Selective Consumption and the Retail sector

The Retail sector in Australia is slowing coming to grips with the fact that for the past 50 years, they’ve had a captured market and enormous profit margins. and that now, the times have changed. Whilst many point to the internet as a cause of their woes, others are pointing out the apparent high cost of labour as a major concern. Both of those issues are more or less out of the control of the sector and I would argue have only some influence of the retail sector. Yet what fascinates me is how few retailers (of all sizes) seem to be aware of the fundamental shift in the buying behaviours of consumers, and the implications for the retail sector:

Selective consumption is a relatively new term that depicts a more discerning consumer less able to be swayed by big seasonal sales or large discount offerings. The Big Retailers in Australia seem to have ignored the shift in consume mindset. This is IS where te internet has played a shaping role. When there is always a sale on somewhere in the world, the perceived value of a ‘big sale’ period drops dramatically. Yet many retailers still rely on this model of ever diminishing value.

Nowadays, ‘Big Sales’ work for exclusive customer sets – those clientele that have been nurtured and developed over time with limited run or high end offerings. The Big Box stores just feed into the core asset of Internet purchases when doing their big sales. The urgency factor when an offer is on for everyone no longer cuts it.

Selective consumption also means a better informed consumer. This is where the internet is an asset, not a competitor, yet once again we hear retailers complaining that shoppers don’t buy like they used to – in other words, they’re no longer the captive audience able to be fleeced with exhorbitant mark ups. But the true challenge for retailers now is that they fail to match what te internet offers by way of information, on the shop floor. Poorly trained staff (when you can find staff) offer no value to either the customer or the business. The consumer, looking for assistance and a reason to buy gets neither. A lack of knowledge of shop floor staff exacerbates the sense of lack of service and consumers are saying ‘well if I get no service in the store, I might as well have no service on line and at least buy at a lower cost’. The cost of labour isn’t a problem – it’s the cost of poorly trained staff that is a HUGE problem

Finally the internet allows customer to price shop. This is also a potential asset for retailers who instead, complain about needing to ‘match’ prices. The answer is so simple it’s gobsmacking that few retailers are doing something about it – bundling products. This makes price pointing more of a challenge, allows flexibility in margin spreads and attracts shoppers who want a more complete solution to their needs.

Oh and one last thought – the two biggest challenges for the retail sector are not high cost of labour and the internet. It’s an unwillingness to evolve the business model and high cost of floor space – rents, not labour is what kills a business. Poor labour (untrained) just exacerbates that problem, and the Internet exposes the high cost of shops, for what they are – white elephants