Home' MHD Supply Chain Solutions : MHD July-Aug 2017 Contents B
usinesses operating in the $300 billion
Australian retail market are facing
extreme challenges to their operations.
This is highlighted by the recent bankruptcy and
store closures of several longstanding players
including Dick Smith, Pumpkin Patch, Masters
Home Improvements and Payless Shoes.
While the specific reasons for collapse vary
from company to company, a common theme
does exist: a lack of agility and immature multi-
channel capabilities. This has limited retailers'
capacity, particularly in areas such as inventory
management and fulfilment, to respond to
changing consumer shopping behaviours.
Specifically, consumers desire a unified
shopping experience across both digital and
The billion dollar threat
The Australian consumer is embracing online
shopping. Total online sales now represent 7.3
percent of total retail spending in Australia and
continue to grow at a double-digit rate. This
has created a great opportunity for offshore
retailers like ASOS and Nordstrom to digitally
enter the market with their expanded product
assortments, competitive pricing and delivery
lead times equivalent to many local companies.
Then there’s Amazon’s imminent arrival,
which has the Australian retail industry
trembling with fear. With a market capitalisation
of over $600 billion (US$450 billion), double
the entire Australian retail market, the entry
of Amazon is expected to shake up the local
retail scene. Outgoing Wesfarmers CEO Richard
HOW AUSTRALIA’S RETAIL INDUSTRY IS
RESPONDING TO INCREASING COMPETITION
Goyder has repeatedly warned that Amazon will
“eat all our breakfasts, lunches and dinners”,
whilst estimates indicate its entry could cost
local retailers as much as $4 billion in sales.
Australian retailers must be prepared for
its arrival. Based on overseas trends, retail
segments that can expect to be targeted
by Amazon include grocery and general
merchandise, such as electronics and toys. A
continued push towards cost control to support
lower prices and faster delivery options must
be maintained by retail supply chain leaders
operating in these and adjacent segments.
Emergence of international
retailers adds further pressure
In addition to online players, many global
brands are making their presence known in
Australia. Looking to the apparel space as an
example, since opening its first store five years
ago, Zara, and more recent entrants H&M and
Uniqlo, have combined annual sales of $600
million or 2 percent of total Australian clothing,
accessories and department store sales.
International retailers are investing in physical
retail in Australia, opening 75 stores in 2016 and
73 in 2015. This trend is expected to continue
in 2017. With new international retailers in the
process of establishing operations, from general
merchandisers such as T.K . Maxx to Kaufland
in grocery, incumbents must expect continued
pressure on market share and profitability.
Signs of capability investment
Recent insights from discussions with dozens of
Australian retailers highlighted an underinvestment
in capabilities that can deliver a unified shopping
experience. Separate inventories and assortments
for online and store networks are common.
Fulfilment largely occurs from warehouses or
distribution centres (DC), limiting the number of
markets that can cost-effectively receive consistent
same-day, next-day or even two-day delivery.
Despite this, there are signs of change within
the market. Gartner's 2016 Multi-channel
Execution Study found that 70 per cent of
Australian and New Zealand respondents
increased the volume of online orders fulfilled
from store over the last 12 months. In addition,
there’s significant investment/planned investment
in distributed order management (DOM)
systems. Thirty-four percent of Australian and
New Zealand respondents say they have a DOM
in place and another 33 per cent are planning to
start using one in the next 24 months.
The benefits targeted from these initiatives
are focused on two key areas:
1. The release of working capital through more
efficient use of inventory as the pool of stock
utilised to fulfil orders expands to include
both stores and DC.
MHD SUPPLY CHAIN SOLUTIONS — JULY / AUGUST 2017
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