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The vicious retail cycle

I recently took part in a discussion with friends regarding an alarming trend that they saw forming in some of Australia's larger retail stores. Said friends work in retail (some in Australia's largest department stores) - and it was certainly an eye-opener for me, as to what's happening out there in retail-land.

If you've been following Australian news lately, you'll know that Aussie retailers are really struggling this Christmas - particularly against an onslaught of overseas online retailers. The virtually one-to-one US vs. Aussie dollar isn't helping these matters; although, for online consumers like myself, it means cheaper access to a large range of goods - some of which you just can't get here.

 

Thanks to my father's keen interest in technology & his knack for bringing home old PC parts like network cards that measured more than my arm & weighed more than a tin of Milo, I started using the internet at the age of 10 (in today's world this is nothing special; but this was back in 1992) & made my first (albeit very badly designed) website at age 13 - so it's safe to say that I'm a keen advocate of the internet and its many benefits to business.

But for over a decade now, I've struggled to understand why bigger chain stores didn't have online-store style websites. If the local hubby- or wife- run cat & dog toy & accessories shop or children's clothing store can have an online store, why can't a massive retailer like Myer, or David Jones (aka DJ's), have one?

In larger environments, often with custom-developed inventory management and POS software, rarely do the two systems link together and communicate with one another...

In essence, I believe it comes down to the setup of systems. A small business is easier to manage in terms of stock inventory & order dispatch. The larger the business, the more problems you have with where stock is located, which warehouse or location the online order's stock gets dispatched from, who fulfills the orders and how existing "physical"-store POS (Point Of Sale) systems communicate with often-seperate online store inventory, pricing & discounting systems.

My recent experience with an online Boating, Camping & Fishing store is an only too familiar story with a large brick-and-mortar retailer that has a great online web presence, but it all falls apart (in my personal experience, at least) as soon as it gets into the hands of a human being in dispatch. To cut a long story short, let's just say that after 3 weeks of promises from the Online Services Manager at Head Office, I still didn't have my goods and ended up canceling the order for a refund after hearing that the retail store assigned to dispatch my order didn't do so, because they'd had "an argument with the courier company & the courier was refusing to pick up from their store".

Apparently mine was one of about 10 orders waiting to go out. Oh, and by the way - not once did they contact me; I was continually contacting them.

 

In larger environments, often with custom-developed inventory management and POS software, rarely do the two systems link together and communicate with one another, causing headaches come stocktake time.

In actual fact, a growing small business has the advantage here. When a small business runs a physical shop and then decides to build an online store, they'll often get a system that can do both (like StorMan, for example) - because it's cheap enough to afford when the business is so small. When the business grows, so does the software.

However, if you look at today's huge retailers like Myer and DJ's, you get the complete opposite happening - their systems are so customised & fragmented that trying to install an online store over the top is a costly, time-consuming exercise. Here in Australia, DJ's very recently launched a new online store - design-wise, it's quite appealing; although I haven't had a chance to order anything from it as yet.

 

This then brings me to the title of this post... the Vicious Retail Cycle. Because of competition from overseas online stores, Australian retailers are cutting costs left, right and centre, in a bid to turn a profit. Just recently, we had news of Aussie retailers launching their usually-massive Boxing Day sales a few weeks earlier than usual.

As a result of said cost-cutting, we're starting to see stores employ less, and cheaper, staff... and cheaper is not always better. The direct end result is longer queue's, as there are less checkouts operating. This, in turn (particularly in today's fast-past, "want-it-now" generation-Y driven society), makes already impatient shoppers more frustrated & agitated, which drives arguments - and even physical fights (I've seen two of these in my time) - between customers waiting in line.

 

Shopping CartI think the cycle goes a little like this...

  1. Overseas online stores (or even locally-based online stores) are driving down profit margins, so retailers cut costs where they can - including cutting staff numbers or hiring less-educated / less qualified (read: cheaper) staff.
  2. Store queue lengths & customer frustration levels increase as a result of less registers being open.
  3. Customers, who are already sick of waiting in long lines are sometimes treated poorly by "grumpy" & "I just work here" cashiers at the register.
  4. Said grumpy register staff are only grumpy because they're copping a lot of flack from said angry customers. Angry customers are often aiming their anger at the wrong people - the cashier is not to blame; it's their employer who is cutting back staff numbers (due to Step 1).
  5. Customers, upset with their shopping experience, go elsewhere - or go online, to do their shopping.
  6. Go to Step 1 & repeat...

...and so the cycle of online shopping vs. cost-slashing at retail outlets continues, going round & round - getting worse and "cheaper" each time.

The same has happened with airlines - although the airline industry appears to be a little further along in the process. Their discounting / pay-for-food / pay-more-for-an-exit-row / pay-to-use-the-onboard-toilet cycle got so bad that it almost invented a new breed of consumer that is now happy to pay a premium for friendly, personal service with all inclusions. Perhaps the retail industry will take note and we may yet see a return to the classy department store that Myer & David Jones used to be some 10 or 15 years ago... where the service alone made it worth the higher prices.

 

In terms of my personal opinion, I'm all for online shopping. After all, I've been shopping online ever since I've been able to (the age of 18). As a time poor person, I dislike waiting in long lines or walking around between 4 or 5 shops to find the cheapest version of the exact same item. Online, I can have a website compare prices and deliver the cheapest offer to me.

For just on a decade now, I've had a bit of a laugh (albeit quietly) at my friends who constantly complain about finding a car park, the Australian summer-time heat, battling crowds, then the long lines at the registers, the grumpy staff - not to mention the Christmas carols on constant repeat and all of the other "joys" that (apparently) come with Christmas shopping. I do all of my Christmas shopping online in under 30 minutes, all on the same day from the comfort of my home. No joke.

 

While this article, so far, has little to do with Self Storage, I'm keen to get your thoughts on whether or not you are currently seeing the cycle of "cheapening" (for lack of a better word) happening in self storage.

With today's consumer having less & less "spare cash" to spend, are you coming across more people who just want the cheapest self storage they can get - or do self storage consumers still see value in the add-on services you offer at your facility? What about the future - do you think this will change over time - as in, get worse, or get better?

I'm keen to hear your thoughts and if you like, will post them here online in the new year (just let me know whether you would like your thoughts posted online & whether you would like to remain anonymous). Please leave your thoughts, ideas, feedback and $0.02 worth in the comments section, below.

May the discussion begin! :-)

Regards,
- Andy (Customer Experience & Marketing Manager, StorMan Software)

Comment (posted by Samson on 4th January 2011)

I would say that part of the reason that larger stores can’t sell online is because those distribution centres are designed to dispatch from the site, they are not warehouses for storing stock for what may be potentially a long time. It is weird when an Australian online store of a chain or franchise is a separate business from the namesake physical stores. An example of this is JB Hi-Fi and JB Hi-Fi Online – separate interests would you believe?

As far as the cycle is concerned, I agree with most aspects of it. However I think there are more factors at play than just a service issue or even price and wait times – as even online stores have their electronic versions of those drawbacks. Further, it may not be as cause-effect as it may seem. I don’t think that online is better than bricks-and-mortar (or vice-versa) or even that one will replace another. We are lucky in Australia because we have the option of local e-tailers, international e-tailers and physical stores. From a consumer perspective, it depends on what item is being sought and which factors are considered important in the decision-making process at time of purchase.

These include, but are not limited to: Price, Availability, Turnaround time (the time between purchase and actually obtaining the item), Quantity, Time, The environment, Customs, Freight, Ease, Convenience, Brand (quality, depth and breadth of supply), Reputation of store, Geography / distance, Security, Exchange rate, Mark-up, Petrol prices, Post-sales service, Staffing levels, Customer loyalty, Deals / Sales / Exclusives, Payment types, Competition, Buying local, The economy, Weight of item, Packaging, Value for money (not the same as cheapest price), Scarcity / rarity.

For better or worse, customers weigh up some or all of these factors that determine *where* they shop be it online or in-store. An educated and informed customer will realise that there is a delicate balance between these factors. I agree with your reasoning with regards the size of a retailer that will determine its storage vs. dispatch. Retail on a micro level will always be easier to manage than on a macro level.

I definitely do not hold online retailing as superior to in-store. To me, it is another option that I am able to use at my disposal. This Christmas past, I did a lot of online shopping. Still, many gifts did not warrant online purchases as there was no particular benefit to me. I have had two very bad experiences with online buying recently that I will talk to you about at some stage but I am very very impressed with Book Depository (.co.uk) for buying books. Brilliant online interface, great prices, no shipping charges, prices already converted to $AUD and very quick, responsive, quality, efficient, customer service.

You have to consider though, that in-store retailing suits those that like to experience the product before they buy it (touch, taste, smell, sound) not just sight. In-store retailing is also a social outlet and provides a much more authentic window-shopping experience than online. If I decide to buy something and there is no benefit to buying online, I will research the product online first and then pursue purchasing the item in stores. Internet is such a good tool for research. Almost all of my movie memorabilia I purchased online with great results – I only considered purchasing these online due to the scarcity of the item.

I value good service and prepared to pay a bit more for it (hehe – but not too much). In-store retailers with bad service are doing themselves a disservice. Likewise, I fume and froth at the mouth when I receive bad service. I actually make comments about them to my partner loudly as I’m walking off (so they can hear me) – something like, “Geez, a smile wouldn’t kill her…” LOL. You don’t want to go shopping with me!

You may find that an in-store mark-up on an item may match the cost of shipping/insurance/taxes – over and above retail price rendering online as NOT always the cheaper option. Each retailer makes its own business decisions based upon their own buying power.

Thanks Andy – that was a very entertaining read and you made many good points! Interesting business analysis!

Comment (posted by Andy on 5th January 2011)

Thanks for the comment on this post, Samson – you make some fantastic points. I think the retailers kicking up a stink (in today’s news, actually) should pay attention, as there are lessons to be learned here (on both sides; for the online retailer, as well as the bricks-and-mortar retailer). Thanks again!