Be Alert to Possible Alternative Strategies!
Max Williams,
Principal Consultant
Our focus in both August and September, is the responses small
retailers can make to the so-called 'threat of the internet'. Get it? The "threat"!
For decades, we have heard about "S.W.O.T." analyses - the review and consideration of Strengths, Weaknesses,
Opportunities, and Threats. Fair enough to consider the strengths and weaknesses, and even the opportunities.
But what about the 'threats'.
The first response to a threat - is defence. When a business gets 'defensive', it begins to turn downhill.
That's why we focus on challenges instead of threats, and.do a "S.W.O.C." analysis. We look at not only the
strengths and weaknesses of the business, but its external opportunities and
challenges too. The first response to a challenge is attack.
That's the key difference. See something as a 'threat', and you get defensive, introverted, and cautious. See
the same thing as a 'challenge', and you get aggressive, creative, motivated, and dynamic.
When it comes to the internet, our first-sight response to such a new and all-pervasive technology, is to
suggest that you see it as a challenge, and an opportunity - not a threat.
The problem is to see the challenges in the first place.
There are lots of things to do in running a business. "If it ain't broke, don't fix it!" is sound advice. So
you don't go looking for work that doesn't need doing, and you don't mess with things that are going along
just fine.
But one qualification for running a successful business is the ability see around corners. A week or so ago,
I was driving down 'Macquarie Pass' in New South Wales, a piece of road noted for wavy surfaces, narrow
shoulders, steep grades, and tight curves.
By looking ahead, and around the upcoming corner, I could see the truck/trailer combo travelling too fast to
take the corner tightly. It swung wide, as predicted. I cleared it easily, but without looking around the
corner I would have finished up a head-on statistic.
Same in business. Things going well, heh? Great! But is there a truck/trailer combo coming around the next
corner? If there is, and you didn't predict it, do you have an alternative strategy?
In this context, the question relates to your plans to drive your business in an era when the internet and
the 'big box' retailers are driving on the same road. You wouldn't want ahead-on, would you? And you don't
want to be become just another statistic!
When it comes to 'bricks and mortar' retailers tackling the internet, and evolving a response to it, the real
question is "Is this an adequate response, and what alternatives are there?" Sadly, the responses are often
not adequate except in the narrowest of terms, but worse, there is no alternative strategy in the pipeline.
There is no room in the strategy to avoid that head-on collision.
In this issue, we are quite simply suggesting that small business people, and in particular, small retailers,
consider a range of alternative strategies. Having a variety of responses allows considerable flexibility in
the face of rapidly changing circumstances.
What seems best today may not seem best tomorrow. Being prepared with several different approaches will give
you lots more resilience.
And lots more scope to change your direction if that proves necessary.
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Television, radio, and corporate video production
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Effective, reliable debt collection and credit reporting
Retail Planning Services
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Ridgee Digital
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SMALL RETAILERS CAN FACE SERIOUS CONFLICTS BETWEEN e-TAIL AND RETAIL
W
hile the whole internet trading routine, 'e-tailing', is quite complex in its own right, the basic
elements are simple enough. That simple stuff is not the real issue. The real issue is how to manage the
potential conflicts between the demands of e-tailing, and regular in-store retailing.
This edition of 'Management Memos' features the second of two articles on this topic.
To see the first article in the August Edition,
Click Here.
Here and Now Tactical Responses
Looking at the previous article in the August edition, you can see that the long term response is a
fundamental and strategic one. In the short term, though, some tactical responses are available.
First option: Make the on-line offer relatively less attractive
so you can get the retail sale - while you are developing your strategic responses.
For instance, a customer can buy a spare part for their washing machine on-line. But then it has to be
installed, tested, commissioned, and the work has to be warranted. You can offer a 'package deal' for
the product with all of this work included. Note, however, that the package will be sold at less than
the all-up price you would normally charge. You will lose margin. That's inevitable. However, you still
get some gross contribution, and that's better than nothing.
Second option: Keep it simple and just match the price. It is
commonly held, and usually wrongly so, that you can't afford to match the price. True if the sell price
is lower than your buy price, but otherwise not true. You can't build a business that way, but this is
a temporary holding pattern for occasional sales, while you work out your final strategy. And you must
insulate these low prices from the rest of your business - or you'll head south!
Third option: Almost match the
price. Use your market presence and good reputation to show
increased value in buying from you. Works for the twenty percent of
customers who make up eighty percent of your profit - but in the long term you can't grow a business
this way!
Fourth option: develop an on-line presence that does not clash
with your retail store. Lots of ways to do this, and some succeed. Too big a subject for consideration
here. Be sure you get good advice!
The Longer Term Strategic Response
Remember 'transaction cost' from last month? It has to be reduced for you to remain viable in the
face of all kinds of competition. Revenue for e-tailing transactions is lower than the revenue for an
equivalent sale in-store. Simply, this means that your transaction cost has to keep going down.
How can transaction costs can be reduced in your business? This is a special consideration that cannot
be considered here. Each case is different. That does not mean that it cannot be done.
Driving down your current transaction cost is one key part of your
long term strategy. The other is to develop your own e-tailing strategy.
First, consider the likely cost of your web transactions. Fixed costs for a serious e-tailer are not
inconsiderable. Then there are the other costs of doing business - accounting, stocking, freight, and
staff to name a few. Don't imagine an on-line store can run without staff! Maintaining inventory,
meeting fulfilment obligations, and tracking deliveries are costly and time consuming
imperatives.
For many existing retailers, the incremental costs of accounting and stocking really are negligible.
However, fulfilment costs will not be negligible because of the staff involvement, while freight can
either be charged separately, or included in the 'freight-free' price.
The lowered costs of web trading can help drive down the transaction costs for your whole business.
This is a good start, but it is scarcely enough, and it is far from certain.
If you look at some of our larger businesses, (see the Myer interview in the next column), you see that
developing a compatible internet business to run alongside your existing store can be done. It must be
made to generate substantial volume though, or it cannot be profitable, and it
will cost you dearly.
Significantly, developing an e-store is a major project. In the Myer case, comparable with creating a
whole new department store. And both must run alongside each other!
Think strategically about your cost structure, and how you
will develop an on-line store to run alongside your existing store. That will be challenging! You may
need some outside advice.
So you think a 'service based' business is immune to e-tail threats?
Service businesses are usually focussed on personal delivery of time and skills, often in
association with delivery of a product, to the buyer. It's hard to do that over the 'net.
Surely one of the most personal of services is the prescription and delivery of spectacles. Now, an
on-line spectacle maker aims to change all that!

Clearly Contacts, which is "part of the world's largest online optical store",
celebrated its fifth birthday with an Australian glasses give-away that it said "marks a major tipping
point in the Australian eyeglasses and contact lens market", reported Australian retailing newsletter
"Inside Retailing"
Clearly Contacts VP of sales, Steve Wallace says, "People are now aware that brick and mortar optical
vendors are overcharging consumers and creating huge mark-ups on products that Clearly Contacts can
offer at a fraction of the price."
It's beginning to look as if there is no hiding from the power of the internet and e-tailing, even on
high service items like eye glasses.
To see the full 'Inside Retailing' article,
Click Here
Timely Review: Myer CEO on e-Tailing
Right in the middle of this series on e-tailing, Myer CEO Bernie Brookes was interviewed by Alan
Kohler on the ABC 'Inside Business' program. Timely indeed!
Asked by Kohler, "... what sort of sales growth do you expect to get from online shopping?", Brookes
replied:"... at the moment we (sic) got an iPad application, iPhone application and online e-commerce
plus a fairly large digital component to our business."
He went on, "But in talking of that, we're doing only a few million dollars at the moment online. We're
then doing a fairly sizeable business in bridal and gift giving online which is another sort of
equivalent to one of our department stores."
"We think going forward this year we can build that to be equivalent of one large department store and
let the consumer come along with us," Brookes said.
Myer CEO Bernie Brookes
The Myer CEO went on to explain, "We've only just managed to increase our range to over 4,800 products
online and we're starting to see some significant growth; 39 per cent alone in the last month in growth
in that area so we're looking for some sizeable increase in business online."
That look like good growth, but it appears to have come after a range building exercise.
Brookes also said "There's no doubt it's a very high cost of entry. Having the operating base, having
the fulfilment mechanism in place, but the answer to your question is for us
it's one of our three or four big drivers going forward."
Brookes said Myer would carefully invest in its online business, unlike some e-commerce retailers that
had "dug a hole and poured money into it".
See the full transcript of interview:
Click
Here
If you'd like to find out more about how to make measurably more in your business right
now, talk to us, or
ask us a question here! Remember, there's no charge or obligation.
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Services is a Small Business Advisor listed with the Small Business Victoria, and has presented The Red
Zebra program under its auspices. This listing requires that the first hour's consultation is always
free. So when we say "No charge or obligation", we mean it!