Bricks and mortar shop owners who resist and even resent the winds of change that favour the growing digital economy – and the critical mass of shoppers for whom clicks come first – may be contributing to their own demise.
A new report from PriceWaterhouseCoopers and Frost & Sullivan predicts almost half of New Zealanders will shop online in 2011, spending an average of around $1400 each, although a third of those sales will go to offshore retailers.
Frost & Sullivan claim local and offshore shopping via websites is expected to grow 12% a year from $2.68 billion in 2011 to $4.22 billion by 2015.
The PwC survey revealed 82% of shoppers would increase or maintain used mobile devices such as tablets and smartphones to make their purchases.
PwC says digital channels are changing the way Kiwis shop, with lower prices, convenience and broader product ranges swelling the ranks of online consumers. The company challenged retailers to embrace the shift in business models in order to compete on the global stage.
And the Nielsen Market Intelligence June survey found around 40.5% of New Zealand Internet users are already making online purchases; enough to stir even the staunchest old school stalwarts to consider what life might be like online.
Meanwhile, the last New Zealand Institute of Economic Research (NZIER) quarterly survey on business opinion, reports that Hawke’s Bay business profitability continued its three year downward spiral while revenues improved only marginally on the despairing results of past quarters.
As costs, including rents, continue to increase and the average person’s spending power is reducing, along with the foot traffic in our central business districts (CBDs), it’s clear existing business models need a serious shake up.
A number of e-commerce champions including Chamber of Commerce CEO Murray Douglas and Rod Drury of Xero and Pacific Fibre, continue to encourage Bay businesses to innovate with new technology and faster broadband, to improve profitability.
The software to create, manage and maintain an e-commerce presence has matured while a growing arsenal of online marketing and social media tools make the case for broadening business reach even more compelling.
There’s a cost effective solution for most players from sole traders to serious exporters; whether it’s basic email orders and PayPal payments or full e-commerce suites that link back to accounting and order fulfillment.
Some Hawke’s Bay retailers have a well established web presence and continue to refine their online efforts to improve profitability and market share.
Value for vinters
Last Christmas, Havelock Northbased Advintage – one of the country’s most successful online wine operations – commissioned a complete website and systems rebuild at a cost of around $150,000. Owner John Macpherson
reckons that was money well spent.
The simpler front-end and automation of back-end processes means his small team can handle large numbers of orders quicker and more efficiently. “It’s futureproofed our business for the next three to four years.”
Macpherson is an old hand in the online game, having complemented his wine outlet with electronic sales for 12-years. Today 85-90% of sales are made online, with the bulk sold outside of Hawke’s Bay.
Bulk buying arrangements with wineries across the country mean he can deliver the best price on around 500 wines, although he says it’s getting harder to sell full priced product on the internet, which is fast becoming associated with discount deals.
Great care is taken to ensure the website has the latest information with ‘image, description and accolades’ of all wines in stock at any time. “Last month we got a great deal on a pinot noir and sold 1320 cases in four days in a market that is saturated with wine deals.”
Macpherson sees Advintage in a trusted advisor role, servicing some customers who have purchased exclusively from his site for a decade. “They rely on us to be the gatekeeper for value and quality.”
Meanwhile web marketing has also undergone a significant change. “A lot of web sites went through a phase a few years ago where people were wowed by the technology and tried to make everything animated and graphical and fun.”
That’s now passé. “What customers are looking for is simplicity, a fast seamless experience where they can get in, find the information they want, buy something and get out with as few clicks as possible.”
Big picture approach
That step-by-step simplicity is part of the appeal for Napier-based myworld.co.nz where customers can upload their favourite images and have them printed on canvas.
Most people want wedding or family photos, although professional photographers and artists also use the service to reproduce work for clients. Customers log in to the website, select the canvas size, upload their images and the end product is delivered within days.
“At the end of the day, it doesn’t really matter where you are, that’s the beauty of being online,” says production manager Cuyler Anderson. “We couldn’t run this kind of business from a shop front; there isn’t enough foot traffic or enough business manufacturing for local outlets. We needed to be nationwide.”
A couple of professional printers operate five large format Canon printing machines and 10 staff stretch canvasses and service orders from around the country.
Havelock to the UK
In many ways the challenges facing online businesses are similar to those of street retailers — having the right product at the right price, displaying it well, knowing your market and keeping customers loyal.
From a laptop at her kitchen table in Havelock North, Cris Sanders – often with dog at her feet – runs lioninthesun.com, one of the more successful niche swimsuit and sunwear brands in the UK.
The decade old business is entirely online, so it wasn’t a big deal for her to return to New Zealand with her Canadian husband five years ago. She now maintains the website, designs her clothing range and manages the overall business locally.
Around 90% of her business is done in the UK and Europe where the company pioneered sun protective gear. “The slightly more sporty Kiwi look, mixed with a little bit of English pretty, goes down well over there,” says Sanders.
She knows she can’t compete with the bigger companies for “the sexy 20-year old” market, but there is a “practical and modest” range for parents. Part of the appeal is the fact the swimwear, sun hats, rash shirts, board shorts, lycra leggings and UV jackets are all 50+ sun protective.
Many customers have stayed loyal since the beginning. “They began buying for their two year-olds who are now 12 — I recognise the names when they come back.” One recent week there were orders from 17 different countries.
Sanders wholesales to about 50 shops in the UK and direct markets to a mailing list of around 10,000 individuals. “Many still write to me and say what they’d like to see in next year’s range.”
She says the risk with an online-only presence is that it can be impersonal and sterile. “You have to talk to your customers and get their feedback. Personal contact is important.”
Her UK manager phones around and they both respond to email queries, sorting out any problems as soon as they arise. “Good customer relations turn into good word of mouth business.”
Sanders spends around ten hours a day on the business; publishing a hard copy catalogue, running online and email campaigns and making daily web updates. She is planning to expand her New Zealand presence once “the recession blows over”.
In the UK she’s just hired a rep to visit all the smaller villages and shops. “The more people know about us the more they’ll come back and order online.”
For seasoned landscaper Tim Durrant, creating a successful nationwide online business was not without pain. “It was very slow at first and felt like a seagull with lead wings.”
The biggest challenge was educating a target market that had not taken the web seriously. It wasn’t until landscapedesign.co.nz had been in business for over five years that it really started to fly.
After working in landscape design and construction in London and Europe, Durrant returned to Hawke’s Bay to ply his trade but soon became frustrated trying to source paving slabs, garden seats, fences, larger trees or
even different types of timber for landscaping projects.
That’s when the idea took root to bring suppliers, landscapers, designers and outdoor living specialists together on landscapedesign.co.nz and sister site findaplant.co.nz which deals with plants and shrubs.
Today Durrant, who operates from a small office in Emerson St, Napier, has around 3000 businesses in his directory, 280 subscribers and an average of 25,000 casual visitors to his sites each month.
“When we started, it was as if we were a couple of years ahead of our time. There was a lot of cold calling to nurseries and you were often speaking about this abstract online marketing thing to someone who was outside potting up. It was really tough.”
Word of mouth recommendations from customers who found the goods and services and information helpful changed all of that.
Durrant and his team attended the Nursery and Garden Industry Association conference in Taupo in June and found a strong emphasis on getting online. “This was the first time everyone was speaking our language.”
Ingrid Edwards had no idea what she was in for when she created a homebased online business to change her life direction and be more available for her two young children.
The graphic artist and yoga teacher seized on her opportunity through the frustration of trying to source good quality, ecologically sound, yoga gear on either side of the Tasman.
Edwards wanted an ecological alternative to foam and plastic offerings. “Yoga people are into composting and recycling and buying clothes made of natural fibres – they think that way – and it seemed a sensible choice that they’d be more open to eco gear.”
She researched product and the logistics of delivery; photographed the product range; had her logo and web site designed; then found an on-line platform with a monthly rental to run everything from customer database to shopping cart.
Nudged along by an establishment grant through New Zealand Trade and Enterprise, ecoyogastore.co.nz was born in 2008. Edwards’ yoga mats and bolster cushions are all made of 100% natural rubber, the meditation cushions are organic cotton made in India, and the blocks are made from natural cork.
Edwards knew she was onto a winning formula but remained at her graphic design business for another year – working on the store from 9pm until 1am – before giving up her day job.
New Zealand wasn’t big enough to sustain the business, so three months after quitting as a graphic designer she secured a distribution contract with a Sydney fulfillment firm and the Australian site was launched.
However, appearing on page three of a Google search just wasn’t going to cut it, so she began using Google Adwords and engaged a site optimisation company to attract more traffic.
“If people are looking to buy a yoga mat I have to be in the top search results 24 hours a day, otherwise there’s too much competition,” says Edwards. It paid off, shifting her from 21 sales ‘conversions’ in January, to 39 the month after optimisation. She hopes that’ll double this year.
Although it was 18 months before Edwards drew a wage, her ability to purchase merchandise out of cash flow rather than borrowing happened quicker than she thought. “After all the hard work, it’s starting to turn around.” And she doesn’t plan to let up anytime soon. “I need to get into another market in the next year or two; possibly Europe, the UK or the US, which will open me up to 20 million people doing yoga. Before that though, I need to develop my own products and brand.”
Logistics and partnerships
A number of online businesses interviewed by BayBuzz had experienced difficulties with product suppliers and the warehousing and order fulfilment side of their enterprises.
They’d gone through several partners until they developed trusted relationships with those who could deliver what was required on time and within budget.
Ingrid Edwards at ecoyogastore.co.nz wishes she’d taken more time networking with experts to get a better deal on shipping goods between countries. The New Zealand operation employs one person wrapping and distributing 12-15 hours a week, while the Australian site, which now comprises two thirds of her business, almost runs itself.
“It’s a piece of cake. I do a stock take every night and send them an Excel spreadsheet in the morning and they handle everything else,” says Edwards.
With a greater understanding of the importance of right partnerships she’s aware she can now place her products anywhere in the world from her small outlet in Ahuriri. “It really is a global market.”
Cris Sanders of lioninthesun.com says companies like hers often struggle to achieve good reliable logistics, and she keeps a close eye on those who turn her designs into completed product in China, where the relationship is difficult and prices keep rising.
With the hits on landscapedesign.co.nz continuing to grow, editor and managing director Tim Durrant insists “content is king” and the main driver of traffic. There are daily site updates, regular blogs, a presence on Facebook and tweets with the taglines of each new article.
That body of content, including regular articles and updates about garden design, product information and case
studies, has now reached a critical mass. If visitors and clients don’t find what they’re looking for, Durrant and his team are on the case pretty quickly. “You can’t sit on your hands. The internet and online environment changes on a dime. Facebook could be dead in two years. Google Plus might take it over. Anything can happen,” says Durrant.
After four years online, myworld.co.nz, the prints on canvas supplier, knows you can’t expect current success to drive future sales.
That requires continual online marketing – working Facebook, emailing the client list with new offerings and remaining open to new opportunities such as web sites marketing one-day specials.
Recently myworld.co.nz made a discount offering on GrabOne which delivered a nice surprise, “a couple of
thousand hits” — mostly from Auckland. It plans to keep a watchful eye on such services, although operations manager Cuyler Anderson wonders how long the one-day sale trend can last.
Advintage’s John Macpherson is unfazed by the new phenomenon. “They sell product we’re not interested in. We’re proud of what we sell. A lot of these deal-a-day sites are where bad wine goes to die.”
He’s also sceptical of claims people can get rich overnight using Facebook and Twitter. Social networking only drives about one percent of his business, although he admits it’s valuable for promoting brand awareness.
For Advintage, email marketing “still kills it” for driving sales. “We’re not selling fax machines. Our emails are full of personality; we want our customers to have fun with our products and that means you have to be even better online that you are face to face.”
CBD loyalty challenge
For every successful online retailer there are ghost towns forming out on the wild west electronic frontier where digital tumbleweeds roll down desolate streets.
On closing their decade-old Napier CBD fashion store 3SIXTY, sisters Sophie Hansen and Amy Nilsson had grand online plans for Tuckbox, their funky clothing label for 4-12 years olds.
After selling two successful ranges, they faced some hard decisions. “We put a lot of work into it but it needs a lot of attention and can be like a fulltime job in itself — we just didn’t have the hours in the day,” says Sophie Hansen.
Besides, the girls had taken on challenging and enjoyable jobs at Mediaworks, Sophie as a sales consultant and Amy as a breakfast announcer on More FM. Consequently the Tuckbox e-tail experiment began looking more like a hobby. It’s now “indefinitely on pause”.
And there was a conflict of interest. Sophie and Amy are the third generation of of rag traders in the McAra family who believe physical shops help create the vibe in towns and cities.
“We understand online is part of today’s technology but I would hate to see main street strip shopping disappear,” says Hansen. “I like the experience of going into a shop and being looked after by people, it’s a social thing. If we’re all doing it on our computer there’ll be no-one on streets.”
The Advintage wine outlet in Havelock North now brings in less than 15 percent of total sales, so why doesn’t
owner John Macpherson go all the way and swap the bricks for the clicks?
“If we ran this business out of a low cost warehouse at the back of my property we’d certainly make more money,” he says, yet remains committed because he gets a buzz out of the industry and enjoys the mix of online and face to face.
Still, Macpherson warns that landlords could be in for a rough time if their traditional rent model doesn’t change. “Over the next 5-10 years retailers won’t want to pay high premium rent for low volume sales.”
On the other hand, e-commerce has its own challenges. People are tired of being spammed, scammed and junkmailed, so it’s not getting any easier to build a database of potential online customers and too many mediocre email marketers are ruining it for the good operators.
“They’re not engaging or making compelling offers, and unless retailers can offer a more interesting experience online they’ll just be clouding up the space,” says Macpherson.
The recent MYOB Business Monitor report on New Zealand’s e-commerce economy, claims less than a third of businesses have websites, despite evidence this could significantly improve sales.
The year long report to April 2011 said 66% of customers researched online before making a purchase, and while 42% of businesses identified the internet as a critical marketing and promotion channel many had not acted on this.
Overall only 32% of New Zealand businesses had websites; for Hawke’s Bay it was 24%, compared to Auckland’s 42%. Bay businesses were on par with Waikato and Taranaki and ahead of only Northland and
The report chided businesses for failing to participate in the global digital economy, saying they were holding the country back.
Business Hawke’s Bay, the new arms-length spin-off from the Hawke’s Bay Chamber of Commerce, has made e-commerce one of its foundational activities and is creating a local e-commerce hub. The goal is to train
and help promote businesses who use the ‘transformation’ technologies behind ultra-fast broadband to “extend their markets in smart ways”.
Either way, the face of shopping is changing. Customers are no longer naïve; they’re informed and literally street smart. Increasingly they’ll go to TradeMe or compare prices online for a bargain, and if they succeed that’s one less window shopper.
If traditional retailing doesn’t start using the tools of the digital age, CBDs will continue to evolve through bulk purchase, chain store, mall and superstore formulas, while the niche shops that bring colour, character and quirkiness migrate to the virtual shopping strip.