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Online sellers winning consumer dollar, so is -

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EMILY BOURKE: With just a handful of shopping days left before Christmas, retailers have launched an all out discounting drive, hoping to lure last minute consumers.

Household spending is up, and Australians are expected to spend around $520 per person over the Christmas period.

It's been bumper year for supermarkets and food retailers, and the online retail sector has recorded extraordinary growth.

But department stores are missing out on a slice of the action.

According to a new report by Urbis Property Consultants, shopping centres have also had a disappointing year.

Urbis's director of property economics is Ian Shimmin.

IAN SHIMMIN: We've seen online in the past year grow by about 25 per cent in one year and that's an extraordinary rate of growth and that has obvious consequences. There's a lot of talk about the doom and gloom to some degree at the moment and on the contrary I actually think that this is a really exciting time for consumers. There are going to be lots of improvements coming forward and that's partly due to the fact that people now have another choice that they can make and that is to shop online. Retailers and owners know that. They're commercial and we are going to see lots of changes that are going to be very beneficial to the consumers in Australia.

EMILY BOURKE: What does that mean for next year and beyond?

IAN SHIMMIN: Things that are probably more important going forward Emily relate to the types of things that retailers and shopping centre owners are going to need to focus on, whether it be in the next year or the next three years.

EMILY BOURKE: What do you think they'll need to do?

IAN SHIMMIN: I think they need to have a good hard look at what's happening overseas to start with and when you compare Australian retailers and shopping centres with the overseas retailers, you see to begin with that service levels in Australian retail outlets is a long way behind.

Not only do we have an issue in Australia with service attitude but I think that with a few exceptions of course, we have an issue with the lack of product knowledge by those people who are at the front end of selling in retail outlets and so we need to see some dramatic improvement in service because let's face it, nowadays you get good service online.

EMILY BOURKE: That is Ian Shimmin from Urbis.

The big question then is, given the trends, are we witnessing the death of traditional bricks and mortar retail?

To discuss this I spoke to Jane Cay, the founder of the Birdsnest fashion retailer and e-tailer; Ruslan Kogan from the Australian electronics retailer Kogan Technologies, and Russell Zimmerman from the Retailers Association.

EMILY BOURKE: Russell Zimmerman, if I can begin with you, it’s hard to ignore the ABS (Australian Bureau of Statistics) figures that more than 1,000 retail businesses went under over the last financial year mostly because of inadequate cash flow and trading losses. Is traditional retail on the way out?

RUSSELL ZIMMERMAN: No look, I don't believe it is but I think that traditional retail won't stay at it is. I think it's got to change. It has got to change very rapidly. I could use a very clear example here, there is a large number of retailers that have moved into the online space and if you have got a good online offering as well as bricks and mortar, your cost of doing business out of an online store will obviously be much less than what it would be if you’re, say, in Chadstone shopping centre or MidCity Centre in Sydney. So your costs of doing business will go down, your prices can then reflect that.

I think that some of the things that we will see happen is that some of those large retailers may not have the number of stores that they currently have in maybe the B and C-grade centres. I think it’s a concern for some of the smaller shopping centres but I don't think, we’re not going to come to a point whereby we don't see bricks and mortar retailers. I think there'll be massive changes.

EMILY BOURKE: Jane Cay from Birdsnest, you bought a store in country New South Wales in 2004 and you moved online shortly afterwards. Can you give me a sense of the size of your company and your turnover?

JANE CAY: We've gone from a little store as you say in a country town where I guess then we were sort of turning over like a million dollars in a country town but literally we ran out of people in the Snowy Mountains, ran out of girls in the Snowy Mountains and so we went online and we now employ sort of 90 people and the online is obviously the largest component of our business.

So it's been a really exciting journey for us and I guess I really strongly believe bricks and mortar is here to stay. I think we are definitely testament to that. As I say we are in this tiny town and we're attracting to our bricks and mortar store people from Canberra, people from the South Coast are all travelling just to have the experience that they can have in our store.

EMILY BOURKE: Ruslan Kogan, if I could bring you in here. You've had a financial successful year. Your competitive edge is cheaper prices but does it just come down to price?

RUSLAN KOGAN: I think price is just one of the elements but it comes down to a lot more, so service, your product range and having the right product at the right price. Online your business is fully transparent so if you're trying to win a customer, they’re going to do a Google search, you know, we even encourage our customers to do a Google search. We tell them, oh if you like this product don't just take our word for it or just accept our prices, do a Google search, see if you can find it cheaper anywhere.

You know, there is a lot of 1 per centers at play that make-up a good product offering online. It’s not just price.

EMILY BOURKE: Russell Zimmerman, how do traditional department stores try to claw back the market share by looking at customer service?

RUSSELL ZIMMERMAN: Can I say you’re only as good as your worst employee. That's the experience that will be remembered by the customer so there’s obviously got to be a lot of training of your staff and it’s not just only in customer service, it’s actually about the product.

For a major department store I think there are a couple of things and we see Myer in particular - well, I guess both, Myer and David Jones trying to transform that by a) putting more staff on and I know that within the Myer organisation they try and find rewards for those staff that are giving really good customer service and by then you are trying to lift the complete range of your staff up to the same experience and trying to get them all on the same level.

In David Jones we’re seeing the moving away from a traditional cash register, moving to using iPads and not having to take the customer from where the point of purchase is to a cash register itself. They're the kinds of things that retailers are going to have to do in the future. I think in actual fact the cash register or a point of sale equipment needs to probably be de-emphasised in a store and that your staff are able to do that right with the customer rather than having to go back and stand in a line.

They're the sorts of things that would really offend consumers in a retail store where you have to stand in line to pay. You shouldn't, you should be able to complete the sale with the one person.

EMILY BOURKE: Jane Cay, if I can ask you, there is an assumption that people shop online because it’s cheaper. Is it just about price?

JANE CAY: I think definitely not. I think the best thing that happened to me, was I came from quite a corporate background, I'd been in the IT industry if you like and then I fell in love with a farmer and that's how I ended up in regional Australia and when I bought this store I ended up on the shop floor.

I realised that the notion of retail therapy for women at least is real. I realised what I was delivering was not frocks, I was not selling frocks, I was inspiring confidence. As soon as I realised that we were delivering a service and we were solving, what we were actually doing is solving a woman's wardrobe dilemma, I realised that's when I got passionate about the business, that's when I was like, wow, we really have something and we can take this online. We can take that amazing experience that we can give in store, that hands-on, this is perfect for your body shape, this is perfect for your personality, your favourite colours, we translated that to online so that the woman can shop not just by price but she can shop by her personality. She can shop by body shape and not only can she just look at the items, she looks at the full outfit.

EMILY BOURKE: Russell Zimmerman, if I can ask you, is there an appetite still for unique, high-end products in department stores and will people pay a premium for them in a department store?

RUSSELL ZIMMERMAN: Actually I think the answer to that question is yes but I think it needs qualifying. I think they will pay for it providing they get the service and they get that experience, the experience that we were just talking about, that Jane was just talking about a minute ago. That is going to be the important part for the consumer and that's the thing that the big retailers will struggle with until they manage to engender that to their staff and bring their staffing to be able to do that.

I guess that why of the reasons why department stores have gone to concessions to try and bring in the supplier to lift that product and that in itself gives another problem or we see that quite regularly that you walk into a department store and there’s a concession there and it’s concession A and that person is at lunch and the person from concession B doesn't want to sell concession A's product so you've got this, you know, argy-bargy system going on.

So I'm not really sure how department stores are going to actually resolve that going forward but they have to because as has just been said, it is a customer experience. Customers will buy and we know that they have got money to spend. Sometimes they don't spend it because they can't get the experience, they can't get the service.

EMILY BOURKE: Ruslan Kogan, what do you make of this concept of the retail experience? Does it translate when you are buying technology?

RUSLAN KOGAN: It translates into every industry and I guess what's at the core of it all is every business has to look at its competitive advantage. So with our competitors at Kogan, those that sell technology, their competitive advantage 20 years ago was the fact that they could scream at customers and say best prices, biggest range and they were the only store within walking distance of that person's house.

Now with Google and everyone doing searches online, they can no longer hide behind promises like always best prices because a customer can very quickly find them out and find there is a better price elsewhere.

Technology is essentially a commodity, you know, a 32GB iPad is a 32GB iPad. You just want the best price. A Samsung Galaxy S3 is a Samsung Galaxy S3, a 32 inch TV is a 32 inch TV. So people in that sort of industry are looking around for the best price.

That said, there is a lot of advantages for bricks and mortar retail that comes down to experience and they've got a lot of, they've got a lot of tools at their disposal which, you know, some of them aren't using properly. There’s great brands out there like an espresso where you walk past their shops and you can smell the aroma of the coffee, they've got a barista serving it up. You'll never be able to replicate the smell of coffee online.

You look at Apple stores and they've got absolute experts in each store who know the products back to front, willing to help people. You walk past an Apple store, there’s more people in blue T-shirts who work for Apple than customers in the store and the stores are packed and it’s just an ultimate level of service.

You walk into some other stores, and like Russell said, service is so important, but they'll still have the same sales person selling someone a bed then someone a microwave then someone a big screen TV. Now customers are smarter than that now. They know that person can't possibly be an expert at all of those products and people don't want just someone reading the sales pitch off the box of a product to a customer.

EMILY BOURKE: The other interesting new element is that international retailers are increasingly setting up shop in Australia and expanding. How do you stare down that threat and I guess this question is directed to either Russell or Jane?

RUSSELL ZIMMERMAN: Well, firstly can I say that I think the international retailers are looking at Australia because of the great opportunities. Now those opportunities are there for a number of reasons. I think firstly although we talk about a retail economy that has not got the growth that it had some years ago, there is still some growth in the retail economy and I think what it has done to the industry and I think this is a very important part, if you took Zara as a retailer, if you back some years before Zara came on the scene and was really making an input into Australia, retailers in the fashion industry probably had, at best, four ranges a season and in some cases two - summer and winter - but some of those had an in between season as well.

When Zara came onto the retail scene and probably just a little bit before Zara came, we realised that Zara is a company that turns over the whole of their range virtually four to six weeks, they change their displays regularly, they have a completely different model. That has started to shake up a lot of retailers in Australia. They are starting to realise that they now need to not have four ranges a year, they need to have continuous upgrades, continues changes and it’s all not all about putting a big sign on the front of the shop saying, you know, 50 per cent off or 60 per cent off all the time. So…

EMILY BOURKE: Jane Cay, what are your thoughts on that model of fast turnover and I guess ensuring that you don't have a whole lot of homogenous product?

JANE CAY: Oh, look I think it’s really exciting. I mean for me I have always been looking to the US and the UK since sort of 2006 when people told me I'd be mad to sell jeans online, no one is going to sell jeans online and I'm like, it's happening, it's happening all over the world. It’s only a matter of time before Australia's doing it, so for me it is the influences of being in a flat world has just inspired me really and made me dream bigger.

EMILY BOURKE: Russell Zimmerman, the big department stores have been roundly criticised for dropping the ball with the move online and management had admitted that to an extent, can they catch up, what will it take?

RUSSELL ZIMMERMAN: If you look at the US as an example, if you took the top 20 retailers, online retailers in the US, they are bricks and mortar retailers. I don't think that that is the case here in Australia by any stretch of the imagination. Probably the top 20 retailers that are online are online retailers only in Australia or close to it.

So I think there is a great opportunity for the Myers, the David Jones, the K-Mart, Coles people to improve that position and yes I believe they will. I believe they- I don't think everything they will, I think they have to.

They have to get up there in that top 20. They have been very, very clever and smart retailers in the past. There is no reason why you won't see those retailers fight back. I think it is probably fair to say that if you back 15 years or so ago, both the two major department stores in Australia had a go at the online.

Now both of them lost a lot of money and I guess if you do that you probably once bitten, twice shy so it has taken them a while to get into that space but I think that both of them are starting to catch up. That's not to say that there isn't a long way more to go, there is.

EMILY BOURKE: Jane Cay, you may or may not want to answer this question - if you could run a department store for a day, what would you do? What would be the big ticket item that you'd change?

JANE CAY: I don't envy their challenge I guess. I was actually with IBM e-business team when David Jones launched their online store back in, you know, before their time. They were probably forward thinking at that time in 1999. The customer actually wasn't ready, the consumer wasn't ready.

So look, I think if I ran a department store I think I'd have a massive, massive team party, very much focussed on my team. I think just getting them excited about the customer again and getting them really understanding why that customer still walks and is still loyal to David Jones because they still love the brand, they want to walk in that door. They want to have the experience that they expect when they walk in that door and they can do it, they just need to get their team behind it.

EMILY BOURKE: Ruslan Kogan, if I can ask you, what are the emerging challenges for online retailers and is customer trust an issue, attracting and retaining that customer trust?

RUSLAN KOGAN: Customer trust historically has been one of the major issues online because people, you know, for a century were shopping in bricks and mortar stores and that's what they trusted and that's what they knew.

When I started Kogan in 2006 and told people that I'm going to sell TVs online, they thought I was crazy. They were saying as if someone is going to buy a TV online, they've never heard of you, they'll need a CTV side by side and all of that sort of stuff.

Now the trend we're seeing more and more is that people are trusting online retailers more than they trust bricks and mortar retailers and that's all because of transparency. When you shop at an online retailer you can go along to Google and type in Kogan review and you can see what our last 100,000 customers thought about shopping at Kogan - were they given the right advice, were they happy with the service, were they happy with the product, were they happy with the after sales support - all of that sort of stuff.

When you walk into a bricks and mortar store, you've got no idea what the last person thought about their interaction with that salesman. You don't know whether they were happy, unhappy, were they told accurate information, did the product do everything it said it can do and all of that sort of stuff so people are starting to realise that they've got a lot more information available to them online.

The trust thing is very slowly being overcome through people becoming educated about online retail. I taught my mum how to double click a mouse two years ago and that was a full day seminar. She couldn't understand the whole concept of you can't move the mouse in between the two clicks and the two clicks have to occur really quickly and now that I've taught her all of that, you can't get her away from the computer. She is booking every holiday, doing all the shopping, buying make-up, buying clothes and absolutely everything online and I'd walk in and I see her doing Google searches of certain companies before she transacts with them to see what are people saying about the customer service.

So I guess for online retailers, that trust is important.

EMILY BOURKE: Jane Cay, what do you see as the emerging challenges for online retailers?

JANE CAY: Certainly the flat world and this new world that we live in and the new retail environment poses some challenges, some structural and some policy challenges for government and other things but I think most of all for retailers it presents huge opportunities for those that are willing to adapt and invest in technology and invest in their customers and engage with them and I think it is a really exciting time and I look forward to lots of exciting developments in the industry.

EMILY BOURKE: Jane Cay, from Birdsnest fashion retailer; Ruslan Kogan from Kogan Technologies and Russell Zimmerman from the Retailers Association, thank you so much for your time.

JANE CAY: Thank you.

RUSLAN KOGAN: Thank you.