Around the globe, retail and technology giants are investing heavily in unmanned stores and automated warehouses, fuelling a wave of industry transformation that could potentially drive dramatic changes down under.
The level of automation across Australian retailers lags behind the rest of the world. But with big players like Woolies and Coles investing hundreds of millions of dollars on automating their supply chain operations and international giants like Amazon ramping up their presence in Australia, the broader retail industry will be forced to make big bets on machines that can perform the work of humans.
For retailers, automation holds the promise of lower costs, improved accuracy and safer working environments. However, for smaller retailers and the workers themselves, the change won’t be easy to navigate.
According to McKinsey, “Smart automation and AI will continue to reshape the revenue and margins of retailers as self-checkout machines replace cashiers, robots restock shelves, machine learning improves prediction of customer demand, and sensors help inventory management.”
The consultants argue this will mean a decline in manual jobs such as driving, packing, and shelf stocking, while jobs that remain will tend to be concentrated in customer service, management, and technology deployment and maintenance.
In Australia that trend has put 165,000 retail workers at risk of losing their jobs as roles are automated over the next five years, according to according to Australian software company, Faethm.ai, an analysis of Australia’s census data.
That’s more than ten per cent of the 1.23 million Australian retail employees that make up Australia’s highest-employing industry.
Faethm’s SaaS platform assessed Australian census data and identified that “retail salesperson and general clerk” is the number-one role at risk of automation across all industries in the next five years. Of the seven largest industries by employment, emerging technology is predicted to have the biggest FTE (full time equivalent) impact on the retail trade.
Retail as a sector stands out because it has a large employment base, and lower-skilled roles with routine processes are those that are more susceptible to automation on the whole, Faethm executive director Greg Miller told Which-50.
“There are already cashierless retail stores all over China and fully automated distribution centres around the world. These same companies will open up similar capability in Australia and force the local industry to adapt,” Miller said.
Faethm’s platform produces a score based on the skills each job is composed of and which technologies may do the job better than a human.
The platform also tracks augmentation and addition of roles. An additional 13 per cent of Australia’s retail workforce will be augmented by these emerging technologies, meaning their roles will be materially impacted by tech, but remain in the workforce to free up capacity within the industry and drive growth.
At the same time new roles will be added to the industry to implement and support these new technology implementations — a point made to Which-50 by several retail industry groups and analysts.
Miller argues Australian industry needs to repurpose redundancy costs/funds into reskilling efforts.
“There are also a host of new jobs being created by the impact of these emerging technologies. Reskilling at-risk roles into these new, in-demand roles is a huge opportunity,” he said.
To adapt, Miller said retailers need to begin by getting a data-driven view of their business and understand the impact of emerging technology right down to the skill level in their organisations.
From there, new roles can be identified. For example, Faethm’s analysis identified retail salesperson and general clerk share considerable overlap with more secure roles such as concierges, first-line supervisor of customer service representatives and conference and event organisers.
“So with the right retraining programs, we can get these at-risk roles prepared for new current roles and eventually future roles,” Miller said.
Retail industry associations agree new jobs will be created by automation, including some not yet imagined.
“I think we will lose some jobs,” Russell Zimmerman, Executive Director of the Australian Retailers Association, told Which-50.
“But the fact is some of those jobs will turn into new jobs. And I think there’s going to be jobs that we haven’t even thought of in retail. So yes, we are going to have a change in skills.”
The National Retailers Association, another industry group, is arguing similarly: that retailers should be embracing automation and the potential job obsoletion will be offset by new ones.
“Our experience is that automation does not destroy retail jobs — rather it creates them in other areas or makes existing jobs easier to perform,” an NRA spokesperson said.
“Moreover, in many cases automation makes current jobs both easier and safer.”
The Shop, Distributive and Allied Employees Association, the largest union representing Australian retail workers, is advocating for more caution. The SDAEA declined to comment to Which-50 on retail automation, but has expressed concerns in the past.
Most notably, last year when the SDA filed a submission to the Inquiry into the Future of Work and Workers, noting a dichotomy was emerging in retail stores. On one side, stores offering high-engagement, high-value products, on the other, the lower-cost, everyday products.
The low-cost stores generally require less-skilled workers, and are where emerging technology and automation will have the biggest impact, according to the SDA.
“At this end of the retail spectrum the retail experience is increasingly an automated one which requires less staff,” The submission reads.
“The growth in self-service checkouts exemplifies this but is also the starting rather than the end point. The checkout-free store is the next development in this chain.”
The union argues that as these lower-skilled jobs lessen, competition among workers will increase, further driving the casualisation of the workforce.
“The SDA is not opposed to technological change but we do strongly demand that changes must be accompanied by a fair distribution of the benefits.”
It presents a tricky future for retail stakeholders but the industry is forging ahead with automation regardless.
The state of retail automation in Australia
Luke Ritchie, a Partner at GNC Group Consulting, a retail-focused consultancy within Grant Thornton, is a former retailer who has more than 25 years of experience working for large and small retailers in Australia and the UK.
Ritchie has travelled through Europe and the US to retailers’ warehouses, which are almost humanless warehouses operations — where machines pick products from shelves and deliver them to individual human pickers.
In China, for instance, online retailer JD.com runs the world’s first fully automated ecommerce warehouse. Instead of the usual 400 to 500 workers needed to run 40,000-sq-m facility in Shanghai, it needs only five. While rival ecommerce giant Alibaba says it has China’s largest automated warehouse.
In comparison, Australian retail operations are still very manual and human-intensive, Ritchie says, even within Australia’s largest retailers Coles and Woolworths.
“Automation, broadly, is relatively immature in Australia compared to overseas, certainly compared to Europe and America,” he told Which-50.
Ritchie says retailers will apply automation to the parts of their operations that represents the largest share of cost on their P&L. “One of the large costs is logistics and supply chain. And that’s probably the largest area of automation really being transformed right now,” he said.
“They are certainly moving on that path now so they are investing in and implementing automated supply chain operations.”
These projects remove humans — and much of the cost — from the operation. However, they aren’t without risk. Retailers need to carefully manage their workforces, through the multi-year projects.
“Management of workforce organisations and your own employees through that process is critical,” he said.
And while the project reduces costs in the long run, upfront it’s an expensive undertaking.
“It is capital intensive to invest in large-scale automation and even the big retailers — Coles and Woolworths — in Australia are very immature at this. They are starting to do it but they’ve really only scratched the surface.”
There’s also a skills shortage in the market. The big providers of these automation solutions tend to be North American or European and don’t have a large presence in Australia.
“A big retailer implementing a solution right now is flying in people from overseas, without question,” Ritchie says.
Impact on small and regional retailers
Ritchie noted the large upfront cost of the automated supply chain systems may be hard for smaller retailers to justify, especially if they are already faced with the cost of running stores.
“It’s so expensive to go and invest in a huge operation of an automated supply chain that you’ve got to have sufficient volume to be commercially viable. Especially when you’re already a retailer and you’ve already got all these extra costs like leases on stores.”
Ritchie noted that Catch Group has made big investments in automating its warehouses. It’s easier for it to invest, Ritchie said, because it is online-only and doesn’t have to worry about 20-year leases on stores in retail hubs like Chadstone and Bondi Junction.
Dr Louise Grimmer, a lecturer in Marketing and retail researcher at the University of Tasmania, says the automation discussion often overlooks smaller retail outfits.
“We tend to think of developments in automation being the sole purview of large retailers who pioneer new types of technology. I think we need to be mindful that in Australia the large majority of retailers are actually SMEs — in fact, mostly small and micro firms.
“For many SMEs the challenges brought about by the digital economy, AI, automation, machine learning are not being addressed in the ‘small’ retail space as they are by the larger global players. This is predominantly because small firms face significant resource constraints in terms of access to financial capital as well as human and other resourcing limitations,” she said.
But for workers in the smaller operations the automation threat may be even greater. The retail sector is a major employer in regional Australia, and job losses across the sector could disportionately affect certain geographies or demographics.
A focus on service
As the machines take hold, researchers and analysts argue retailers will need to redirect their workforces to areas where humans outperform machines: namely customer service.
According to Grimmer, “We need to remember that human contact and high levels of face-to-face customer service provide many retailers with a competitive advantage and a point of real differentiation from online retailers and from those retailers increasing their reliance on automation.”
“Many consumers still desire face to face interactions when they shop (they want to touch and feel products and speak to a real person) and so I think we’ll see a combination of automation and human interaction in successful retailers.
Similarly, Ritchie argues retail employees are far from doomed.
“From a people point of view, retailers need to invest in roles that actually touch the customer. I think ultimately being served with a smile and having great customer experience is pretty hard to do digitally.”
Automation drivers and blockers
But customer experience is also driving the automation uptake, albeit in different ways, according to Gartner Senior Analyst Thomas O’Connor.
Put simply, consumers now expect a level of service that can often only be reached by automating processes, and global ecommerce giants are showing it can be done.
“I think that’s where it all starts in retail. The reality is that consumer expectations of what a retailer can deliver have been growing rapidly over the last decade or so.
“The expectation of what a retailer should be able to provide, the level of integration between online and physical retail, has grown significantly.”
Lower delivery times and online tools for stock levels have quickly become table stakes for large Australian retailers, O’Connor said.
“These sorts of pieces are what the consumer expectations are evolving on. And as those consumer expectations evolve, that’s then driving the retailers to augment their different approaches. Some of it’s been driven to lower the cost base, some of it’s been driven to improve the services.”
Those consumer expectations, once acknowledged at the C-suite level, quickly permeate through the organisation, helping to drive automation initiatives, according to O’Connor.
“The alignment between that C-level understanding of consumer expectations and what the business is able to deliver on is where we see businesses differentiating. That alignment is the foundational piece.”
The alignment, along with practical challenges around implementation, remain the biggest roadblocks to automation for Australian retailers, O’Connor sad.
Often organisations won’t have the in-house skills for automation, which leads to an over-reliance on vendors, impeding efforts to undertake organisational change, O’Connor said.
But demand for emerging technology professionals means they come with a price tag retailers often struggle to afford.
“Retail often times isn’t at the forefront of wages in terms of what they are paying talent. Often there’s other industries like mining [out-recruiting them],” O’Connor said.
The Gartner analyst advises Australian retailers to identify what the right level of knowledge is for an organisation so the vendor relationships are best leveraged.
“You do need some level of internal capabilities and awareness, understanding what are the right questions we need to be asking of these [vendors] rather than allowing them to just show us the shiny bells and whistles — not what can actually deliver the results.”