‘The Iconic’ & the changing face of online retail – stage 2

6 07 2012

this article in Business Insider by Alan Kohler covers the new (6 month old) start-up Australian online retailer The Iconic.

 

The Iconic is a full price, premium service online-only retailer of clothes & shoes for men & women, with prompt and FREE overnight delivery, focussing on Australian brands, and they’re also gradually developing international brands, and have a generous returns policy.

 

this is a significant development – most online retailers target discounted prices but charge shipping.  it’s a major challenge to incumbent bricks-n-mortar retailers, especially Myer & DJs, who now can’t whinge that those mean and nasty overseas online retailers aren’t charging GST.

 

supposedly The Iconic is doing well.  time will tell if they’ll continue to thrive, or if they’ll need to compete on price against newer discount online retailers (the new retail arena will be online).  but doing a deal with Australia Post, who are desperate to stay relevant and profitable in a world of plummeting snailmail, is a master stroke of business acumen.

 

“the internet” isn’t just challenging bricks-n-mortar retailer’s cost model, it’s fundamentally altering what we consider to be The Retail Experience. there’s so much shit we just don’t need to physically walk into a shop & see with our own eyes any more before deciding to buy it. an increasing amount of stuff that we used to consider as “retail” will be relegated to “warehoused” status & bought online – we’ll make our decisions to purchase, or not, NOT based on the physical experience, but on personal recommendations from friends, social networks, 3rd-party reviews, and good old fashioned “virtual retailing”. taking up space in a shop, with minimum-wage humans trying to flog it is just becoming less necessary for more stuff.

 

the pain of transition has only just begun for bricks-n-mortar retailers.  they have almost nowhere to go (other than shrinking), and they’re paying top rent in massive shopping centres.  the retail landlords are also going to be whipped here.  i hope you don’t have shares in Westfields, Gandel, AMP Capital Shopping Centres, Mirvac, Centro, Stockland and the like – the writing’s already on the wall for them.

 

certainly there’ll be a continuing need for bricks-n-mortar retailers, after all everyone needs to educate themselves as to what size they are :p, and there’ll probably always be a market for the hands-on retail experience, as well as certain niches where hands-on buying is still desirable.  but i think it’s fair to say we’re moving out of the first phase and into the second phase of online retail.  the first was books, media, gadgets, some clothing & shoe brands, and niche products, growing from insignificance to significance & making bricks-n-mortar retailers whinge but do little to adapt or compete.

 

the second phase is the likes of The Iconic (and the overseas equivalents they’ve modelled themselves on) squarely aiming at bricks-n-mortar retailers on their own national ground, with the incumbents pissing into the wind trying to maintain both bricks-n-mortar and online presence.  the bricks-n-mortar retail scene will shrink, it’s inevitable.  there will be howls of pain and Special Pleading from the usual suspects, and they should be dismissed just as for blacksmiths, shoe repairers, milkmen and door-to-door insurance salesmen.  also during this second phase certain technologies will emerge that facilitate online retail to fill in the gaps and uncertainties of buying without first touching – high resolution monitors, laser biometric scanning, hand-held projectors, global size scales, and $deity knows what else.  i give it less than 10 years.

 

the third phase is where bricks-n-mortar retailers shrink to niche markets, up-market, bargain-basement, and to cater to those who insist on dragging their bestie or significant other to the mall for some good old fashioned retail therapy just like it was “back in the day”.  everything else will be a Star Trek-esque materialisation of goods at the front door within a day of a few points at a screen (not clicks, not touches), and this whole retail ecosystem battle will start afresh – online.

 

and that’s without considering the impact of 3D printers, which will wreak a whole new flavour of havock all on their own.

 

i guess it poses some interesting questions for urban culture.  what will the masses do instead of trudging up & down shopping malls as much as they do now?

 

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Seeing REDgroup – Part 4 – A Perfect Storm

8 03 2011

A Perfect Storm

The failure of REDgroup is ‘A Perfect Storm’ writ large.  They were saddled with major debt right form the start, have been financially squeezed from every corner, but more than anything else they’ve compounded their problems with a sequence of bad decisions made by “bovver-boy” managers installed at the expense of losing their inherited experienced staff, thinking that the book publishing and retailing industry would yield to corporate thug tactics, or that consumers would be the slightest bit interested in buying barbecues from Borders.  One could argue that PEP made a mistake even buying the beleaguered (Borders) chain in the first place.  Alas, 20-20 hindsight comes easily.

Books are a sacred miracle of human evolution, representing that quantum leap from storing information only in our heads to be re-told to our descendants in stories, song and teachings, to miraculous devices that are easily and cheaply copied with fidelity, allowing an author, perhaps dead millennia ago on another continent, to speak directly into our head.

But where we buy books (and many other things) from is anything but sacred – most of us don’t give a toss, we just want to pay a fair price, and if Amazon et.al. can sell & ship it to me for up to 50% less than Borders or A&R can, where do you think I’m going to go?  And if I can have a book without a single tree being felled… hello?!?

It was this ‘revolution’ in book publishing that was partly responsible for lifting of the veil of the Dark Ages, a fundamental shift in humanity’s course.  Why should a significant refinement in how books are made, delivered and read also not have a significant impact on society again now? It’s not like I have a vendetta against bricks-n-mortar book retailers, but we simply don’t need as many of them as we used to, and will continue to need less of them as more people buy online and switch to eBooks.  Blacksmiths and shoe repairers died out because we didn’t need them any more.  So too will many categories of brick-n-mortar retailers, and hopefully coal miners.  That’s unavoidable progress.

REDgroup isn’t the first retailer to face the 21st Century and fail.  It won’t be the last.  But relative to its book retailing peers, it fell *now* because it made a bunch of bad decisions by people who didn’t understand the subtle, respectable, low-profit-margin art of bookselling.

And I’ve learned a lesson in being dependant, albeit indirectly, on an Old Media business failing to meet the challenges of the 21st Century.






Seeing REDgroup – Part 3 – A Tale Of Two Brands

8 03 2011

A Tale Of Two Brands

Angus & Robertson have been around way over a century (albeit with a litany of former owners in its more recent decades), with a long and respected reputation for selling quality books in a demure manner by demure middle-aged ladies wearing sensible shoes in demurely designed book stores.  From cities to countless regional towns, they brought quality books to every corner of Australia, the Everyman’s bookseller.  They’re classic Old Media, and they sold just one product category, and – until the last several years – did it fairly well.

Borders, the hip young USA brand that Gen-X & younger oozed over in the 90s and early 00s for its multimedia retailing tour de force – not just a massive range of books, but music (pressing a few buttons to sample any CD on headphones was a revelation!), DVDs, glossy magazines & more, in large, plush, comfortable stores with its very own cafe, seemed to take the book retailing world by storm.  Clearly Borders was commoditised American economic imperialism propagating across the world like a virus, but unless you were wedded to your local indie bookstore and studying a double arts degree, visiting Borders was like a guilty pleasure, but without the guilt.

The only way these two could be less different would be to compare them to Woolworths or KMart, or an indie one-store bookshop up the proverbial street, whose rickety floor-to-ceiling shelves feel like they’re about to collapse in a plume of dusty old-school dignity.  But despite their obvious differences, two pillars – the oldest and the newest – of the Australian book retail world have suffered the same fate at the same time.  What on Earth went wrong?

When Borders entered Australia in the late-90s, the two were genuine competitors with unrelated owners, and quite different business models.  But for individual reasons, both came under the ownership of Pacific Equity Partners (PEP), who formed REDgroup Retail to hold them, alongside Whitcoulls in New Zealand (and other sundry non-book entities).  By this stage, the wheels were already wobbling.

My guess is these two very different businesses were originally seen as complementary; A&R serves the Everyman, and Borders served lattes to the hipsters.  Unfortunately the devil is in the detail.  Borders AU/NZ/Sing were already in serious debt when snapped up by PEP, and A&R were headed down the same path.  Not surprisingly, two negative cash flows do not make for a positive cash flow, and under this growing mountain of debt (now totalling some $130M !!!) some truly horrible things have been done to both brands in a desperate futile attempt to stem the flow of borrowed money.

There’s been a bookshelf of words written this past week about REDgroup entering voluntary administration & who’s to blame.  Some of them hold water, some of them are utter nonsense, and some I’m really not remotely qualified to comment on.  Fell free to tell me which ones I got wrong!

  • Much hoohar has erupted over the claim by REDgroup’s CEO that the parallel import restrictions were a significant contributor in REDgroup’s demise.  However, given that (a) many of their books were marked ABOVE the Australian RRP (ie. they can’t have been too concerned about discounted books from offshore retailers), and (b) REDgroup’s own submission to the Productivity Commission in 2009 recommended KEEPING the PIRS, this is all clearly bumkum smokescreening.  According to Henry Rosenbloom from Scribe Publishing, the US and UK don’t allow parallel imports either, and if Australia were to do so it would have severe implications for local publishers, authors and printers, to the benefit of their overseas counterparts.
  • That GST should be applied to offshore imports, or be exempted from certain domestic retail categories, to “level the playing field”. This one’s gotta be the ultimate scapegoat, and Gerry Harvey had his hat handed to him in the court of public opinion in January this year trying on this furphy.  Suggesting that some select few endangered species of the Australian retailer genus should be GST-exempt is mind-boggling.  AS IF the Australian Government is about to do away with a major component of its GST income – the GST targets the retail level!  Online retail – from both national and offshore retailers – has steadily grown in the last decade from obscurity to significance.  In 5-10 years when I can try on a digital pair of jeans on my digital avatar and check for proper fit & see what they’ll look like from a virtual mirror on my high-resolution monitor, or point my smartphone at the corner of the room to project an image of a new sofa to see if it’ll fit in my room, and click a button to have it delivered, clearly the scope of what can practically be bought online is only going to grow, so why on earth would the Government set a precedent for slitting its wrists & slowly bleeding to death?
  • That too much of Borders stock was inappropriate for Australian readers’ tastes.  Maybe.  As Patrick Carr says on Newmatilda.com, Borders “sacrificed profitability for market share. They poured huge money into extensive stockholdings. Their hope was that if they stocked everything, shoppers wouldn’t look elsewhere.”  Unfortunately that didn’t work out so well, and I’m guessing that’s behind a lot of the $130M about to be written off by banks, publishers, and other creditors (everyone except their owners, PEP).  Whilst it was a correctable problem, paying off the debt from that catastrophic error when it’s already a tough market obviously wasn’t possible.  But it doesn’t explain Angus & Robertson’s equal lock-step demise…
  • That the honourable centenarian Angus & Robertson have been disrespectfully relegated to bargain-bin & best-seller-pulp status, undermining the value of their time-honoured brand.  If you narrow your range to pulp, don’t be surprised when customers buy pulp for a fraction of the price from Woolworths or Amazon/et.al.  But how did that happen?  Perhaps extorting smaller local publishers for an additional $2.5k to $20k to stock their books might’ve had something to do with them deserting the once respected chain, leaving A&R without unique compelling product?
  • There’s just so much more entertainment available now, and so much more competition for our disposable dollar & attention.  Even a mere two decades ago we consumed media distributed by news papers and magazines, TV, movies, music (vinyl/CD), and that was about it.  Computer/video games were niche, and there was no (recognisable) Internet/WWW.  Nowadays we have a smorgasbord of tech to keep us entertained & distracted on a whim anywhere, and all of them are seriously challenging the old-school old-media business models of physically-distributed media with territorial copyright licensed to 3rd-party distributors, or highly regulated & gate-keepered traditional electronic media.  Whilst the pie has grown much larger along with our prosperity, the number of ways that entertainment pie is now sliced has exploded.  We are reading less books.
  • No one’s talking about this one, but it can’t have helped matters that REDgroup made the tragic mistake several years ago of being convinced that SAP would be a good thing for their business IT infrastructure.  Surely a swish new world-class enterprise management system would make things better, right?  Did no one at REDgroup do their homework and read about the litany of over-budget & over-time SAP implementations scattered across the world in the previous decade??  Books have been written and websites dedicated to documenting their spectacular failures.  As other smaller entities in REDgroup came to make major IT infrastructure decisions in recent years, SAP was given a wide berth, for fear of crippling their own business with a grossly expensive and agonisingly slow development cycle.  Aside from that, any IT department that has a two week waiting list to delegate an internet domain name for their own online ecommerce store (something that can be actioned in 5 minutes) has way bigger problems than being duped by blowhard SAP salesmen.
  • eBooks & eReaders are taking a share. Yes, but I suspect this one’s a trivial component dwarfed by the other factors, but no doubt it’ll grow into a major additional bite in the coming years.
  • Let me drop two dirty words in the book industry: self-publishing and eBooks.  Thy time approaches.

 





Seeing REDgroup – Part 2 – The Face Of Things To Come

8 03 2011

The Face Of Things To Come

I started ‘blazing’ the online consumer trail in 1997 – 14 years ago – when I bought books from Amazon.com, and a nice but obscure brand of chocolates for my chocaholic sister for Christmas that same year – which I thought was pretty nifty, but she thought was a little odd, gingerly tasting the first chocolate as though it might be poison.

Despite all the posturing to the contrary (by retailers & luddite consumers alike), there’s a heap of stuff you can confidently buy from reputable online retailers, Australian & overseas, many of whom DO offer genuinely good service, without needing to actually see, touch, try on, or spend any time whatsoever in mind-numbingly sterile malls offering the same narrow set of brands everywhere.

Until the early 2000s, Australian Customs *did* levy import duties on some stuff I bought overseas.  I don’t know what the dollar amount threshold was, but when combined with the cost of shipping from overseas, and the exchange rate below $0.60 to the US1$, it usually made it a more expensive proposition than shopping locally, and thus relegated offshore retail to stuff you just couldn’t get locally.

But that world is gone.  For unrelated reasons the US & AU dollar are virtually parity, international shipping can often be quite reasonable, and there’s now no import duty or GST applied to imported goods totalling less than au$1000.  Now I can go on a clothes or sneaker shopping spree – online – and have several hundred dollars worth of stuff (which would cost anything up to double from Australian bricks-n-mortar retailers) and have it all shipped to me for $20-50, still making it a clear financial win.

Is it wrong that overseas retailers don’t have GST applied to their sales?  Absolutely.  I mean c’mon!  In this globalised age where anyone can buy stuff from anywhere else on the planet so easily, why shouldn’t the Government apply GST?  A better question is why don’t they.  My theory is in the ideology of the GST itself.  The GST forced nearly every Australian business to become a tax collector for the Government.  It spread the administrative burden far wider (though about the same thickness for all), whereas the previous Wholesale Sales Tax regime involved at least an order of magnitude fewer Australian businesses and virtually no individuals.  Clearly corralling retailers across the planet into becoming GST collectors for the Australian government would be Mission Impossible (even if legal), so having it levied by Australian Customs at the import waypoint is the only practical option, basically slapping an invoice on every box before local delivery.  With such a cavalier attitude to turning every Tom, Dick and Harriet businessperson into a GST collector for the Government, it’s no surprise that the (Howard) Government wanted to divest itself of the administrative burden of applying and chasing import duties from a strongly growing citizen import tendency.  A decade ago Amazon was just a distant blip on the radar.  Now, with zero import duty/GST and a steadily strengthening AU$, it’s a serious bite out of not just local retailers’ income, but Government’s too.

But lets not make the mistake of thinking the lack of GST applied to consumer importation accounts for the attraction of buying from offshore eretailers.  It doesn’t.  As I said above, the price of much of the stuff I buy offshore can be nearly half that of local retailers.  Even the addition of 10% GST, or more, wouldn’t level that ‘playing field’.

In any nationally competitive industry, prices stabilise at a value that lets all the links in the retail chain make at least a workable profit.  Australia is a small population, spread out over a massive continent.  Out retail prices reflect primarily the ‘economy of scale’ of our comparatively tiny population, and often the cost of shipping product over our vast distances to tiny towns.  So when Europeans and Americans come here and bitch about the price of everything, well, that’s in large part because they come from a country/region with a much higher population, and population density, among other factors.  Get over it.

Maybe you’re more a Readings type of bookworm, one of the few who likes to go to a bookshop who actually reads through several pages of a book, shake hands with the author, AND then buys it from the shop at whatever price they decide to charge.I’m not.  I buy books based on recommendations from my social network, reviews, and occasionally author reputation, in which case I don’t need a physical shop to visit.  Seems I’m in good – or at least voluminous – company.

The reality is that so much of what we buy has become so commoditised, we don’t care where we buy it, “value adding” is often irrelevant, we just want it for a fair price, and we’d especially prefer not to pay the inflated price of faux-discount retailers who use expensive TV advertising.  How can all the existing bricks-n-mortar retailers with expensive mall rents, extensive multi-site IT & POS infrastructures, and a vast staff with structured management spanning a state or country ever compete with a website operated from an ‘invisible’ office-with-warehouse out in a cheap suburb with no public shareholders to please?  Ruslan Kogan is laughing all the way to the bank on this business model!






Seeing REDgroup – Part 1 – Dumb & Dumber

8 03 2011

Dumb & Dumber

“Dear Myer, thanks for prompting me to find that expensive moisturiser online for 40% less than you, with free delivery to my door.”

While numerous Australians were worrying if their $15M worth of Angus & Robertson, or Borders gift certificates would be honoured by the chains’ new undertakers, that’s what I tweeted this afternoon, inbetween worrying whether my No.1 client will be (a) able to pay me money owed & (b) be allowed by the new administrators of REDgroup Retail (owners of Borders AU & NZ & Singapore, Angus & Robertson, Whitcoulls (NZ), & my client Calendar Club AU & NZ who are the only profitable business in REDgroup) to continue using my services.

But I’m getting ahead of myself – we’ll come back to REDgroup…

I’m referring to the mindless smoke-screen kicked up last January by Gerry Harvey & his whiny band of helpless billionaire retailers bemoaning that the world is changing and GST-avoiding online offshore retailers are slowly killing them and somehow it’s up to us, or the government, or someone, ANYONE ELSE BUT THEMSELVES, to save them.

I dunno why it’s taken me seven years, but when I noticed my Biotherm Homme moisturiser running low recently it occurred to me that maybe I could find this stuff online for a helluvalot less than Myer charge for it. Sure enough, I let my google do the walking and spent ten minutes getting a rough idea of who’s who in the online cosmetics retail scene, and placed an order for the same thing for 40+% less than Myer.  A week later it was delivered to my door – free (i.e. no additional charge).

No longer must I wade through that excruciating cacophony of smells, and fight off the obsequiously friendly staff who insist on offering me “package deals” of shit I don’t want or asking to sign me up to some loyalty program every freakin time I walk in there that’ll invariably add more crap to my letterbox/inbox, and have to pay above-RRP for this so-called ‘premium shopping experience’.  Now I’m paying at least 15% less than I was for the same product seven years ago.  I’m still loyal to the brand and product – but not the retailer.

And before you get angry at me for buying expensive moisturiser when supposedly “the cheap stuff is just as good”, I beg to differ. ’nuff said.

I routinely buy lots of stuff online: gadgets / tech / software, sneakers / clothes, books / music / tv / movies (almost all digital now, not physical), and sporadic other stuff for myself or gifts.  But it’d never occurred to me to buy such an obvious fit for online retailing – cosmetics – until now (dumb), thanks to Gerry Harvey’s bleating (dumber).