasia’s largest provider of retail marketing services, consulting to and servicing some of Australasia’s biggest retailers and manufacturers.