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COMMENT:Retailers Need To Change Direction After First Round Of Collapses

2nds World and RT Edwards have called in the administrators and Radio Rentals has simply shut up shop, at the same time Myer is teetering and Big W is closing down stores, so what’s next?

Are there more retailers going to fold in the same way that retailers are falling over in the UK and the USA?

When JB Hi Fi management moved to buy The Good Guys they not only got an expanded network of retail stores they got buying power in the all-important appliance market something they didn’t have with JB Hi Fi Home.

This allowed them to compete head on with Harvey Norman creating pressure for retailers such as 2nds World and RT Edwards via the constant marketing of value deals, that smaller retailers are struggling to compete with.

Also impacting smaller retailers is the growth in online shopping.

They also didn’t have the margin that the bigger stores have, to attract foot traffic to their stores, this traffic thou smaller than previous years was going to the bigger stores because of the perception that they had better deals.

Smaller operators such as Betta Electrical and Bing Lee attract female buyers and it is critical that they carve out a unique value proposition that consumers trust. This value proposition has to be more than price, it has to be a combination of service and trust.

The Good Guys CEO Terry Smart

This is a key element that Terry Smart the CEO of The Good Guys has been working on for the past 18 months and it is starting to pay off.

If you are selling premium brands you have to deliver a premium in store and at home service and the future is going to be about service and add on services which a lot of old fashioned stack them high and sell them low retailers don’t understand.

Seven years ago, the situation at consumer electronics retailer Best Buy in the USA was perilous.

Comparable sales had declined for three straight years; gross margin was trending downward; profits had turned into losses; and former CEO Brian Dunn resigned following a personal conduct investigation.

I did one of the last interviews with him before he quit.

At the time there was a real concern that Best Buy could follow in the footsteps of former rival Circuit City.

However, that didn’t happen.

Best Buy hired Hubert Joly, the CEO of a major hospitality chain, to take the reins and save the company.

He did exactly that.

Joly cut prices to make Best Buy more competitive, slashed unnecessary costs while investing in customer-facing staff, sold off struggling international units, and built up the e-commerce business.

The company’s stores, once viewed as a liability in the age of online retail and “showrooming,” became an asset. Customer service became Best Buy’s competitive advantage.

This week Best Buy appointed Corie Barry, the current CFO and chief strategic transformation officer, to replace Joly as CEO, effective June 11.

Corie Barry is a female and a working mom, a first-generation college graduate, a female in the male-dominated US retail market.

Barry is tipped to expand the service side of Best Buy which is now delivering significant profits.

In fiscal 2019, comparable sales grew by nearly 5%, while adjusted earnings jumped more than 20% to $5.32 per share.

The company had posted a loss in fiscal 2013.

Joly has transitioned into the newly created role of executive chairman of the board.

Best Buy has already made a big bet on services by shelling out US$800 million last year for GreatCall, the company behind the Jitterbug smartphone.

GreatCall sells devices and services for senior citizens, providing Best Buy with a recurring revenue stream and a growth opportunity as the U.S. ages.

This fits in with the company’s broader strategy of providing support, services, and advice to its customers.

At CES 2019 Best Buy executives told ChannelNews that CE and appliance retailers who are not offering services “Will fail over time”.

Australian CE retailers are still beholden to product cycles in consumer electronics and if a retailer does not have the latest products, they will fail to drive traffic to their stores.

Weak iPhone sales could hurt JB Hi Fi and Harvey Norman this year, and an eventual downturn in TV sales is inevitable following an upgrade cycle to inexpensive 4K TVs.

Console video games increasingly going digital is also a threat, although it’s not nearly as big of a problem for JB Hi Fi as it is as it is for the likes of EB Games.

After years of rapid earnings growth driven by cost-cutting, the bottom line is unlikely to grow as fast in the coming years for Australian retailers even if their push into services is successful.

And a potential recession following the possibility of the voting in of a Labor Government will certainly hurt sales and profits.

Retailers don’t have the margins to pay higher salaries that Labor leader Bill Shorten is pushing for and if this happens there will be a string of retailers shutting up shop.

In the UK retailers are at a crisis point.

The downturn is set to push the number of chain-store closures above 1,000 as more retailers turn to a controversial insolvency procedure to avoid collapse claims the FT.

Debenhams, Topshop owner Arcadia Group, Paperchase and Monsoon are among those either planning or expected to use company voluntary arrangements to overhaul their businesses, with the combined loss of more than 150 shops.

That adds to more than 900 store closures trig­gered in the past two years at chains including HMV, House of Fraser and Toys R Us, according to the Local Data Company.

The UK retail sector has come under increasing cost pressures, as business rates and wages have risen.

Foot traffic into stores has decreased by 2.1 per cent in 2018, according to data from Springboard, as consumers turn increasingly to online shopping.

In what could become a model for Australian retailers such as Big W Target and Myer retailers in the UK are now moving to trying to get suppliers to agree to new repayment plans with their creditors, including landlords, and typically involve rent reductions of 20 to 75 per cent, these are called CVA’s.

The use of these agreements has rapidly increased in the past two years — only one took place in 2008, compared with 10 last year in the UK according to PwC — sparking frustration from landlords and property funds forced to cut their rents.

Since January four major retailers in the UK have initiated CVAs, with at least five more in talks to do so, putting 2019 on track to be a record year.

Both Myer and Big W are seen as being unsalable because of their liabilities, they are also exposed to high shopping mall rents.

For retailers to service there has to be a rethinking of the model, retailers have to get closer to their customers, they need to collect data and they need to be seen as the organisation that consumers trust and can turn to for help and support.

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