You don’t have to be an expert to see that Covid-19 has permanently changed the way people shop. The shift to online shopping and rise of remote working will shape the retail industry for years to come. But what’s the bigger picture driving these changes? It goes beyond store and office closures during the Covid-19 lockdowns, according to ex-Myer CEO Richard Umbers. We recently spoke with him about the state of the retail industry, and he laid out ‘the big picture’ of why we’re seein
eing more innovation taking place than ever before. Here is a lightly edited version of what he said.
The big picture, according to Richard Umbers
“I think we’ve seen more innovation take place in retail over the last year than in decades,” Umbers told Inside Retail.
“We’ve not only seen this structural shift going on in the e-commerce environment, we’ve actually seen a cultural change within organisations. With the removal of the safe harbour provisions and boards encouraging management teams, what you’ve seen is this wave of innovation.
“In the first instance, it has meant that a lot of businesses have pivoted to online, but even existing online businesses have been innovating within their existing business units and that collectively has grown [the retail industry].
“It’s been widely reported that many e-commerce businesses have doubled their revenues – Adore Beauty, Kogan and Adairs have all reported spectacular increases – but across the industry, we’re talking about a relatively modest increase. Unfortunately, that means there’s a whole lot of businesses at the other end of the spectrum that have actually been negatively impacted by what’s happened.
“For those bricks-and-mortar businesses that have pivoted to online, all of a sudden they’ve seen a new cost item in their P&L because delivering to people’s homes requires an extra distribution cost. They’re having to operate in a new way with new infrastructure that they don’t yet have, and it’s woefully inefficient in the first iteration, so the costs suddenly expand.
“On the one hand, [retailers] are celebrating these big increases in revenue, but their costs are also going up disproportionately, and many will find they’re still suffering on the bottom line.
“What happens in businesses under cost pressure is the CFO and other members of the operational team go hard on the new costs. Logically, that means having a look at all of the operations to do with online and distribution, and that is what’s fueling the innovation. They’ve got to solve the infrastructure problems from the introduction of online very, very quickly. That’s why you’re suddenly seeing new technologies being brought to bear.
“In our last-mile solutions, for example, there are better customer experiences around delivery. I received a delivery not so long ago where five minutes before the package arrived, I got a text telling me my package was arriving in five minutes. That never happened before.
“Businesses are massively investing in the customer experience on their websites and dramatically improving the way products are presented. They’re changing their range to reflect the online shopper, and we’re seeing online payments like Afterpay explode because we’re attracting, for the first time, a new wave of shoppers. And all of that has been driving innovation by the retailer.
“Now, in parallel to that, there’s a whole service industry that stands to benefit from the fact that retailers are looking at these innovations to try and solve their cost problems. There’s a whole range of digital marketing companies, payments companies and packaging companies, and the innovation is happening there also.
“In addition to all of this, new models of retail will actually emerge. The two most exciting ones are social commerce and direct to consumer.
“If you see this as a sort of chain of events, it’s why, in my view, this can’t go backwards. Once you’ve invented something, the functionality is there; the service standards that we’re now experiencing in e-commerce delivery are there forever.
“What I think the future holds is that, whereas historically, the physical store informed the online offer, now the online business is informing the physical store. Businesses like Nike and Allbirds are building their physical stores to reflect the needs of their online business.
“If you were to extrapolate out 10 years, I reckon we’ll see the physical environment actually taking its cues from online, and the online business itself being something new and different. And that’s why I think we’ll see the growth of marketplaces, because they provide an opportunity [for retailers] to extend their offer more than they ever have in the past.
“And because the online world has access to data that the physical world never did, the scope of what you can do with that, where you can take the customer, how you can cross-sell across all the different channels and weave in streaming and social commerce and build out a whole new retail offer, the potential for online is vastly greater than physical retail ever was.
“Physical retail will ultimately still be a very exciting and interesting place, but it will be supportive of the online business, which has almost unlimited reach.”