Australian retailers have acknowledged the importance of having a digital strategy but haven’t yet tied it to revenue generation.
That’s our take away from the Deloitte Retailers’ Christmas Survey, released yesterday.
The survey of 52 senior Australian retail executives found more than 80 per cent consider an effective digital strategy to be critical or very important to the performance of their businesses.
At the same time, 43 per cent think opening more stores will be the driving force behind sales growth in the next 12 months. That’s the highest result in the six years the survey has been running.
Hanging your hopes on opening more stores while embracing a digital strategy seems like a contradiction to us, so we asked David White, Deloitte’s retail national lead, what’s going on?
According to White, there’s a gap between retailers saying they recognise that digital strategy is important and connecting it to the overall business strategy.
“I think their digital strategies seem to be a little bit defensive rather than really driving the business forward and moving away from some of the traditional growth areas,” White told Which-50.
“It is a step in the right direction but what they haven’t necessarily connected is that the investments they are making on the digital side should be driving the top line.”
“When I look at some of the digital strategies in play they are probably not bold enough at the moment, they need to be much bolder to be effective and grow sales and drive the business.”
Store networks & diminishing returns
Although Australia is a long way from the saturation levels in the US, Deloitte’s report warns on investing too heavily in bricks-and-mortar.
“We are a long way from the saturation that was experienced in the US, but the danger signs are there and I think there comes a point of decreasing returns for retailers who just can’t continue to open new stores and have that as a means of driving possible growth,” White said.
For some retailers opening more stores might be a good move, provided there is a growing demand for their product and their brand, White said. Others run the risk of expanding their network too broadly.
“There is a risk down the line that suddenly they are left with too many stores, not enough demand and too high fixed costs so that certainly is a risk,” White said.
Instead, retailers should look at optimising the performance of their existing store network to improve customer experience and omnichannel initiatives.
“Reinvention and re-purposing of stores which work harmoniously with the growing online sales channels perhaps offer a better long-term strategy than simply growing the size of the store network,” the report states.
A digital tipping point
According to Deloitte Retailers’ Christmas Survey the number of retailers expecting online sales above 6 per cent has increased from 36 per cent to 52 per cent. 31 per cent of those respondents (versus 14 per cent in 2016) believe their online sales will be more than 10 per cent of their total sales for the period.
The report argues the relationship between bricks-and-mortar operators and online is “an ever-strengthening one as the value of an effective digital strategy continues to bear fruit for traditional retailers.”
While Australian ecommerce sales represent less than 10 per cent of overall retail sales, over 40 per cent of in-store purchases in Australia are influenced by digital in some way.
“We see the market waking up to the digital tipping point, where digital becomes not just a complementary sales channel, but the core of the experience. Retailers are embracing true omnichannel, with the reinvention of the store experience, consolidation of store networks and shifting of large portions of sales onto digital storefronts,” the report states.
The report also indicated little appetite for overseas expansion in the near term — 58 per cent of Australian retailers do not consider a foray overseas as an opportunity in 2018.
“Retailers are facing a battle on the home front and have chosen to prioritise this first rather than risk losing focus by going into new markets,” the report states.
“It is important though not to forget the longer-term opportunities that establishing a beachhead overseas can provide. The Australian market is competitive and becoming more saturated. Local brands will need to look off shore at some point in order to continue growing and building global brand recognition.”