Towards a Clever ausTraliaindusTry insighTs whiTepaperreTail

ConTenTs inTroduCTion and overview >

a shifT To Clever growTh >

Clever growTh in The reTail seCTor >

helping our CusTomers >

gareTh Jude

Industry Executive, Retail Email – Gareth.jude@team.telstra.com Contact number – (02) 8576 3635

Gareth was born in the UK and educated in the UK, USA and Australia. He has spent over 20 years in a variety of senior sales, marketing and general management roles including 2 years as

CEO of a an Australian sporting goods retailer. In addition he has spent a number of years consulting to retailers and teaching retail subjects at Sydney, Macquarie and Shanghai Jiao Tong Universities.

In 2011 Gareth was appointed Retail Industry Executive in Telstra’s Industry Development team.

Gareth holds a Master’s degree in management from University of Technology, Sydney.

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inTroduCTion and overview

For the past five years, Telstra has been measuring the productivity of Australia’s largest companies. The resulting reports provide insight into the initiatives leading organisations are undertaking and the results they report achieving.

Australia’s retail and wholesale (retail) sector continues to be a mainstay of the national economy. Despite a sobering global outlook and lingering negative macro-economic factors, Australian consumer spending is retaining an overall resilience.

The retail sector accounts for approximately 11 per cent of employment and, according to ABS statistics, total retail turnover increased by 2.5 per cent in January 2013 (in trend terms) compared with January 20121. This increase occurred at a time where many international markets were stagnant or declining.

However, according to research from consulting firm Deloitte, sales volumes softened in the second half of 2012. Feeling the pressure, the most were household goods retailers, clothing and department stores2.

A portion of this pain looks to have come from an increasing tendency by consumers to move away from traditional local retailers towards the growing number of international brands establishing both physical and online presences in Australia. Examples include clothing brands Zara, Gap and TopShop and supermarket chains Aldi and Costco.

Despite facing these changes, many retailers have continued to operate as they have in the past without realising the market is shifting around them. The rise of trends such as omnichannel retailing appears to have taken many by surprise and they find themselves ill prepared to cope with the challenge.

Pure online retail sales are also growing strongly. According to the April 2013 NAB Online Retail Sales Index, online sales increased to an estimated $13.5 billion in the 12 months to January 2013 and now equate to 6 per cent of traditional bricks and mortar sales (excluding food)3.

1 Australian Bureau of Statistics, Retail Trade, Australia, March 20132 Deloitte media release - Retail Forecasts, February 2013 - Cost Control, 13 March 20133 National Australia Bank Group Economics, Online Retail Sales Index: Indepth Online Report - April 2013

As a result of all these trends, Australian retailers are constantly looking for ways to evolve their operations to ensure they are best placed to win an increased portion of the total retail pie.

Many are working to integrate new online activities with existing real-world retail facilities. Others are examining the potential offered by mobile devices as a means of more effectively interacting with customers.

Increasingly, retailers are also coming to understand the importance of having an underlying IT infrastructure that can support their operations, help improve efficiency and productivity and - most importantly - better serve their customers.

The organisations within the sector that are more likely to continue to succeed during coming years are likely to be those that use productivity initiatives to achieve more than ever before - to achieve Clever Growth.

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In the modern business world, the concept of growth is changing. Where once it was measured simply in terms of rising revenues, it is now increasingly being seen as something that’s intelligent, efficient and sustainable. It’s not growth simply to get bigger, but growth to get better.

At Telstra we term this type of growth ‘Clever Growth’. Clever Growth encompasses a range of aspects that go well beyond financial performance. While making a profit remains fundamentally important, a Clever Growth focus ranges more widely to include productivity improvements and capability enhancements.

Clever growTh enCompasses a range of aspeCTs ThaT go well beyond finanCial performanCe. while making a profiT remains fundamenTally imporTanT, a Clever growTh foCus ranges more widely To inClude produCTiviTy improvemenTs and CapabiliTy enhanCemenTs.

As part of the research for this year’s Towards a Clever Australia report, Telstra surveyed more than 1000 private and public-sector organisations. In-depth interviews were conducted with senior decision makers to gain an understanding of how their organisations were performing and the plans they have in place to improve this performance in the future.

The result is a fascinating insight into Australia’s corporate attitudes, behaviours and investments. It provides a clear picture of where our organisations are positioned when it comes to achieving the goal of Clever Growth.

Careful analysis of the research has identified specific groups of organisations that co-exist within our national business landscape. Each group shares specific attributes and, importantly, specific modes of operation.

Telstra calls the first group ‘Productivity Leaders’ (Leaders). Its members comprise those that both measure their productivity and report having achieved substantial productivity improvement over the past year.

The second identified group has been called ‘Productivity Followers’ (Followers). Members of this group either don’t measure productivity or have not reported achieving substantial productivity improvements over the past year.

For the first time this year, the research identified a third group, ‘Growth Champions’ (Champions). Members of this group have measured and report having achieved substantial productivity improvements as well as substantial financial (revenue) and non-financial (in terms of capabilities) growth over the past year.

Interestingly, just 5 per cent of all Australian organisations surveyed are members of this third group. Champions come from a range of sectors, including changing industries such as manufacturing (12 per cent), health (13 per cent) and banking and finance (10 per cent). The retail sector represents 18 per cent of the group.

Organisations in the Growth Champions group share specific characteristics:

• They are more likely than most to be focused on customer satisfaction and have reported achieving success in this area. This applies to 58 per cent of Champions compared with just 36 per cent of those organisations in the Leaders category.

• They recognise that effective employee collaboration is absolutely key to achieving Clever Growth. This was nominated by 100 per cent or Champions compared with 88 per cent of Leaders.

• They report investing more than the majority of organisations in high-speed networks, sophisticated analytics and improvements to IT infrastructure performance to support improved growth. The research found 88 per cent of Champions report having invested in improving network speed, coverage and performance compared with 70 per cent of Leaders.

• Champions also recognise that achieving sustained productivity and growth is not a one-off task that can be completed and ticked off a corporate ‘to-do’ list. Instead, they understand its achievement requires an organisation to follow a process of constant evolution. Operations must be continually reviewed and revised to ensure they represent best practice and provide the support needed to meet pre-determined goals.

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Achieving Clever Growth is particularly relevant for the retail sector. The ways in which consumers are interacting with retailers are changing rapidly and organisations that ignore these trends risk not only a lack of growth, but also losing existing market share.

It should be remembered that such forces are nothing new and have been shaping the sector for decades. The advent of the car led to shopping malls and the invention of the barcode changed supply chains.

Now the growth of the internet and mobile phones is changing the retail game once again by altering the way in which consumers make buying decisions. The internet makes it far easier to compare prices and access reviews of products ahead of purchase. This can lead to retailers being played against each other in a discount war to secure a consumer’s custom.

Traditionally, Australian retailers have focused on the tactic of keeping operational costs down as a means of preserving profit margins. Cutting staff numbers and focusing on the efficiency of supply chains was the sector’s mantra for many years.

However this is now changing. Successful retailers recognise they must be far more customer focused to achieve growth. Clever Growth comes not from ‘piling them high and selling them cheap’ but through establishing strong and lasting relationships with customers.

A classic example is the retail activity undertaken by technology giant Apple. Somewhat counter-intuitively, the company establishes large stores in high-traffic areas and employs large numbers of sales staff. Customers appreciate the ability to interact with the company both online and in physical stores and respond with high volumes of purchases.

Meanwhile clothing chain Zara has equipped all store managers with network-connected iPads. This allows the company headquarters in Spain to collect virtually real-time feedback from stores around the world on customer reaction to new clothing lines and styles.

Australian retailers look to be increasingly embracing the omnichannel approach where they can interact with customers in a variety of ways. These methods range from physical stores and websites to online chat and social networks.

Yet despite the potential of such techniques, Telstra’s research has found that only a relatively small proportion of organisations in the retail sector are Growth Champions. Of those surveyed, 5 per cent of retail organisations were members of this group4, the same proportion as the wider surveyed group. Of those remaining, 14 per cent are defined as Productivity Leaders (compared to 15% overall), while the majority fall into the Productivity Followers category (81% compared to 80% overall).

4 This figure is derived from a sub-sample cross tabulation of organisations in the retail sector sample that fit the definition of Growth Champions.

These results show there is significant scope for improvement when it comes to achieving Clever Growth. The Towards a Clever Australia research shows that the Australian retail sector organisations that appear to be achieving it, like their counterparts in other industry sectors, are focused on a number of key initiatives including:

• Improving customer experience and satisfaction • Quickly responding to challenges• Improving productivity

CharT 1 - sTraTegies ThaT lead To growTh

60%50%40%30%20%

Improving Customer Experience and Satisfaction

Quickly responding to challenges and opportunities

Improving community perceptions of your organisation

Improving productivity

Managing risk/business continuity/disaster recovery

Attracting and creating an engaged workforce

Increasing capabilities in delivering services

Increasing research and innovation in new revenue streams

Focusing on core business through partnerships

49%

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27%

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32%

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59%

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47%

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45%

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39%

33%

Base: Growth Champions and Productivity Leaders who rated growth as a medium - major priority (n=190)Note: Chart shows the percentage of organisations that rate a strategy as very important

37%

improving CusTomer experienCe and saTisfaCTionCustomer interactions are the Iifeblood of the retail sector and those companies that report being successful in business, indicate that this is a primary area of their focus. Indeed, in many instances attention has shifted from relationships with suppliers and the supply chain to understanding exactly what customers want and how best to deliver it.

Omnichannel retailing has become a focal point for many retailers as they strive to improve their customer attraction and retention rates in an increasingly competitive marketplace. At the heart of the omnichannel trend is the constant movement of a customer between a retailer’s physical and online properties. This happens between the store and the website, but also while the customer is in the physical store itself.

Within stores, technologies such as Wi-Fi allow the retailer to gain a new method of access to the customer, in some cases allowing them to target them directly with advertising and special offers as they move about the store.

Many retailers are already investing technology to expand their channels to reach their customers. Of those surveyed by Telstra as part of the Towards a Clever Australia report, 65 per cent in retail and wholesale said they had invested in e-commerce capabilities in the previous 12 months to improve productivity. Further, 50 per cent said they planned to do so in the coming year.

The survey also found 67 per cent of retail and wholesale trade had invested in mobility technologies in the previous 12 months to improve productivity with 57 per cent indicating plans to do so in the coming 12 months.

These results are indicative of the growing importance of mobile devices both as customer tools as well as productivity aids for retail staff.

CharT 2 – Timing of iCT invesTmenTs

60% 60% 80%80% 40% 40%20% 20%

Video Conferencing and Collaboration Solutions for meetings

Managing, Distributing and Recieving High Definition, Desktop

and Mobile Video Content

ToTal reTail or wholesale

Broadband/IP Network Speeds, Coverage and Performance

Mobility Technologies

Remote monitoring and control of Plant, Vehicle Fleet, M2Mor other Assets

67%64%

64%

42%

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24%

67%

27%

30%

18%

57%51%

48%

32%

27%

22%

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63% 67%50% 47%

52%

Network Security Solutions

Networked Business Processes and Forms Online

67%

57%

61%

59%

48%

45%

41%

44%

E-Commerce capabilities or providing customers with Online/

Self-Service Facilities

50% 65% 42% 50%

20%

Cloud Computing Opportunities31% 30%

32% 32%

21%

14%

Intend to invest in the next 12 months

Have invested in the past 12 months

Base: All Private and Government organisations (n=1060) and Retail or Wholesale Trade (n=115). (Data excludes ‘don’t know’ responses).

QuiCkly responding To Challenges

For many, the results of such activity are already becoming evident. The research found 27 per cent of retail and wholesale organisations surveyed felt they were better able to respond to challenges and opportunities during the past 12 months.

Yet there is clearly still work still to be done. Just 20 per cent of the retail and wholesale survey group said they had improved their ability to manage risk during the same period. This compares with 28 per cent in the wider survey group.

It’s clear that those organisations that identify themselves as successful retail companies are focused on improving their responsiveness to challenges and will continue to make this an area of focus in coming years.

The retail sector remains in a constant state of evolution. Savvy operators realise that, while particular initiatives may have worked well in the past, that is no indication they will continue to do so in the future.

Increasing competition from international players, the growing shift to online retailing, and the ability for customers to comparison shop on mobile devices are all significant challenges for established companies in the sector.

Encouragingly, 30 per cent of surveyed retail and wholesale companies said they had improved their capabilities in delivering services during the past 12 months. Changes included initiatives such as better websites, improved in-store experiences and a larger number of customer communication channels.

CharT 3 - suCCess in aChieving key organisaTional obJeCTives over The lasT 12 monThs

Base: All Private Organisations (n=700) and Retail or Wholesale trade (n=115). Note: Percentage shown represents the percentage of respondents that increased a great deal/a lot. (Data excludes ‘can’t say’ responses).

30% 30% 40% 50%20% 20%10% 10%

ToTal reTail or wholesale

Quickly responding to challenges and opportunities

Capabilities in delivering Services

Community perceptions of your org

Customer Experience and Satisfaction

Profit

Research/Innovation in new Products and Services

Efficiencies in Delivering Services

Number of Customers

Market Share

Attracting and creating an Engaged Workforce

Competitiveness

Managing Risk/Business Continuity/Disaster Recovery

Overseas prescence

Growth and Revenue

Number of Employees

27%

27%

27%

26%

25%

24%

21%

21%

19%

18%

17%

15%

13%

11%

10%

20%

27%

30%

19%

25%

22%

22%

22%

16%

18%

16%

14%

9%

9%

6%

improving produCTiviTyWith intense competition between retailers resulting in constant pressure on profit margins, ensuring operations are as efficient and productive as possible is paramount. As outlined above, more effective customer communications is key to this aim, and was nominated by 47 per cent of retail and wholesale organisations surveyed by Telstra as a driver to improve productivity.

Staff training, nominated by 40 per cent of the retail and wholesale survey group, is also recognised as vital. Where once the best strategy appeared to be to reduce staff numbers to lower costs, now the opposite approach is followed by many retailers.

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CharT 4 - produCTiviTy improvemenT from invesTmenT

Base: All Private and Government organisations Retail and Wholesale (n=115). Percentage shown represents the percentage of respondents that increased a great deal/ a lot. (Data excludes ‘can’t say’ responses).

measuring progressTo help achieve the goal of Clever Growth, it is important for an organisation to measure its progress. The Telstra research shows organisations in the retail and wholesale sector are more likely than not to have key performance indicators (KPIs) in place to measure their improvements in the area of productivity. Of those surveyed, 70 per cent said they had KPIs in place for this reason.

There appears to be a strong correlation between measurement and success. Of those with the KPIs in place, 51 per cent said their organisation’s productivity had increased ‘a moderate amount’ during the previous 12 months. A further 27 per cent said it has increased ‘a lot’ or ‘a great deal’ during the same period.

They realised that heightened customer engagement can lead to higher sales and more repeat business.

Successful retailers also report the importance of investing in IT and communications technology such as mobile devices and broadband, nominated by 39 per cent of the retail and wholesale survey group. By having a reliable and flexible IT infrastructure in place, operations can be expanded or evolved as required.

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helping our CusTomers

For Telstra, our Clever Growth is intrinsically linked with helping customers achieve the same objective.

While the Australian retail sector has a strong history of sustained performance, there remains room for evolution and improvement. Telstra is working with its customers in a range of ways to aid this evolution and help them to achieve their long-term goals.

Telstra is helping organisations enhance their online properties to appeal to customers both as sources of information and as channels for transactions. Telstra is also helping retailers improve their in-store offerings through the introduction of a range of technologies.

As an example, Telstra is working with Coca-Cola Amatil to implement machine-to-machine communications links to improve the performance of vending machines and to install a network of digital media screens with Wi-Fi enabled hotspots. These help ensure visual messaging is always up to date and customers can receive offers to their smart phone that are relevant to their visit5.

“we’ve spenT a loT of Time undersTanding our Consumer and of Course you have To use TeChnology somewhere in ThaT proCess. ThaT is The Core role ThaT TelsTra plays - as an enabler. we Think ThaT we are adding value To The TelsTra business, buT we also Think ThaT TelsTra is adding value To ours.”Terry Davis, Coca-Cola Amatil Group Managing Director6

5 Telstra Case Study: Coca Cola Amatil: http://www.telstra.com.au/business-enterprise/resources-insights/the-clever-australian/clever-australians/coca-cola-amatil/index.htm6 ibid

Your customersIn the retail sector, consumers want to be able to interact through a variety of different channels and this trend shows no sign of slowing.

Telstra is working with its retail customers to improve their customer offerings through intelligent use of technology and telecommunications tools.

Through its expertise in wired and mobile networks, point-of-sale and back-end infrastructure, Telstra can ensure retailers remain well placed to meet the ever-changing requirements of their customers.

your organisaTionTelstra can provide support and guidance in a range of critical areas. Solutions offered include:

• Managed IP data networks which can provide secure, reliable carriage of information to and from retail locations

• Digital Media Solutions that display passive or interactive content via kiosks. This can allow customers to be armed with up-to-date, accurate information for their shopping mission

• Video Conferencing which enables chain retailers to communicate with dispersed workforces and supply-chain communities without leaving the office, saving time and money

• Data Analytics to make sense of the vast new amounts of data available to retailers on consumer behaviour and stock performance and turning it into value-creating activities

• Unified Communications which gives retailers the ability to synthesise all communications from customers and to communicate back with targeted messages simultaneously via SMS, email or voice

• Mobile networks which equip workers with voice communication capabilities and the ability to access centrally held information as required

• Machine-to-machine communication which provides a service for data to pass between devices such as vending machines which can assist the customer to identify faults and stock can be replenished

• Cloud Services that allow retailers to flexibly buy IT capacity and software aligning with the dynamic nature of the retail industry.

Through implementing this portfolio of technology solutions, Telstra continues to work with clients across the sector to improve their efficiency and assist them in reaching the goal of Clever Growth.

“The way reTailers and Consumers inTeraCT is rapidly Changing. disrupTive faCTors suCh as The inTerneT and mobile deviCes mean shoppers are more informed and are looking To inTeraCT in differenT ways. The reTailers ThaT undersTand This Trend and evolve Their operaTions To meeT iT will be The ones ThaT suCCeed in The nexT five years.”Gareth Jude, Telstra Industry Executive – Retail

To find ouT more visiT TelsTra.Com/CleverausreporT or ConTaCT your TelsTra aCCounT exeCuTive

© 2013 Telstra Corporation Limited. All rights reserved. ® Registered trade mark of Telstra Corporation Limited. ™ Trade mark of Telstra Corporation Limited. All company or product names are trade marks or registered trade marks of their respective owners. Telstra retains ownership of all intellectual property in the contents of this document and there can be no unauthorised copying or distribution without the prior consent of Telstra. Telstra reserves the right to revise this document for any reason without notice. The information in this document is based upon assumptions and forecasts and reflects prevailing conditions and Telstra’s views as of February 2013, all of which are accordingly subject to change. In preparing this document, Telstra has relied on and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was otherwise reviewed by Telstra. To the extent permitted by law, Telstra is not liable for any errors in this document nor any damage, loss or other liability (including without limitation direct, indirect, special or consequential) suffered or incurred by any person in reliance on this document.