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Dramatic channel shifts, says GfK boss

GfK Australia managing director, Gary Lamb, says that camera retailers need to ‘get some sort of omni-channel strategy created so you store actually becomes a benefit and not a liability.’

Gary Lamb, managing director, GfK Australia. (Image by John Swainston, Maxwell International.)

This was his advice at the end of his component of the ‘Retail Global Trends And Our Future’ session at the 2012 Digital Conference.

He characterised the local consumer technology market as: operating in a very volatile economic climate; where nothing is growing except tablets and smartphones; with Aussies prepared to buy anything that’s cheap ‘whether it’s dodgy or not’; and with ‘channel shifts like I’ve never seen my entire life – even within bricks and mortar and across bricks and mortar’.

He addressed three key areas in the session (shared with John Swainston, Maxwell International): the impact of online on traditional bricks & mortar stores; the growth of the internet as a retail channel; and ‘a new area which really wasn’t as big an issue 12 months ago – the impact digital technology is having on the path to purchase.’

He said it would be impossible to elaborate on the pressures facing bricks & mortar stores without addressing the TV market.

‘It’s the root of many of the difficulties Australian traditional electronic products retailers are facing,’ he said.

‘There is almost a straight-line decay in average prices for televisions…and if this doesn’t change direction, TVs are free by about 2015!’ 

While there had been strong growth in flat screen sales from 2005 to 2011, this masked a profound problem, with average price falling and growth ‘rapidly trending towards zero’ (just 3 – 4 percent in the 12 months to April).

Now we have a scenario where there is no growth combined with price erosion, so the ‘value of the category is declining quite sharply because of the extent of average price declines.’ The average price of a flat screen in Q1 2005 was about $3500. At the end of 2011 it had slumped to $650.

In 2009 the value of the TV market was $3.2 billion. ‘In the two intervening years, the value of category has declined by $800 million in retail sales.’

To put this in some context, he pointed out that $800 million is 40 percent more than the total value of the retail market for cameras in Australia.

‘We all know traditional bricks & mortar electrical stores rely heavily on this category. So this is one of the major reasons why the sector has been struggling so much.

‘After 25 years of looking at market research data, I don’t think I’ve seen a trend which is as linear as this one. There is almost a straight line decay in average prices for televisions. The characteristic of a straight line is that it doesn’t change direction, and if this doesn’t change direction, TVs are free by about 2015!

So consumer electronics retailers were not necessarily past the worst of it yet: ‘Once that volume growth reaches its peak this year or next – married to the rate of average price decline – that’s more hundreds of milllions of dollars that will be disappearing out of retail.

‘It’s just as well there are one or two markets out there still in genuine growth.’

One of these was IT – PCs, notebooks, netbooks and, fuelling ‘phenomenally strong growth’, tablets.

He said that while tablets have partly taken up the slack left by declining TV sales, it’s not always the same retailers who are successful at selling these two different categories.

He also noted that growth of the value of the computer category was already in rapid decline and ‘tending to zero’.

By comparison, the camera market was ‘a hell of lot less volatile than the other two we’ve looked at,’ with local volumes which have been consistently around the 2 to 2.5 million mark annually (not inluding online sales, which GfK doesn’t as yet measure).

‘But unfortunately,’ he continued, ‘The category is in decline – accelerating declines if we look at value.’

‘We are giving away, in store, 14 percent of the money that was in the consumer’s pocket when they came in.’ 

He said that in the camera market, this was partly self-inflicted, as GfK research indicated  people budgeted more to purchase a camera that they actually paid.

‘We are giving away, in store, 14 percent of the money that was in the consumer’s pocket when they came in. And just to remind you – the market declined by 12 percent last year. We gave it away. If we’d just taken in the transaction the amount of money the consumer came into the store with, the market wouldn’t be in decline – it would be flat.’

Internet for premium sales? 

He added that the internet was not entirely to blame for falling prices in bricks & mortar stores. In the UK, where the internet channel was stronger and better established than in Australia, consumers are paying a premium online, and this was particularly the case for cameras.

‘They are not paying a premium SKU for SKU, but the product mix online is at the higher end of the market, and there’s a lot less propensity for haggling to take place.’

He predicted this will also turn out to be the case in Australia in four to five years time.

Mr Lamb then went through a series of charts showing the relative value of the categories of technology products GfK measures, to show just how volatile the past five years have been.

While categories were swapping places on the totem poles of sales and growth on a yearly basis, the most volatile change was the sudden appearance of the smartphone, which has changed mobile communications from a category GfK hardly bothered to measure, to something which took 12 – 13 percent of total consumer spend on technology in 2011.

All in all, he said, by 2011 we were in a different world. ‘It’s almost unimaginable that the degree of change could have happened so quickly.’ 

‘If we look at the market of connectivity, one of the most dramatic channel shifts I’ve even seen has taken place in this very short period 2007 to 2011.

‘So when we hear about traditional retailers who are either struggling or going out of business this is why – the world has changed.

‘It’s not about consumers not spending any more. It’s what they are buying, the nature of the way they are buying, and where they buying. Things have changed beyond recognition and if anything we’ve got to expect the change to even accelerate compared to what we’ve been looking at.

He said recent global forecasts by GfK working with the US Consumer Electronics Association were that in 2012 the only growth categories globally will be tablets and smartphones.

‘Every other sector we are forecasting will be in decline at a global level,’ he said.

The ‘connectivity’ market 

‘If we stop thinking of those product sectors individually, but look at a common thread – internet connectivity, web enablement – if we look at that as a market that includes smartphones, tablets, PCs and IPTVs. If we look at the market of connectivity, one of the most dramatic channel shifts I’ve even seen has taken place in this very short period 2007 to 2011.

‘A channel that wasn’t even a competitor to traditional bricks & mortar five years ago – that’s the network service providors – is now 36 percent of this new category fuelling all the growth.

He said there was once 20 national or strong regional CE chains in the UK, but now there were only two left. In Australia in 2000 there were 25 chains ‘down to 17 already and most of that activity has been recent.’

We are very much following the same trend as in UK, he said, adding that there were still some retail types growing on the High St in the UK, but these were mainly pawnbrokers and charity shops.

The path to purchase

‘As far as I can see it’s going to be more difficult even to get people into your store unless you have some kind of omni-channel approach,’ said Mr Lamb. The same elements are still there – the retailer’s need to create awareness, the consumer’s need to research their products before they make a transaction

He said five years ago this was ‘a straight road’ – from creation of awareness using some sort of mass medium to the point at which you sell your product or service. Now there were many different routes consumers can take.

So while the path to purchase is complex for retailers and marketers, it’s also far quicker and cheaper for consumers.

 ‘…if you are attempting to use a bricks & mortar outlet as a competitor to the internet as a channel, I don’t think it will work.’ 

‘All consumer research indicates price, range, convenience, service and the overall experience remain the key criteria. It doesn’t matter which channel we are researching…these always come through as being the most significant.

‘The problem is the world is moving more towards the internet, where SKU for SKU, you are never going to compete on price or range,’ he said.

Convenience perhaps if your store is ideally located, but that’s still not as convenient as shopping from home and having the purchase delivered to your door.

This leaves only service and ‘the experience’.

‘So if you are attempting to use a bricks & mortar outlet as a competitor to the internet as a channel, I don’t think it will work. I think they have to be complementary.’

Take a tablet

The amount of time people are shopping on tablets, PCs and smartphones is increasing rapidly. One benefit of this is that while shopping on a digital device, the research suggests consumers are much more likely to buy something that they hadn’t intended to buy.

One of the things which has changed more than anything is the propensity for people to be already using their smartphones to transact. Thirty-four percent in a recent survey in the UK have already bought something using their phone, while 78 percent have already bought  a physical item using their PC.

What makes smartphones even more important is the degree to which product awareness is being raised with the phone as a platform, either by sending ads or promotional offers direct, or via social media.

In the UK, 24 percent of those surveyed had recommended a product or service to someone else using their phone. Twenty five percent of people with a smart phone in the UK have said they’ve gone into a store directly as a result of receiving a prompt over the phone.

‘So using that device correctly [as a marketing communications medium] can generate footfall in store,’

He said that digital media was now, ‘way, way more important than TV, and that even as people were watching TV they often had a smartphone or tablet in their lap.

‘There’s a high propensity for people to take a TV message as catalyst to start doing something with the other screen.’

He concluded with some figures on the inroads online is making: In Europe in 2011, 15.5 percent of technology-related products were sold on the internet and this is continuing to increase.

About 30 percent of the camera market in the UK is now online. Surprisingly, that’s about the same level as online sales of whitegoods.

In Australia, GfK measured 407 retailers of technology goods online. Nearly 200 of them were bricks & mortar with internet, while more than 200 were ‘pure-play’ – retailing only on the internet without a physical store.

While the IT market had the highest number of internet sellers, there were nearly 200 ‘clicks & mortar’ and pure-play camera retailers in Australia.

In a one-off survey in November-December last year, GfK quizzed Australian consumers about the grey market, finding that two-thirds of those surveyed were not aware of it. (However, when it was explained to them, two-thirds of those said if it was cheaper, they would buy it grey!)

Twenty-nine percent of all compact system cameras (mirrorless interchangeables) acquired by Australians have come from overseas – 9 percent from overseas stores and 10 percent from overseas websites.

In DSLR (which represents 19 percent of the local market) 7 percent have been purchased in overseas stores and 16 percent from an overseas website.

‘That’s the thick end of quarter of our market which isn’t our market,’ he noted.

‘All the data is suggesting to me that if I was a retailer, I’d be expecting 15 – 20 percent of sales to be online soon – within a year or two.

‘Even if not, I’m absolutely convinced from the research we’ve looked at, that 80 percent of your transactions will be influenced by some sort of digital medium.

‘Which means mass market advertising and promotion will be less effective unless part of an overall strategy.’

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