Online shopping is winning our hearts and minds

OPINION: Bricks and mortar retailers have to get smarter if they want to keep their customers

There can be no doubt that online retailing is winning the hearts and minds of consumers around the world. As a consequence, all retailers now need to think long and hard about what consumers really want from their shopping experience.

The challenge for retailers is that identifying what consumers want from their shopping experience is not as easy as it sounds.

These days the key question is why would you shop at a bricks and mortar store or a shopping centre when you can usually buy the same product online at a much cheaper price? And it doesn't stop there as online retailers can generally offer a much broader range of products which consumers can buy online at any hour of the day or night.

In fact, have you ever gone into a bricks and mortar shop only to find that the product you are looking for is not there? Have you ever done an online search on your iPhone while at a shopping centre only to find that the product is available online at a much cheaper price and sometimes with free delivery?

Putting this all into perspective, it's clear that bricks and mortar stores need to go back to basic principles when facing up to online retailers.

First, bricks and mortar stores need to be competitive on price.

Clearly, price is a key driver for consumers. The worst thing for a retailer is for a consumer to feel ripped off. That will happen if a consumer buys a product at a bricks and mortar store only to find that the product is cheaper online.

And it's getting much easier for consumers to find out if they are being ripped off. These days a consumer can be standing in a bricks and mortar store and do a quick search on their iPhone to find if the product is cheaper online. The savings from buying online from overseas websites are so big that more and more consumers are doing just that. Those savings can be so large that it would make little or no difference if GST were imposed on overseas purchases under $1000, which are currently GST-free.

Australian retailers who think that imposing GST on overseas purchases under $1000 would lead to a boost in local sales are clutching at straws. While we can talk about trying to impose a 10 per cent GST on all overseas purchases, GST will make no difference if the overseas purchases are up to 50 per cent cheaper than the same product sold locally.

Then, of course, we have savvy Australian consumers who now go to Hawaii or south-east Asia on cheap flights to buy all those designer labels at a fraction of the price of the local department store or boutique retailer.

Next, Australian bricks and mortar retailers need to look seriously at their product range.

Not surprisingly, consumers are looking for a wide product range and are likely to be disappointed by the limited range offered by local bricks and mortar stores and shopping centres. Clearly, bricks and mortar stores need to be very clever in not only delivering a wider product range but in getting loyal customers to keep returning to the store.

Why don't bricks and mortar retailers or shopping centres offer their big-spending in-store customers a shopping voucher for an amount of up to, say, $100, which can only be redeemed on the retailer's or shopping centre's online website?

That would give consumers access to a much wider online product range, but it would also make the retailer's or shopping centre's website more price competitive with other online retailers. It would also allow the bricks and mortar store to be linked with the retailer's or shopping centre's online presence.

Of course, such measures are only temporary as we know that retail rents at the shopping centres need to come down dramatically across the board in order to try and make bricks and mortar stores competitive with online retailers.

Sadly, if retail rents stay as high as they have been, then bricks and mortar stores will continue to bleed and shopping centres will increasingly struggle financially.

Finally, there is the issue of convenience where consumers are able to shop whenever they want. We know that consumers can shop online whenever they want, but what about shopping centres?

Should shopping centres be allowed to open as long as their tenants want them to? That's a simple question as in a truly competitive market it's the tenants who decide when to open their doors. So the trading hours issue is ultimately really about what the tenants want as they will generally be the best judge of what their customers want.

In that regard, the question of additional trading hours could easily be resolved by having a secret vote of all tenants in shopping centres conducted by the state or territory electoral commission.

Once these independent results were known we would then know whether or not state or territory governments need to further extend trading hours for shopping centres.

Frank Zumbo is an Associate Professor with the School of Business Law and Taxation at UNSW. 

This opinion piece first appeared in The Canberra Times.