Why product is no longer enough to survive in retail

Internet Retailing

23rd Jan 2020

If you read retail trade press regularly, it won’t be feeling like a happy new year. In just the first few weeks of 2020 we have seen at least nine established Australian retailers either closing stores, going bankrupt, issuing profit warnings or cutting staff. And these are not small local businesses, we are talking about large, experienced, established retailers like Ikea, Myer, EB Games, and Bose.

A lot of retailers will be spinning these cuts as ‘streamlining’, but I am not aware of any successful business shrinking its way to success. The January headlines will be like a cold shower for retailers dusting themselves down after the excited frenzy of Black Friday, Christmas and January sales. The industry will need to take a deep breath and face up to another year of margin pressure, rapidly increasing omnichannel CapEx and struggle to keep up with aggressive, younger, smarter digital-first retailers.

Finding new revenue opportunities

The airline industry is a sector that is all too familiar with tiny margins, yet the latest figures show the industry will generate a whopping $109 billion globally through ancillary revenue this year. It is high time retailers followed suit and looked to diversify their income streams to remain profitable.

In the past few years there have been some effective attempts to supplement sales revenue via:

● Product diversification: Examples include US washing detergent brand Tide creating a chain of dry cleaners and Lego entering the film industry

● Brand Partnerships: Nike and Apple brought together two mega brands, allowing each to build new business models in new categories

● Loyalty offers: American Express has led the way in sensitively leveraging customer data with thousands of offer partners

● Advertising: Examples include Harrods, Walmart, Woolworths, Amazon and many more businesses leveraging their vast audience to advertisers

Brands as media businesses

The one thing each of these new revenue opportunities has in common is the creation or leverage of media. In each case the brand either owns, controls or leverages their media. To be sure, aggregator retailers have been leveraging their audience for many years. It’s just the process is becoming a lot more sophisticated, data-driven and in-demand as partners look to communicate to new audiences as close as possible to the point of purchase.

Retail being under threat is a tired story, but few organisations have arrived at a sustainable solution to the problem. What’s needed is a systemic overhaul of the way goods and services are sold to customers, but I believe the industry also needs to look horizontally at alternative long-term revenue opportunities.

Jonathan Hopkins is founding partner of owned media experts Sonder.