# AustralianRetail

®

# Outlook2024

Powered by KPMG


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**Good retailers are already turning**
**today’s challenges into opportunities.**

#### There’s no

Now is the time to adapt your processes,
exceed customer expectations
and futureproof your operations for

#### challenge sustainable, profitable growth.

**Growth starts here**
At KPMG, we support Australian retailers

#### like the in navigating the current business

environment and planning for what’s
around the corner.

#### present Ask us how

**KPMG.com/au/retail**


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C O N T E N T S

Foreword
Industry in focus
Australian Retail Outlook Survey

Plan for success
by KPMG

Hope despite headwinds in 2024
Lean and mean for FY24
Retail media: the new black?
Business on (the) line – building cyber resilience
Supply chain resilience: automation and AI
Unleashing the power of AI
Retention and loyalty – how to grow when the
market is down
Working capital – manage it before it manages you
Retail leaders weigh in on the year ahead
Attract customers, not the ATO

30

Retail turnaround rules
Kiwi corner: How to win in 2024
NRF 2024: Key takeaways you need to know

Retail profiles

Ikea Australia champions affordability and the
shopping experience
Jeans for the greater good: Outland Denim
How Lush is finding the scent of success in
tough times
Finding beauty in simplicity: Milligram
Incu focuses on the digital experience
Stepping up its APAC presence: Hoka
From e-commerce to bricks-and-mortar:
Edible Blooms
Fashioning a, softer greener future: Paire
Forty Winks: Don’t sleep on the need
for community

51


**Advertising**

**Graphic Design ads@insideretail.com.au** AustralianRet
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sofia.c@insideretail.com.au Outlook2024


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**The Australian Retail Outlook**
**is printed by Octomedia**

**Head Office**
Suite 1502, Level 15,
31 Market Street
Sydney, NSW 2000
Tel: +61 2 9901 1800
Fax: +61 2 9251 5957

**Editor**
Heather McIlvaine
heather.m@insideretail.com.au

**Subeditor**
Haki Crisden

**Contributors**
Stephanie Caite Chadwick
Joshua Gliddon


**CEO**
Amie Larter
amie@insideretail.com.au

**Cover**
Supplied by Paire

In the spirit of reconciliation, the Australian Retail
Outlook acknowledges the Traditional Custodians
of country throughout Australia and their
connections to land, sea and community. We pay
our respect to their Elders past and present and
extend thatrespect to all Aboriginal and Torres
Strait Islander peoples today.


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F O R E W O R D

expectations for the months ahead.
Just 12 per cent of respondents
said they expect trading conditions to
change significantly from last year, and
most people believe that consumer
confidence will be their biggest
challenge in 2024, with price being a key
sticking point.

Fortunately, this year’s Australian
_Retail Outlook is jam-packed with_
advice from KPMG’s team of industry
experts and leading retailers – including
Ikea, Lush, Outland Denim and Milligram
– on how to approach 2024 with a
growth mindset despite the lingering
macroeconomic factors.

Whether by investing in staff training

as a means of driving customer loyalty,
reconsidering your price point to
capture a more affluent customer base,
or unleashing the power of artificial
intelligence, there are countless ways to
position yourself for success (as well as

the New Zealand retail market.

_Inside Retail’s survey this year_
highlights a degree of pessimism
about trading conditions in the
retail community, with 75 per cent
of respondents describing 2023 as
ordinary, poor or the worst they have
experienced. While expectations for
2024 are not worse than for 2023
(Could they be?), there is certainly
a perspective from around 80 per
cent of respondents that the tough
times will remain for a while yet as
the industry endures inflationary
pressures, low consumer confidence
and high labour costs.

In good news, the KPMG December
Retail Health Index (RHI) from KPMG
Chief Economist, Brendan Rynne,
suggests that while retail spending is
likely to remain subdued during most
of 2024, a spending recovery is likely to
happen quicker than expected and the
RHI may return to positive territory as
early as Christmas 2024.

In short, despite some serious
anchors, population growth, slowing
interest rate increases and the wealth
effect of rising house prices are likely to
tip the balance of retail spending drivers
into positive territory sooner than
expected. This suggests the blue sky
is coming, just not yet. In the interim,
we expect food and non-discretionary
retail to weather the storm and
discretionary retail to lack momentum
and be vulnerable to a more cautious
consumer.

In our experience, adversity often
brings with it innovation and investment
for the future. As we look forward into
2024, we believe there is no time like
the present for retailers to differentiate
themselves through investment in


**Editor’s note**

Based on my conversations with retail
leaders over the past few months,
most people in the industry were only
too happy to bid 2023 adieu. A ‘patchy’
year would be putting it mildly, thanks
to a lethal combination of inflation,
rising interest rates, and cost-of-living
concerns. The dip in discretionary
spending was tough for many, and
insurmountable for some, but the good
news is that the worst is behind us, the
experts say.

Yet, it could be a little while before
we see that sense of optimism
reflected in either consumer sentiment
or business confidence. After the
whiplash of the last few years, it’s
understandable that many retailers
remain cautious, as we found in
our annual survey, where we asked
_Inside Retail readers to share their_

**The blue sky**
**is coming**

What a difference a year makes. The
year 2023 brought major changes
in discretionary spending, as
interest rate hikes started to bite,
consumers reverted to hunting for
a deal, AI became the ‘new black’,
and technology transformation and
cybersecurity became the next-level
investment priority.

We believe we will see more of the
same in 2024 as retailers become
hyper-focused on cost to drive operating
efficiencies, technology transformation
to replace end-of-life systems and
resetting their operating platforms and
working capital optimisation for cash
and liquidity. The Australian ‘discounting
holiday’ will end, squeezing margin
performance.

Sustainability objectives will remain
top of mind for best-practice retailers;
climate-related and geopolitical events
provide a continuous reminder of how
vulnerable our planet and communities
are to man-made events and global
disputes, which displace millions of
people and highlight the growing gap
between the haves and the have-nots.

In this year’s Australian Retail
_Outlook, our expert KPMG team_
provides insights into the challenges
and opportunities facing retailers. We
cover topics such as cost and working
capital optimisation, cyber and tech risk,
supply-chain efficiency, the rise of retail
media, growth strategies for a subdued
market, and the rules for achieving retail
turnarounds. We’ve also provided key
insights from some of Australia’s leading
retail CEOs and bespoke insights into


plenty of pitfalls to avoid).

So dive into this report and discover
how to make the most out of the year
ahead. If 2023 has taught us anything,
it’s that the good times won’t last
forever, and you need to be ready to
hit the accelerator the moment an
opportunity presents itself.

Wishing you all a strong start to 2024.

Heather McIlvaine
Managing editor, premium

and features, Inside Retail

technology, product innovation and
customer experience.

James Stewart
National Leader, Consumer and Retail,
KPMG Australia

Lisa Bora
Partner in Charge, Clients, Growth &
Markets, Consulting, KPMG Australia

Tristan Butt
Partner, Customer & Operations,
Consulting Retail Sector Lead, KPMG
Australia


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home brands.

I N D U S T R Y I N F O C U S

A year of contradictions
and change

A review of retail in 2023 and some insights for 2024.

By Mark Fletcher

id you find 2023 ordinary or at Macquarie University Business School, have tightened their wallets, they have
even downright tough? If it’s said it is important to understand the become more selective. We’ve seen topany comfort, you are not alone. nuances of this new retail environment. tier brands continue to perform while
We weren’t sure just how tough things D “The story around ongoing consumer others with less customer buy-in have
were until we conducted the Australian spend in the face of an ongoing cost-of- seen their sales drop off,” Downie told
_Retail Outlook survey and found that_ living crisis isn’t cut and dry. The data _Inside Retail._
only 30 per cent of the retail executives is murky, multifaceted and it’s a moving
described trading conditions as ‘good’. feast. It’s necessary to dig a little deeper The big and small of it

So, what made trading conditions for to get a granular view of it,” Bowden told The changes in shopper spending appear
the rest either ‘ordinary’ or ‘poor’? Every _Inside Retail._ to have had the most impact on small
retailer knows to put the customer at In terms of saving money, the most and medium-sized businesses, with 41
the centre of their business, so we’ll common consumer strategies included per cent of SMB retailers performing
start with them. using promotional codes, cashback offers below or far below their FY23 forecasts

and rewards (73 per cent), CommBank and two-thirds of SMBs lacking business

Two-speed shoppers found, and more are shopping at sales confidence and concerned or uncertain
It’s become a cliché to say that events like Black Friday and Cyber about the year ahead, per the Australian
consumers are struggling with the Monday, a study by the Australian Retailers Association (ARA).
increased cost of living. Consumer and Retail Studies (ACRS) Part of the issue is that costs have

The Australian Bureau of Statistics unit of Monash Business School found. increased by more than 10 per cent for
reported that, in the first three quarters Nearly half (47 per cent) also shopped for one-in-three SMB retailers (32 per cent).
of 2023, household spending on services lower-priced brands more than they did The story was very different at the top
increased by 9.6 per cent but was flat for 12 months ago, the ACRS stated, which end of town, where Inside Retail’s annual
goods (-0.1 per cent). More importantly, has helped drive the increase in sales of report on Australia’s Top 25 Retailers
non-discretionary spending rose 9.2 per

Many consumers also took the longer
view, however, with 47 per cent shopping
only for known and trusted brands and
30 per cent choosing to purchase higherquality items that would last longer,
CommBank stated. Clearly bad news for
the ‘cheap and nasty’ end of the market.

Alex Downie, associate director of
Sydney-based private equity firm Glow
Capital Partners, commented that
the gap between the best Australian
brands and the rest has grown wider
in the last 12 months. “As consumers


The Australian Bureau of Statistics
reported that, in the first three quarters
of 2023, household spending on services
increased by 9.6 per cent but was flat for
goods (-0.1 per cent). More importantly,
non-discretionary spending rose 9.2 per
cent, while discretionary spending barely
increased (0.3 per cent). The net result is
that finances in the average household
went backwards all year, to the point
where savings are now at near 16-year
lows of just 1.1 per cent.

The impact was felt across all
segments, with over 90 per cent
adopting deal-seeking behaviour and
reviewing their spending choices,
CommBank found. But this didn’t
necessarily translate into reduced
spending. Dr Jana Bowden, a professor


The story was very different at the top
end of town, where Inside Retail’s annual
report on Australia’s Top 25 Retailers
found that in FY23, all of the retailers
in the top 10 made more than $5 billion
and increased their revenue year on year.

Amid the stellar performance of the
very largest retailers, Bunnings shone.
Along with increasing revenue, Michele
Levine, CEO of consumer research
consultancy Roy Morgan, said Bunnings
managed the single largest improvement
in trust of any trusted brand in the last
12 months and is now the second most
trusted brand in Australia.

“Bunnings has harnessed many of
the foundational pillars of a trusted


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I N D U S T R Y I N F O C U S

brand Bondi Sands, in a deal estimated
to be worth $450 million.

Prior to that, French cosmetics
giant L’Oréal paid $3.7 billion for luxury
skincare and beauty brand Aesop and the
Michael Hill group purchased the Bevilles
jewellery chain.

To top it off, both Pizza Hut and the
Australian arm of 7-Eleven convenience
stores changed hands in 2023.

Retail intelligence goes artificial
While automation has increased across
the whole retail supply chain in the last
four decades, there is no doubt that in
the next few years, the use of artificial
intelligence (AI) will transform every
aspect of the business of selling.

In an interview with Inside Retail,
data and digital expert Renaud Frisé
listed just a few of these developments,
describing how AI will sift through not
only past sales data but also real-time
analytics, customer behaviours, market
trends, and even external factors like
weather conditions or local events that
might impact demand. This data will help
retailers take stock optimisation to new
levels, increasing both profitability and
customer satisfaction.

Frisé also said that AI will directly
impact customers, with AI-enabled smart
trolleys that accurately tally products
and also take payment, potentially
saving customers time and reducing
labour costs and retail theft. Customer
satisfaction will also increase as
AI-powered virtual try-on facilities evolve
and finally meet customer expectations.

In the words of the ARA, AI could be
the silver bullet that retailers are looking
for: the ability to reduce costs and
improve service.

Remarkably, the Australian Retail
_Outlook found that only 19 per cent of_
retailers nominate AI as a big driver of
growth in 2024. The opportunity for early
movers to leverage AI and get ahead of
their competitors is clear.

Going in circles
At a more fundamental level, however,
the circular economy challenges the
basis of consumerism and the modernday retail paradigm on which it is built.


brand, including great customer service,
communicating what it stands for and
delivering, being an active part of the
community, solving customers’ problems
and expertise and product knowledge,”
Levine said.

In fact, a massive consumer survey
conducted by KPMG identified Bunnings
as providing the best customer
experience of any large retailer.

For the whole sector, things do appear
to be looking up in the longer term. In
its December 2023 Retail Health Index
report, KPMG predicted that the retail
sector would return to positive territory
as early as Christmas 2024, driven by net
population growth, slowing interest-rate
hikes, and the wealth effect of higher
property prices.

The

“

opportunity for early
movers to leverage
AI and get ahead of
their competitors

is clear.”

Big changes all around
The retail playing field also underwent
major changes in 2023, with multiple
acquisitions and mergers.

Among the largest of these was the
reverse buyout of Sigma by Chemist
Warehouse to consolidate the retail
pharmacy sector into a two-horse race.
Competition in the pet market may
similarly decrease in 2024 with the ACCC
permitting Woolworths to take over Pet
Stock.

Other sectors were also busy.
In August, global private equity
firm Advent International acquired a
majority stake in designer dress label
Zimmermann, reportedly for well over
$1 billion. That same month, Japanese
beauty giant Kao Corporation picked up
the popular self-tanner and skincare


For years now, consumer surveys
have tracked shoppers’ increasing
commitment to sustainability, to the
point where more than three-in-four (77
per cent) want brands to provide more
information about their sustainability
efforts, a survey by Human8 found.

What has been a big advancement,
however, is that 67 per cent of
Australians are now demanding that
brands go beyond being sustainable
and take responsibility for reversing the
damage to the environment.

In practical terms, this translates
into the three R’s: Repair, Reuse, and
Repurpose – strategies that innovative
fashion retailers have already adopted.

Consumers have leaped into the
circular economy, with three-quarters
having bought second-hand clothes
in the last year, and wardrobes now
estimated to consist of pre-owned
fashion items, Reluv said.

High-profile brands like Patagonia,
R.M.Williams, Kathmandu and Balenciaga
have already embraced resale and repair
services and others are finding their
own ways to participate in the circular
economy.

For example, the Inside Retail list of
the 20 Coolest retailers in 2023 included
Frank Green – which has developed
a cult following behind its reusable
products – and Goodbyes, which is
disrupting the resale market by making
it desirable to shop second-hand. Scoop
Wholefoods has long been a key player
in minimising food waste and is now
entering the beauty category.

Forward-looking retailers and brands
will recognise that while the circular
economy is now focused on the fashion
sector; it is only a matter of time before
consumers make similar decisions in all
their purchasing.

Just like AI, the circular economy
should be on the agenda for every
retailer.

So, there you have it, the year 2023
has been one of excitement and
evolution. And while you may feel
that the word that best describes it is
‘exhausted’, in 2024 we think it will be
‘energised’.

Best of luck!


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A U S T R A L I A N R E T A I L O U T L O O K 2 0 2 4

Industry insights:
executive voices

Retail leaders’ perspectives on the year that was and the year
that will be – as captured in our annual survey.

By Mark Fletcher


Q.1


How would you describe trading

conditions in 2023?


veryone likes peeking over the
fence and seeing what the
neighbours are up to. And that’s

E why every year we survey a broad cross
section of Australian retail executives,
including many senior ones. Our goal is
to give you a unique market overview
to help you put your own organisation’s
performance in perspective. And of
course, to get a heads-up on where the
market’s heading.

Maybe these insights will vindicate
your choices, or maybe they’ll shock you.
Either way, they’re important reading.

Service is

expected to be

###### “

a key choice
criterion.”


How do you expect
trading conditions to

Q.2

change in 2024?

Overall, seven out of 10 (71 per cent) of retailers
described trading conditions in 2023 as ordinary or
poor. Many of these must also be looking forward to
a similarly gloomy 2024 as only 12 per cent see any
significant change ahead.


In a dramatic change from 2022, when 48 per cent of retailers said trading
conditions had been ‘good’ and 8 per cent said they were the best they
had ever experienced, in 2023 opinions on trading conditions diverged into
rough thirds: poor/worst (31 per cent), ordinary (40 per cent), good/best
(28 per cent).

Consistent with these figures, 58 per cent of retailers felt that trading

conditions in 2023 were worse than they had experienced in 2022. Tough
times indeed!


40%

Significant
changes

Slight
changes

55%


Ordinary

Good

Poor

Worst I have 7%
experienced


26%

24%


Best I have
experienced


2%


Remain about
the same

33%


12%


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A U S T R A L I A N R E T A I L O U T L O O K 2 0 2 4


What will be the
top priorities for

Q.5

your business in 2024?

In 2023, the cost of living continued its
upward trend and consumers maintained
tight control of their wallets. It’s no
surprise then that increasing margin is
the most common goal amongst retailers
(51 per cent), significantly ahead of
increasing turnover (39 per cent).

The most dramatic change in
priorities from the previous year,
however, was retaining staff which fell
from 39 per cent in 2022 down to 13 per
cent in 2023. Unfortunately, this was
not reflected in savings for retailers,
with labour costs remaining a major
challenge for 31 per cent, a level that
had not significantly changed from 2022.

51%

Increasing margin

39%

Increasing turnover


What are the biggest challenges
facing retailers in 2024?

Q.3


63%

57%


Consumer confidence

Inflation

Labour costs

Discounting

Rental costs

Staffing

Global economic factors

Value of Australian dollar

Shipping and delivery

Energy costs


36%


19%

18%

18%

16%

15%

10%

9%


Part of the reason for the lack of positive perspective on 2024 is that the
overwhelming proportion of retailers feel that the challenges are out of
their control (63 per cent citing consumer confidence and 57 per cent
nominating inflation).

Where will consumer expectations
increase the most in 2024?
Q.4

Price

60%

Customer service

55%

Product quality

39%

Online delivery options

24%


31%

Growing online

28%
Expanding product range
19%
Entering new markets
18%
Omnichannel initiatives


The current high cost of living inevitably
drives shoppers to search for the best
price and this explains why 60 per cent
anticipate consumer price expectations to
increase in 2024.
Despite those expectations, however,
many retailers believe prices have already
fallen as far as they can go, with only onein-five (19 per cent) viewing discounting
as a major business challenge in 2024.
What they do see, however, is that
consumers will start to differentiate
between retailers based on other factors.
Service is expected to be a key choice
criterion with overall customer service (55
per cent) and, in particular, online delivery
options (24 per cent) and delivery speed
(19 per cent) all on the radar.


Product freshness/
relevance

21%

Online delivery
speed

19%

ESG

19%

Digital functionality
in stores

15%


16%

Improving CX

16%
Growing on social media

15%

Hiring and training staff


Cyber security/
privacy

13%


Product
variety


13%

Retaining staff


12%


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A U S T R A L I A N R E T A I L O U T L O O K 2 0 2 4


What do you
expect will

Q.6

be your biggest growth
drivers in 2024?

New products were a top business priority
for 28 per cent of retailers in 2023 and an
even greater proportion (39 per cent) expect
them to be important drivers of growth
in the coming year. This focus probably
contributes to the popularity of investment
in marketing and advertising (42 per cent).

While most large retailers have already
implemented sophisticated data analytics
tools, their adoption is still growing amongst
SMB retailers, and this is reflected in one-infour (28 per cent) retailers citing them as a
top driver of growth.

42%

Investment in marketing/advertising

39%

New products

31%

Improved economic environment

28%

Improved use of data analytics

27%

Domestic expansion

24%

Consumer trends

22%

Investment in digital/online

21%

Brand collaborations

19%

Efficiency gains via AI/automation

16%

Demographic changes


Which technologies are you most
interested in utilising right now?
Q.7

The appeal of data analytics and big data has already been noted as a
driver of growth, so its prominence as a technology of interest (51 per
cent) is not surprising.
What is worth noting, however, is that despite generative AI not even
featuring as a current business priority, one-in-three (34 per cent)
retailers are exploring it. We predict that by 2025, this level of interest
will translate into generative AI emerging as a top business priority for
a significant proportion of retailers.

Data analytics
and big data 51%

Generative AI 34%

Contactless
payments 22%

Robotics and
automation 19%

Augmented reality
& virtual reality 18%

Circular economy 18%

Subscription
services 12%

Smart carts
& self-checkouts 10%

RFID 7%


-----

A U S T R A L I A N R E T A I L O U T L O O K 2 0 2 4





Did you receive more

Do you plan to change your flexibility and help from

Q.9

number of stores in 2024? landlords in 2023 compared to
Q.8

the previous year?

Growing online is a business priority for 31 per cent of
retailers but that is not at the expense of physical retail,
with nearly half (45 per cent) of omnichannel and physical Remained about
retailers planning to open more stores. the same

64%
2%

Less flexibility

45% 31%
52%

More flexibility

5%

Landlords are also obviously feeling the pinch, with 31
per cent offering less support to retailers compared

No change Increase Decrease with 2022. For 64 per cent, the level that has not

significantly changed from 2022.

How do you expect leasing
terms to change in 2024?
Q.10

55%

38%

7%

No change Slight changes Significant changes

While retailers have many changes and much uncertainty
to deal with in 2024, it appears that at least leasing terms
will not be one of them, with less than one-in-10 (7 per
cent) expecting a significant change.


-----

A U S T R A L I A N R E T A I L O U T L O O K 2 0 2 4

How does your revenue from e-commerce
in 2023 compare to the previous year?
Q.11

47% 33% 20%

Increased The widespread increase in e-commerce revenue (reported by 47 per cent of retailers) explains why 31 per cent have made growing online a priority for

2024. But online retailing has not been a universal success for retailers, with

No change 20 per cent experiencing a decline in e-commerce revenue.

These figures support the view of many commentators that e-commerce
has now matured from a high-growth channel with room for all to benefit to

Decreased a largely level playing field on which retailers will have to battle each other for

market share.

What are the most
effective social media

Q.12

channels for your retail business?


The media has reported that Gen Z has ‘abandoned’
Facebook, but it’s clearly still working for retailers,
and they are spending even more on it with the
ACCC’s statement that Facebook’s Australian revenue
increased in 2023.
The standout trend for retailers though was TikTok.
The proportion of retailers who nominated it as one
of their most effective social media channels tripled
in just one year (14 per cent to 40 per cent).

21%

Blog/native
content
on website

YouTube


78%

Facebook


75%

Instagram

10%

X (formerly

24% Twitter)

LinkedIn

40%

TikTok

36%


-----

Plan for
success


-----

P L A N F O R S U C C E S S

Hope despite
headwinds in 2024

After tough economic conditions throughout 2023, economists
predict an uplift in retail spending in the second half of this year.

Dr Brendan Rynne, Partner, Chief Economist, KPMG Australia


here is finally a light at the end of
the tunnel for global and domestic
economies, after a period of price

T instability and low growth. Inflation

is now largely under control in most
countries, albeit still higher than where
most central banks want it to be. Now,
the discussion on interest rates has
turned to when and how fast they will
start to come down.

The domestic economy slowed to a
snail’s pace in the September quarter
of 2023 and is expected to have
experienced zero growth in the final
quarter of last year. Higher interest

rates and very low consumer confidence
have finally bitten down hard on
economic activity, with measures of
real household disposable income,
consumption and savings showing a
noticeable pullback from where they
were at the start of the year.

A prudent beginning to the year
Most economists expect the domestic


economy to continue to experience
tough conditions for the first half of
2024, with some sunlight appearing
in the second half of the year as
policy rates start to loosen. This open
discussion, combined with a few other
positive indicators (such as a recovery in
house prices over the past six months),
is likely to contribute to an improvement
in consumer sentiment, which has
started to lift off its historic lows but
remains a long way from a neutral or
positive setting.

The latest national accounts show that
over the year, household consumption
increased marginally, 0.4 per cent, with
the strongest growth recorded by the
purchase of vehicles (plus 18 per cent)
amid strong demand and improved
supply, as well as transport services (plus
14.8 per cent), which are returning to preCovid levels. Nonetheless, consumption
growth was largely driven by the strong
increase in population, as per capita
consumption went backwards.


The household savings ratio declined
to 1.1 per cent, the lowest level since
2007, due to the high cost of living,
increased interest paid on home loans
and the removal of the Low and Middle
Income Tax Offset, leading to a higher
income-tax bill for many households.
Growth in household gross income (plus
1.8 per cent), from higher labour income
(plus 2.5 per cent) and interest received
on deposits (plus 8.4 per cent), partly
cushioned the fall.

Businesses remain cautious, however,
about the immediate economic outlook.
Hiring and investment intentions
weakened as the year closed out.
Measures of business confidence,
economic conditions and capacity use
all deteriorated as 2023 progressed; the
outlook for 2024 also looks weaker.

Government spending remains a
strength within the economy, albeit a
double-edged sword in terms of budget
surplus and higher taxation receipts.
Higher income-tax receipts from bracket


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P L A N F O R S U C C E S S

positive factors such as the strength of
population growth and labour market
conditions will provide support for
consumption in the near term but are
expected to ease into 2024. Also, the risk
of the so-called ‘fixed rate mortgage cliff’
hurting consumption seems lower than
previously thought, largely because of the
savings buffers that were built up during
the pandemic.

This will take

“

the cash rate

down to 3.60 per
cent by the middle
of next year.”

Compared with last year, a number of
new factors are likely to have a positive
impact on households’ propensity
to spend, including the introduction
of Stage 3 income tax cuts due in


creep (and more PAYG employees) are
improving the budget outlook, but are
simultaneously contributing to the fall in
real household disposable income at a
time when cost-of-living pressures are
pervasive across the country. A pullback
in public sector spending has been
called for by domestic and international
economic advisers to allow for fewer
inflationary pressures and better budget
management in the near term.

The Reserve Bank will be starting
2024 with a more optimistic outlook
than it had at the start of last year. The
November monthly CPI results showed
headline CPI running at 4.3 per cent
annually, down from 4.8 per cent in
October and 7.4 per cent in November
2022. Of the 27 categories measured
in the November CPI, four recorded
deflation, 12 recorded disinflation and 11
still recorded growing prices.

The futures market (as at 15 January
2024) is pricing in two cuts of 25 basis
points in the cash rate during 2024 –
the first in August and the second in
December – with a further reduction of
25 points by May 2025. This will take the
cash rate down to 3.60 per cent by the
middle of next year. For this to happen,
inflation must first return to within (or
close to) the 2-3 per cent target band.
KPMG’s forecasts suggest this is possible,
as headline CPI is expected to be slightly
over the upper end of the target band by
the end of this year.

The slowing economy is already
influencing the domestic labour market,
with job vacancies falling and new
employment slowing compared with
where they were at the start of 2023.
The combination of higher migration and
strong labour market participation is
pushing the unemployment rate steadily
upwards. KPMG forecasts suggest it will
reach 4.5 per cent by the middle of this
year. Slowing employment demand and
increased labour supply will also result in
a moderation of wage growth as the year
progresses; real wage growth is likely to
surface during 2024 as inflation recedes.

From an external market perspective,
the uncertainty surrounding the nearterm performance of the Chinese
economy is likely to be a drag on the
contribution of net exports on GDP
growth. Iron-ore prices, while still
substantially higher than forecasts
contained within the Commonwealth
Budget, have been continuing to fall on
the expectation of declining demand for
steel products in China.

Hope on the horizon
Looking ahead specifically to the
domestic retail sector, headwinds to
household consumption are expected to
persist in 2024. High interest rates and
inflation are still projected to be above
the RBA target band in the near term;


the middle of the year, continued
improvements in nominal wage growth
(with the outcome likely to be real wage
growth for the first time since the March
quarter 2021) and the expectation that
as the year progresses, mortgage interest
rates will be falling rather than rising.

Since the official end of the pandemic,
there have been heightened levels
of outbound international travel as
Australians have reconnected with
the rest of the world; however, this
expenditure is likely to have already
peaked (largely because planned holidays
have now been taken and the capacity to
pay for new holidays has been curtailed
for some households), bringing some
additional spending capacity back into
the domestic retail sector.

These positive influences on the retail
sector are not expected to be uniform
across all households; rather, consistent
with the expected impact of the Stage
3 tax cuts, most of the spending
capacity increases expected for calendar
year 2025 are likely to be centred
around higher-income, higher-wealth
households. 


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P L A N F O R S U C C E S S

Lean and mean for FY24

As macroeconomic pressures increase, Australian retailers

will need to focus their efforts on what matters and pick the

right battles for maximum impact.

Tristan Butt, Partner, Customer & Operations, Consulting Retail Sector Lead, KPMG Australia

Shae MacDougall, Director, Customer and Operations Retail, KPMG Australia


ustralia’s retail sector finds itself in a precarious
position as it is squeezed on two fronts – falling
consumer confidence and spending, coupled with

A increasing costs.

The December 2023 Retail Health Index[1 ] states that the

September 2023 quarter was the first with rising activity levels
since Q3 2022, whereas consumer sentiment slumped to lows
last seen at the height of uncertainty during 2020-22 pandemic
times, lower than levels recorded during the 2008 Global
Financial Crisis.

On the costs front, the Producer Price Index recorded an
annualised growth rate of 3.8 per cent[2] in the September 2023
quarter, showing a rise in production costs, while margins were
impacted by the Australian dollar’s 5.1 per cent fall against
the US dollar between January and August 2023, and annual
wage growth remained strong at 4.2 per cent in the September
quarter.[3 ]

That’s not all. The sector’s recent productivity measures (a
ratio of output to a combined input of labour and capital) show
just 0.1 per cent growth, year on year, for FY22, compared with
both its historical performance, averaging 1.7 per cent growth
over 10 years, and other market sectors in Australia.[4 ]

Challenges from these macroeconomic factors will be tough

to address, and retailers need to prioritise their efforts towards


unlocking value in areas under their control. Namely end-toend cost reduction, revenue growth and improved returns
on opex and capex, based on margins counted in totality –
including all costs across the end-to-end lifecycle.

The right way to reduce costs
There is more than one way to reduce costs, but whether the
means can help the company achieve its reduction targets
while also enabling sustainable sales and margin growth is
another question.

Retailers often mistakenly address costs by looking at
markets and products, focusing on cost management, or
carrying out channel and property optimisation. These costreduction levers are often too broad in their focus and do not
bring immediate benefits to the organisation.

Instead, retailers need to review their operating model and
balance sheet, organisational model, supplier and sourcing
management, and consider technological optimisation to
achieve operational efficiency.

These are much more focused on addressing the
organisation’s immediate needs and delivering cost savings
quickly.

For example, companies can lower end-to-end costs by
reviewing suppliers to see if the margins and quality justify the


-----

P L A N F O R S U C C E S S


product costs and inventory costs. In
some cases, a more expensive supplier
might result in a better product of higher
quality and greater demand, with better
margins.

From there, as the initial cost
reduction efforts bear fruit, retailers
can find further improvements by
considering transformation optimisation,
organisational design and people, and
tax and legal optimisation, such as
increasing the ratio of full-time staff
to contractors on ongoing long-term
transformational projects, to cut down
on hiring costs.

Shrinkage – a growing problem
Conversations with senior retail leaders
across the country have also revealed
an emerging focus on controllable costs
and deep diving into shrinkage.

As economic pressures build,
shrinkage rates have been getting the
attention of major retailers such as
Coles, which reported a 20 per cent rise[5 ]

in “theft and wastage of fresh food” in
FY23.

Shrinkage rates are reportedly up only
2 per cent on FY19 levels[6 ] and while that
doesn’t sound dire, it must be stressed
that this rate of increase amidst the
current economic challenges has a
disproportionate impact on profitability,
resulting in a significant financial loss
across all retailers.

The Australian Retailers Association
states that shrinkage will compromise
2-3 per cent of sales by the end of
FY24,[7 ] which would cut retailers’ profits
by around 25 per cent.

That said, shrinkage is an addressable
problem and taking it on from an
inventory-management perspective
can yield substantial cost reduction.


The key is to ensure shrinkage targets
are achieved whilst at the same time
enabling sales outcomes and seamless
customer experience.

While most shrinkage is due to theft,
a substantial amount (around 25 per
cent)[8] is caused by process failures
such as inventory errors and damaged
merchandise.

This means that – without having
to increase spending on security – a
significant percentage of shrinkage
can be fixed by reviewing processes
integrating inventory-management
systems, returning a tangible benefit to
the retailers’ operating margin.

While

“

shrinkage is due to
theft, a substantial
amount (around 25
per cent) is caused
by process failures.”

Taking a whole-of-business approach
Navigating today’s volatile
macroeconomic environment doesn’t
have to be as ambitious as refining
geographic presence or improving sales
channels and consolidating real-estate
costs.

Instead, taking a whole-of-business
approach – by reviewing inventory from
initiation to returns and assessing gaps
in process and technology to cut down
on process failure – can reveal huge


opportunities to bolster margins and
realise savings.

Optimising costs in the organisation,
sourcing, tax and legal aren’t big
changes, but it all adds up.

A prime example of how small
operational improvements can result
in a sizeable positive outcome is
addressing shrinkage. Some retailers
reported a marginal 1 per cent reduction
in shrinkage resulted in a 5-10 per cent
growth in margins and a 2.5-5 per cent
growth in top-line sales.

This is why when times are tough,
best-practice retailers take a holistic
end-to-end look at managing their costs
and see the broader picture, which will
bring efficiency and margin increases,
delivering immediate results and setting
them up for reaping higher future value.

1 Source: KPMG Australia, “Retail Health Index”
(December 2023); Consumer sentiment pg 5

2 Source: KPMG Australia, “Retail Health Index”
(December 2023); Producer Price Index pg 6

3 Source: KPMG Australia, “Retail Health Index”
(December 2023); Wages pg 6

4 Source: KPMG Australia, “Retail Health Index”
(December 2023); Productivity pg 8

5 “How Coles got caught in the global retail theft
epidemic” Source: Australian Financial Review,
August 23, 2023

6 “Australian Retail September 2023” Source: MST
Marquee

7 Source: Australian Retailers Association – Digital
dashboard

8 “The state of retail theft and shrinkage in Australia”
Source: UST Australia, March 2023


-----

P L A N F O R S U C C E S S


Retail media:
the new black?

Retail media is making waves, but is it worth the leap? We examine
the opportunities, challenges and risks involved for retailers.

Lisa Bora, Partner in Charge, Clients, Growth & Markets, Consulting, KPMG Australia

Justin Gurney, Director, KPMG Australia


ecent estimates suggest that
retail media represents a $180
billion global opportunity,1 with

R $1.2 billion in revenue forecast to be

generated for Australian retailers over the
next five years.[2 ]

So what is ‘retail media’? In essence,
it is monteising physical, digital and
data assets for advertising purposes
sold to existing suppliers and adjacent
categories to grow revenue opportunity.

The appeal behind retail media is its
potential to become a revenue-driving


ecosystem: a win-win for retailers and
their brands that also exposes their
suppliers and other brands to powerful
audiences. No wonder some retail
business leaders are calling this the
sector’s ‘new black’.

In Australia, major retailers such as
David Jones and Woolworths have seized
on the opportunity and established their
own stand-alone retail media businesses
or partnered with specialists to enable
this for them.

While the promises of incremental


revenue streams are attractive,
we believe retailers should adopt
an ‘eyes-wide-open’ approach,
considering not only the upside but
also asking, ‘Is this right for us,
our business model and our core
operations?’ before carefully
considering potential use cases.

Factors to consider
Retail media is typically advantageous
to those retailers who have at least two
of the following three critical factors:


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P L A N F O R S U C C E S S

Then there is the expertise and business
and technology infrastructure needed to
establish a retail media operation, which
is vastly different from most existing
retail operating models. Retailers need
to be able to deliver like publishers.

In our experience, to build a scalable
retail media business, a base roadmap of
what needs to be done includes:

1. Uplifting existing reporting capability
to ensure internal stakeholders and
external paying customers can track
and optimise their investments. Clear
ROI analytics on audience reach and
engagement are critical.

2. Auditing current assets to identify
value and opportunities to digitise
the delivery of creative assets.

3. Optimising existing assets to improve
yield and performance.

4. If appropriate, expanding retail media
proposition through an outsourced
partner for core functions like sales
and/or data management platform
access. Partnerships are recommended
to accelerate speed to market.

5. Building retail media product, ad
tech, data, sales, and campaign ops
and analytics capabilities.

6. Uplifting trade marketing accounting
practices to establish an accurate
baseline to ensure there is no
cannibalisation because of these
new revenue streams. Dilutions can
happen.

A key challenge traditional retailers

often find difficult to control with is the
potential for the technological evolution
of retail media to outpace their ability
to invest, creating a gap between the
promise of retail media and the delivery
capability of the retail organisation
itself.

Short-term technology gaps can
potentially be resolved through



-  Customer dwell time: time in-store
or online. Depending on your
assets, ensuring that your audience
has an environment that encourages
a heightened receptivity will
determine the effectiveness and
value for potential suppliers and
brands.

-  Audience reach: put simply, high foot

traffic in-store, or high audience
reach online, equating to a greater
number of eyeballs. The greater the
eyeballs, the higher your potential
rate card across various commercial
models.

-  Frequency of engagement: your
brand needs a recurring engagement
model that other brands can tap into.
Repetition is critical to drive both
brand and preference, which then
leads to remarketing and conversion
success.

The revenue opportunity in retail media
also depends on:

-  the investment required to
operationalise a media network in
practice, including internal capability,
operations that allow for data/
insights for suppliers, technical
infrastructure, and compliance with
privacy regulations

-  whether the retailer takes a
conservative approach, such
extending trade marketing revenue
through new or improved advertising
formats and targeting the retailer’s
owned assets

-  an ambitious omnichannel approach,
expanding beyond trade marketing
revenue through new formats,
targeting on- and off-network, and
really driving new revenue streams
beyond trade media and into brand
awareness-building marketing
budgets.


partnerships, alliances and outsourcing,
while leveraging ‘back-office’ synergies
across multiple brands can be done to
drive economies of scale.

With first-party user data a key

asset for retail media operations,
retailers also need to follow the
latest developments in regulatory
requirements and changes pertaining to
customer data management closely, as
reputations and customer experience
are well and truly in play if things go
wrong. Indeed, it is crucial for those
retailers keen on getting into retail
media to conduct a data compliance
audit and seek advice early to ensure
ongoing compliance.

There are active considerations
to be mindful of in the regulatory
environment regarding the definitions of
‘personal information’ that will have a
bearing on what counts as ‘targeting’ vs
‘trading’ as you evolve your plans.

In our experience, retailers
should also consider if a retail
media proposition would result in
cannibalisation of trade marketing
spending or if it would bring new
suppliers and brands to your audiences.

We believe that the retail media
opportunity needs to be looked at like
any other business decision, factoring
in the potential risk and reward of
the investment decision. If you have a
high-reach, high-volume retail business
with strong data protection protocols
in place, this could be for you. The
opportunity is real, no doubt; but as
discussed, it comes with an investment
and natural business risks.

1 “How to unlock the power of retail media to boost
ad revenue and sales” Source: Inside Retail May 22,
2023

2 “PwC Media 2022 – Retailer media about to lift off in
Australia” Source: AdNews, July 18, 2023


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P L A N F O R S U C C E S S

Business on (the) line –
building cyber resilience


Cyber-attacks and fraud are on the rise, and retailers are in
their sights. How can companies protect their customers
and business value from this new threat?

Deepak Pillai, Partner, Forensic, KPMG Australia

Ross Widdows, Partner, Cyber Security, Corporates, KPMG Australia


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P L A N F O R S U C C E S S

A recent global study by cybersecurity
provider McAfee found that one in four
respondents had experienced an AI
voice-cloning scam or knew someone
who had experienced such a scam.

The fact that generative AI is in its
relative infancy means that it is likely
that these scams will become more
sophisticated and even harder to discern
as the technology improves.

Cyber-attacks happen daily, and in
their thousands, and it takes only one
to have a long-lasting impact on a retail
business, such as:

-  direct financial loss from fraudulent

transactions, ransom payments, or
sensitive financial information theft

-  reputation damage that leads to a
loss of consumer trust and potentially
a decrease in sales and customer
retention

-  operational disruptions of online and
in-store sales platforms, inventory
and supply-chain management
systems, and other essential
operations

-  legal repercussions in the form of

lawsuits from affected customers or
penalties for non-compliance with
data protection regulations

-  increased operational costs from
post-breach investments in better
cybersecurity measures, forensic
investigations and system repairs

-  loss of intellectual property such as
stolen proprietary designs, marketing
strategies, or other essential
information

-  loss of competitive advantage from
downtime during peak shopping
periods can lead to potential market
share loss

-  decline in stock value due to

decreased investor confidence.

What makes cyber-attacks so nefarious
is that the perpetrators rarely get caught
or even identified. This means legal
protection or prosecution often leads
nowhere.

So how can retailers protect


rom e-commerce platforms
adopting artificial intelligence (AI)
to generate personalised shopping
experiences, to ‘just walk out’ stores F
using contactless paymentse and smart
shelves, the retail sector is undergoing a
digital metamorphosis.

At the forefront of this revolution are
technology and cyber teams that often
find themselves balancing expectations
of keeping pace with the rate of change
and the need to constantly adapt the
technology to meet the strategic vision.

The challenge of keeping up with everchanging customer demands sometimes
results in businesses circumventing
approved practices, which risks them
being exposed to malicious hackers and
scammers, who are more agile with
technology and eager to find exploits for
their gain.

With reams of personal customer
data (including identity and credit-card
information) on hand – the essential
enabler behind nearly every e-commerce
operation – retailers have become
irresistible targets for hackers.

Already there have been several

high-profile data breaches involving
prominent Australian companies, which
have resulted in the private information
of millions of customers being
compromised.1

Unfortunately, many businesses
mistakenly believe that cybersecurity is
a technology issue, when in fact it spans
the whole business, goes down to an
operational level, and in many respects
is first and foremost a people issue – as
the low-hanging fruit for a would-be
hacker is human behaviour.

High-tech hacks emerge
It is not just online hackers finding
exploits in the cybersecurity
infrastructure; scammers have been
buying compromised data from hackers
and using generative AI to produce
convincing emails and even clone voices
to mimic customers and employees
and manipulate others for their own
purposes.


themselves from hackers and scammers
trying to access their data?

How to build cyber resilience
We believe retailers need to start with
an operational mindset and treat their
cybersecurity operations as a marathon
rather than a sprint, where consistent
and measured steps become part of
cybersecurity business as usual.

The critical questions to ask are:

-  What is it I am trying to protect?

-  Who am I trying to protect it from and
what are their motives?

-  What potential attacks could be
carried out and what assets would be
affected?

-  What controls do I need to protect
against these types of attacks?

-  What data (internal and external) can I
use to help identify threats?

-  How do I respond once a data breach
has been detected, or if hackers are
selling the business’ data on the dark
web?

-  What actions can I undertake with my
existing team and where do I need
help?

If a business suspects a breach, it is
crucial to act quickly to identify the root
cause and minimise the data hackers can
extract. This will help limit subsequent
attacks or scams targeted towards
the business’ customers, which could
otherwise lead to further reputational
damage.

By taking this approach, retail

businesses can build specific controls
necessary to manage immediate threats,
allocate funding, and dynamically adapt
it with investment based on a threat-risk
rationale.

With the right goals and mindset,
retailers can deliver what customers and
executives want in their online dealings –
cyber resilience.

1 Source: McAfee, “Beware the Artificial Impostor”
(May 2023); Topic Two: AI Voice scams and their
impact


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P L A N F O R S U C C E S S

Supply-chain resilience:
automation and AI


As consumer confidence drops and ESG compliance and

geopolitical uncertainty increase, building supply-chain resilience
should become a priority for retailers.

Peter Liddell, Partner in Charge, Global Operations Centre of Excellence, KPMG Australia

Tristan Butt, Partner, Customer & Operations, Consulting Retail Sector Lead, KPMG Australia


any supply-chain leaders are
breathing a sigh of relief as
the volatility of recent years

M subsides, allowing them to focus on what

lies ahead.

Their relief is tempered, however,
by the recent downturn in market
conditions. Amid falling consumer
confidence,1 margins are also being put
under pressure. The Australian dollar
slipped 5.1 per cent over 2023, and there
are rising labour costs from the highest
wage growth in a decade.[2] Several
listed retailers are taking a hit in their
valuations.[3 ]

With the momentum of the postpandemic boom evaporating and gloomy
economic forecasts abound, supply-chain
leaders are now under pressure to find
cost savings.

On top of that, they also find

themselves under greater scrutiny of
how they invest in their supply-chain
capabilities, with enterprises showing
more interest in collaboration to enhance
their ESG ratings.[4 ]

While these new interests are a
great catalyst for driving operational
improvements, businesses need to
tread carefully, as they risk going too
lean and leaving themselves prone to
market changes and disruptions, such as
geopolitical instability.[5 ]

From what we have seen, and what we
are still seeing unfold in the world today,
planning for resilience is the critical next
step.

The risk of going too lean
Building supply-chain resilience doesn’t
mean focusing on costs alone.

Taking an old-school cost-out
approach would leave you too lean and
exposed to respond to or weather any
disruption to your supply chain.


Cutting costs is more of a short-term,
money-saving band-aid solution, which
may leave you stuck with inefficient and
costly processes that disadvantage you in
responding to emerging customer trends.

An example of changing trends is the
growing consumer expectation for service
and flexibility – such as personalisation[6 ]

– even as consumer spending is slowing
down.

By solely focusing on cost-cutting,
you’ll risk being left on the back foot
without the resources to muster when
things start to pick up again, while
resolute competitors would be able to
capitalise and take the lead.

KPMG’s Global Head of Supply Chain,
Peter Liddell, puts it bluntly: “Businesses
must seize the day by investing to
become future-ready. The biggest risk to
supply chains in Australia right now is to
do nothing.”

Rather than chasing every trend,
however, businesses need to be selective
in where to invest, understand their
supply-chain strategy and the capabilities
they need, and focus on pursuing those
plans to achieve their goals.

With that in mind, we have identified

two key trends that point the way
forward for supply chains – automation
and artificial intelligence (AI).

Where to invest to be future-ready
Automation is already a feature in many
warehouses across Australia, but it is no
longer used only by big players such as
the major supermarkets.

Instead, we are seeing a
democratisation of automation,
with many successful projects being
implemented at the mid-market
level, and retailers across the apparel,
electronics and grocery sectors investing
in automating their supply chains.


A common misconception is that
supply-chain automation is merely
warehouse infrastructure.

Not so nowadays, as there is a focus
on software automation and automation
of manual tasks, which has the potential
to eliminate many inefficiencies and
non-value-added activities, from order
processing to fulfilment, warehousing
and transport management.

As for AI, we still see it as an emerging
trend in retail supply-chain management,
one that holds great opportunity for early
adopters to get ahead of the competition.

Key areas that we have identified

where AI can make an impact are
in distribution, particularly last-mile
logistics, and supply-chain planning,
where its potential to analyse data from
myriad ever-changing factors can support
advanced forecasting and scenario
modelling.

While solutions in this space have
been around for some time, further
developments in AI will allow for even
greater data processing, which can
potentially produce better and more
accurate decision-making.

1 Source: KPMG Australia, “Retail Health Index”
(December 2023); Consumer sentiment pg 5

2 Source: Australian Bureau of Statistics, “Wage Price
Index – September quarter 2023” (November 11, 2023)

3 “Retail sales to slide after year of surprising
resilience” Source: Australian Financial Review, August
16, 2023

4 “Cost Savings Is No Longer A Top Priority—A Deloitte
Study Shows” Source: Forbes, August 1, 2023

5 Article title: “Geopolitics, China and Russia: Why
Supply Chain Managers Should Care” Source: Supply
_Chain Management Review, October 1, 2023_


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P L A N F O R S U C C E S S

Unleashing
the power of AI

The age of artificial intelligence is upon us, and it is changing

the world. The question is, how can retailers thrive in this new
technological epoch?

Brad Daffy, Partner, Powered Data & AI, KPMG Australia


changing potential of artificial intelligence
(AI) tools like ChatGPT, but rarely has it
been so front-and-center in our lives.

AI has huge potential in the consumer
and retail sector, with its ability to drive
better business outcomes, including
in customer experience, commercial
effectiveness, operational efficiency, and
cost optimisation.

Several retailers are already having
success using AI chatbots with


ot only did the troubles of 202022 feel well and truly behind us,
with retail and travel booming,

but we got ourN first taste of ChatGPT
and spent the holidays putting it to the
test by writing greeting card messages,
composing music and, more recently,
creating new artwork.

Those who have been keeping up with
the latest developments in technology
sector have long known of the game

human-level responses to better serve
customers by supporting omnichannel
interactions or augmenting agents.

Within operations, AI can be applied to
inventory functions by optimising product
ranges based on customer preferences
and available space, whereas the
ordering and replenishment process can
be automated based on thresholds, lead/
lag indicators and demand.

Data and machine learning can help


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P L A N F O R S U C C E S S

Nevertheless, the race to adopt AI in
the retail sector has begun, and to make
the most of this emerging technology,
businesses need to start by laying
the groundwork for the effective and
productive use of AI.

A sample of AI use cases that could
deliver value across customer service,
supply chain, inventory, and buying and
forecasting include:

Customer service

-  Agent assist – bringing together all
data on a customer to reduce call
handling times

-  Omnichannel support – complete
customer journeys via each channel of
communication

-  Customer support and logistics –
proactively monitoring carriers and
notifying customers of delivery times
with automated rescheduling or
re-routing

-  In-store monitoring – real-time
monitoring of processes and shopping
habits of customers to identify
bottlenecks and generate process
efficiencies

Supply chain

-  Supply-chain resilience – forecast
demand variability, monitor and
predict potential disruptions, and
support warehousing, labour, and
space management

-  Inbound/outbound freight
optimisation – optimise transport
routes (including returns), real-time
in-transit inventory allocation

Inventory

-  Space management – optimisation of
range based on customer preferences
and available space

-  Real-time inventory management –
visibility of re-stocking time frame to
anticipate changes

-  Automated ordering and replenishing


generate more accurate forecasts of site
performance, product demand or sales
margin.

ChatGPT’s impressive comprehension
capabilities stretch the imagination of
what these technologies can achieve
within the retail sector, especially as a
realisation of the vision of automation
being able to handle tasks that require
human judgement.

Despite AI’s early success, however,
many organisations are still unsure of
how to leverage it to deliver business
value and are seeking to build their
understanding rapidly.

What executives think about AI
In March 2023, KPMG fielded a survey of
300 executives across multiple industries
to gauge how receptive and prepared
they were for the adoption of generative
AI (the technology behind ChatGPT and
many other AI-powered tools).

Among survey respondents,1 77 per
cent told us they believe generative AI
will have the biggest impact on their
business over the next 3-5 years.

Among consumer and retail sector[2 ]

respondents, 66 per cent said their
organisations were most likely to apply
generative AI in analysing customer
data and creating personalised
recommendations; 64 per cent will use it
for trend analysis/predictive analysis for
inventory management; and 40 per cent
envision it helping them set competitive
prices.

Despite the known potential AI has for
positively impacting the consumer and
retail sector, only 23 per cent of surveyed
consumer and retail organisations[3] have
appointed a central person or team to
organise the response to the emergence
of generative AI (as compared with 31 per
cent of organisations across all sectors).

So, while many in leadership are keen,
there isn’t much impetus to adopt the
technology yet.


– auto restocking based on
thresholds, lead/lag indicators and
demand

-  Automated competitor price sourcing
and matching – processing competitor
pricing data and dynamic updating of
prices

Buying and forecasting

-  Demand forecasting – forecast site
performance and product demand

-  New product introduction – manage
forecasts and planning of new
products, analyse sales and non-sales
related demographic data

How to jump-start your AI agenda
Across the organisation, AI can
complement experienced retail team
members by providing personalised
recommendations on next actions
for customers based on predicted
outcomes and transform the teamscheduling process to focus on having
the right team member in the right
location at the right time.

To jump-start your AI agenda, there are
four key actions you can consider now:

1. Assemble and organise your data to
get a robust foundation for AI now and
into the future.

2. Develop a responsible AI framework
to govern your use cases and consider
the ethical implications.

3. Create a backlog of use cases to
experiment and accelerate.

4. Identify and acquire the right talent
across business and technical roles.

1 Source: KPMG US, “Generative AI: From buzz to
business value” pg 4 (May 2023)

2 Source: KPMG US, “Generative AI: From buzz to
business value” pg 7 (May 2023)

3 Source: KPMG US, “Driving business success with
generative AI in consumer and retail” pg 2 (June 2023)


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P L A N F O R S U C C E S S

Retention and loyalty –
how to grow when the
market is down

To achieve growth in 2024, best practice is to focus on retaining existing
shoppers as costs and the competition heats up.

Matthew Quick, Director, Technology Risk & Cyber, KPMG Australia
Lisa Bora, Partner in Charge, Clients, Growth & Markets, Consulting, KPMG Australia
Richard Large, Director, Customer & Operations, Consulting, KPMG Australia


t will come as no surprise to anybody in retail that achieving
growth in 2024 is going to be challenging, as increased
costs of living, higher mortgage interest repayments and

unemployment risks negatively affect discretionary income andI
non-grocery retail spending.

This view is supported by KPMG’s December 2023 Retail
Health Index,1 which suggested that a recovery in retail spending
might not occur until late in 2024.

Retailers have also been hit with rising input costs eroding
margins, leaving many merchandise, marketing and commerce
functions wondering how they are going to achieve more with
less. With tightening budgets looming, best-practice retailers
will plan to make every dollar count and double down on
generating growth from their existing shopper base through
increased retention and loyalty.


The term ‘customer loyalty’ is commonly confused with
‘loyalty programs’.

As a retailer, you can achieve customer loyalty without
having a loyalty program, and conversely, you can have a
loyalty program without improving customer loyalty. Customer
loyalty is an ongoing relationship with your shopper, ultimately
demonstrated by how willing they are to engage with and
repeatedly purchase from you versus your competitors.

Given current

##### “economic conditions

impacting both shoppers
and retailers, focusing
increasingly on customer
retention over acquisition
is key to driving better
outcomes and returns.”

Whereas a loyalty program is a structured approach to
rewarding existing shoppers for their purchases through
incentives.

Although loyalty programs are often the default, studies do
not paint a universally encouraging picture, with reports that 80
percent of loyalty programs fail during the first two years,[2] and
two-thirds of established loyalty programs fail to deliver value,
with many actually eroding value.[4 ]

|Why retention and loyalty are smart for the retailer • Customer acquisition costs have increased by as much as 60 per cent in the last 5 years.2 • Higher retention means a lower new-acquisition cost to maintain or grow the customer base. Investments can focus on the appropriate customer segments for greater ROI. • You know much more about your existing customer base, allowing for better targeting and personalisation. • Loyal shoppers drive word- of-mouth engagement when marketing budgets are constrained.|Why retention and loyalty are appealing to the customer • Existing customers already have familiarity and afnfiity with your brand. • Existing customers are more likely to have a higher spend and frequency than newly acquired shoppers. • Loyal customers are more likely to stick with a known brand when cost is constrained. • Loyal customers can provide invaluable feedback to help fnie-tune retail ofefrings.|
|---|---|


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P L A N F O R S U C C E S S


For those retailers with existing loyalty programs, there are
several key internal and shopper-driven actions you can take to
maximise ROI.

|Key retailer considerations when running loyalty programs • Don’t treat all loyalty members the same – use available data to design reward structures at detailed customer levels, to avoid giving rewards away ‘for free’ or rewarding behaviour that would have occurred anyway. • Uplift measurement capability – establish and refnie processes for A/B testing and audience segregation to understand the performance of rewards and activity. • Be felxible – action real-time data to adapt campaigns and ofefrings across segments. • Isolate loyalty costs from broader marketing spend to create transparency on true operating costs and ROI. • Plan for loyalty ‘liabilities’ – unredeemed rewards can overstate a program’s performance and are increasingly accessed in times of hardship.|Why retention and loyalty are appealing to the customer • Explore difefrent ways to create and articulate customer value, such as express checkouts, free delivery and/or returns, access to exclusive content and events, and even member pricing. • Explore partnerships with other organisations to expand options for rewards outside of your own category, which may provide greater utility. • Clearly communicate the value your program provides and how this can be maximised. • Personalise rewards to align with behavioural drivers at a segment level and show you recognise members as individuals. • Be empathetic in customer interactions and communications (e.g. don’t bombard recent members with messaging that is not in line with their consumption patterns).|
|---|---|



For those retailers who do not have an established loyalty
program, don’t worry; there are other ways to achieve loyalty
and retain shoppers without a formalised program.

An alternative approach is to focus on delivering an overall

Customer Experience (CX) specifically designed to drive
consistent and co-ordinated interactions across all touchpoints
along the shopper journey.

|Key retailer considerations • Be clear about the vision and objectives you want to achieve and establish what ‘good looks like’ to align the business. • Know your customers – identify and quantify current pain points and drivers of value for your key customer segments. • Focus CX initiatives and spending on the critical moments of churn and conversion. • Ensure your operating model supports the delivery of desired customer journeys, including technology, data and governance. • Set and operationalise the right behavioural and operational metrics at a relationship, journey and touchpoint level, to facilitate analysis of the root cause and corrective actions.|Key customer considerations • Focus on delivering value through product quality, difefrent purchase sizes/ quantities and price point options. • Reduce and eliminate causes of friction across the purchase journey (e.g. e-commerce search functionality, available payment options, or stock availability). • Tailor elements of the shopping experience to customer segment behaviour, such as price sensitivity, to meet value needs without ‘giving away’ margin and proftiability. • Demonstrate integrity through your values and causes, including ESG initiatives and data security. • Show empathy towards your shoppers’ economic circumstances in how you interact and engage with them.|
|---|---|



Given current economic conditions impacting both shoppers
and retailers, focusing increasingly on customer retention over


acquisition is key to driving better outcomes and returns. A
greater emphasis on value is core, but this does not have to
be delivered directly through price or discounts and should
recognise differences in your shoppers’ attitudes and behaviour.

Many loyalty programs are ineffective and their returns are

unknown at best, and margin erosive at worst. Many retailers fall
foul of the common mistakes below in failing to leverage the full
value of their program.

of organisations run
as an “earn & burn”
loyalty program

see this program for
contact capture for
promotions

collect data but don’t
perform regular analysis

results integrated into
channel divisionality only

actively leverage program
to drive sales objectives

Source: “Making the connection: rethinking the role of loyalty management”, KPMG International,
August 2014


Any loyalty strategy should consider different drivers of value

across customer segments and the delivery of an overarching
CX designed to eliminate points of friction and promote ease of
shopping.

1 Source: KPMG Australia, “Retail Health Index” (December 2023); pg 4

2 "Brands Losing a Record $29 for Each New Customer Acquired” Source:
SimplicityDX, July 19, 2022

3 “Next in loyalty: Eight levers to turn customers into fans” Source: McKinset &
Company, October 12, 2021

4 Source: Alejandra Remolina, “Why do most loyalty programs fail?”


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P L A N F O R S U C C E S S

Working capital – manage it
before it manages you

A perfect storm of high costs and failing consumer demand
will place additional challenges on retailers’ cash and working
capital management.

Vince Dimasi, Partner & Australian Lead, Working Capital Advisory, KPMG Australia


t is amazing how retailers in Australia
managed to pull through the
pandemic shutdowns, supply-chain
disruptions, shifts in consumer spending I
and demand, rising inflation and interest
rates.

Though the brunt of the economic
volatility has passed, many retailers
aren’t out of the woods, as sticky
inflation and uncertain consumer
sentiment still weigh heavily on their
working capital.

Cash flow and working capital are

likely to be a key issue for many retailers
throughout 2023-25, as the effects of
the pandemic on the balance sheets of


retailers continue to weigh heavily on
their prospects.

In the years ahead, retailers will have

to contend with inflation putting pressure
on profits, higher cost bases on key
inputs such as freight and utilities, and
dampened consumer demands due to
interest rates.

As cash flow is the effect of working

capital in a business, it is now more
important than ever for retailers to focus
on their working capital, which will be
key to helping them not just survive but
thrive.

As the old saying goes, ‘Revenue is

vanity, profit is sanity, but cash is reality’.


To manage their working capital

effectively, best-practice retailers are
focused on navigating three issues on the
horizon, which are:

-  inventory management

-  government regulation

-  rising inflation

Inventory management
The ‘just in case’ ethos of the pandemic
era –where businesses focused on
sourcing and their supply chains to
amass inventory amidst the pandemic
uncertainties – worked well when
consumer demand was strong, and


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P L A N F O R S U C C E S S


well before inflation and interest rates
started to rise.

These conditions changed quickly
over the last 12 months, however, as
consumer demand weakened in the
current macroeconomic environment of
high inflation and interest rates, leaving
many retailers with inventory backlogs.

It is unlikely that retailers will see
another post-pandemic boom, and the
challenge now is balancing their stock
levels against uncertain demand curves
as the economic pressures continue to
weigh on consumers.

Government regulation
In 2020, the Australian Government
introduced the Payment Times Reporting
Act 2020 (Clth), which is designed to
encourage big businesses to pay their
suppliers quickly.

This legislative regime requires large
companies to submit their smallbusiness payment metrics to a regulator
every six months. They are then made
publicly available, thereby introducing
a reputational risk for any large
business with slow supplier payment
performance.

This means the once-common tactic
of ‘stretching supplier terms’ is no
longer as attractive, as business owners
now need to protect the reputation of
their payment conduct, forcing retailers
to reduce payment terms, which puts


greater pressure on their working capital.
As a result, it is now more important
than ever to look widely at a business to
identify all areas of working capital and
cash flow improvement.

Rising inflation
The year 2023 will be remembered by
retailers in Australia as one that was
rocked by high and persistent inflation,
driving up costs across everything
from freight, packaging and utilities,
to insurance, interest bills, and labour
costs.

The resulting higher cost base,
coupled with lower consumer demand,
will place continued pressure on profits
over the next few years, which will
translate to more pressure on cash flow
and working capital management.

What to do
These three factors are coalescing to
form a perfect storm, but they can be
managed through prudent cash and
working capital management.

Based on our wide range of experience
helping a variety of consumer and retail
businesses successfully navigate these
challenges, here are a few tips worth
sharing on managing working capital:

-  Leave no stone unturned: Having
a good broad look at the entire
business’ working capital allows you


to find opportunities to improve cash
flow and working capital.

-  Focus on momentum: Implementing
change in a business is never easy,
but businesses just need to get
moving to build momentum that
leads to more momentum and
change.

-  Watch your cash flows: Far too often,
businesses struggle to achieve a
reliable view of what future cash
flows will look like. Having a wellbuilt and reliable view of future cash
flow is essential to make business
decisions with confidence.

-  Have a plan: Talk is cheap, so it’s
better to get all your thoughts down
and formulate a solid plan.

-  Get some help: Getting an
independent and credible adviser
to assess your business’ health
and verify your working capital
management plans may make the
difference.

-  Keep it simple: An effective plan

focuses on a single attainable goal.
Don’t overcomplicate it or nothing
will get done.

While there is no single magic lever
that can sort out your working capital, in
our experience, successfully managing
working capital is a journey that takes
continued and consistent effort to
accomplish.


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P L A N F O R S U C C E S S

Retail leaders weigh in
on the year ahead

Four CEOs share their views on the greatest challenges and
opportunities in Australian retail in the year ahead.


Angus McKay
CEO & managing director
7-Eleven

KPMG: What do you see as the greatest challenge to Australian
retail in the year ahead? Is this a new challenge vs prior years?
Angus McKay: One of the challenges that will continue into
next year is being able to demonstrate value to our customers.
There’s no doubt customers are becoming more price sensitive,
so as a retailer, we have to make sure that our customers see
that we are providing value.

That can come in the form of special offers, co-buy
promotions or rewards for loyalty. The search for value is no
better demonstrated than by the uptake of the Fuel Price
Lock feature of our My 7-Eleven app, which has just had a
27 percent year-on-year increase of users. In this case, the
extra value for the customer comes when they link the app to
Velocity Frequent Flyer rewards.

KPMG: What is a key investment area or opportunity for retail
to thrive in over the next two to five years?
AM: There are two areas where we will continue to invest over
the medium term – digital enablement and sustainability.

On digital, we want to make things easier for our customers
to play with us. We don’t want to create clutter and noise, we
aim for quality over quantity. This means we must be smart
about how we interact with our customers. The key will be
to use data with precision so what you offer them matches
customer needs and wants.

In the sustainability space, work will continue around
packaging and recycling, along with the sustainability of some
ingredients in our own branded products.


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P L A N F O R S U C C E S S


John Gualtieri
CEO
Kmart and Target ANZ

KPMG: What do you see as the greatest challenge to
Australian retail in the year ahead? Is this a new challenge vs
prior years?
John Gualtieri: In the current economic climate, with its high
cost-of-living pressures, many Australian households are
feeling significant pressures on their income. Value imperative
is a growing influence on customer behaviour and will
continue to be a driver in our industry for some time.

Retail has always needed to adapt to the evolving needs of
consumers. While value is of increasing importance, it’s also
becoming apparent that consumers expect retail to deliver
access to great products at great prices.

This shift in consumer mindset expectations presents a
significant opportunity and challenge for retail brands in
Australia. For Kmart and Target, this trend aligns naturally with
our ethos as a business.

As an Australian, design-based product development
company of our size and scale of operations, we deliver the
lowest-cost product development, production and distribution
model, which means we can continue to consistently deliver
better products at lower prices.

With our size also comes a responsibility to make a positive
contribution towards a sustainable future. The retail industry’s
focus on sustainability will continue to be a key priority that
we take on collectively.

Waste is a huge challenge, and one that we need to


develop a collective and sustainable response towards as an
entire industry. This next phase will require an unparalleled
level of partnership within the retail sector – from suppliers
to customers as well as peer retailers, global sustainability
partners and governments – to develop a solution at scale
that is fit for purpose and delivers sustainable solutions to the
problem.

KPMG: What is a key investment area or opportunity for retail
to thrive in over the next two to five years?
JG: Data will continue to be a key investment for retail and
will help us unlock new levels of value creation – that will
ultimately benefit consumers.

Data can deliver efficiencies in operations, but the real
value is in using it carefully to drive growth and deliver an
augmented customer experience through things like enhanced
design capability, product availability and personalisation,
as well as automation that drives better efficiencies, and
ultimately a better customer experience as a result.

The recent establishment of our distribution centre in New
Zealand with automated product sorters and an automated
inventory management system highlights the efficiency gains
that are possible. These advancements liberate our team
members from time-consuming manual tasks.

AI stands before us as another seismic shift for our sector,
the potential of which we are only beginning to understand.
The introduction of our AI-powered live Chatterbot marks
the beginning of a new journey in this space. This tool is
engineered to engage in end-to-end conversations with our
customers, leading to an enhanced customer experience. ►


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P L A N F O R S U C C E S S

Daniel Bracken
CEO
Michael Hill

KPMG: What do you see as the greatest challenge to Australian
retail in the year ahead? Is this a new challenge vs prior years?
Daniel Bracken: For the next six to 12 months, the biggest
challenge for retail will no doubt be a low level of consumer
confidence, driven by high interest rates and economic
concerns. Add to
this the challenge
of increasing
operating costs Retailers need
from labour,

“

occupancy and to continue to
COGS. invest in digital.”

KPMG: What is a
key investment
area or opportunity for retail to thrive in over the next two to
five years?
DB: Retailers need to continue to invest in digital, data and
customer insights. But also physical in-store environments
need to keep pace with the expectations of customers.


Scott Fyfe
CEO
David Jones

KPMG: What do you
see as the greatest
challenge to Australian
retail in the year ahead?
Is this a new challenge
vs prior years?
Scott Fyfe: In 2024, the
economic headwinds
facing Australian
retail are likely to be
onerous. Inflationary
pressures will continue
to impact consumer
behaviours and whilst
these challenges aren’t
entirely new, their
interconnected nature
demands a heightened
level of strategic agility
and innovation from
retailers to propel them
forward.

KPMG: What is a key
investment area or
opportunity for retail to
thrive in over the next
two to five years?
SF: Seamlessly
integrating innovation
across the value
chain and crafting
unforgettable customer
journeys will be the
currency of success.
This will propel retail
businesses beyond
transactional exchanges,
into a future of lasting
connections and
sustainable growth.


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P L A N F O R S U C C E S S

Attract customers,
not the ATO


Fit-outs and online platforms can attract customers’ attention
and drive higher sales, but are they also reducing after-tax

benefits and attracting the attention of the ATO?

Steve Plant, Partner, Corporate Tax, KPMG Australia

James Macky, Partner, Corporate Tax, KPMG Australia


n Autralia’s highly competitive retail
market, it is increasingly common to
use unique store fit-outs and digital

platforms to improve the customer I
experience and boost sales.

We are seeing retailers invest
towards enhancing digital platforms and
developing or updating physical stores –
with fit-out costs going into the millions
for a flagship store. This is seen as a
way to differentiate and improve the
omnichannel experience.

However, consumers aren’t the
only ones paying attention to retailers’
big spends. Experiences with more
recent Australian Taxation Office
(ATO) reviews have shown an
enhanced focus on the tax treatment
of fit-outs and technology spend
by retailers. A common takeaway
has been that the tax treatment of
this expenditure has not been fully
considered and supported, which can
result in a drag on after-tax results,
either due to tax adjustments or cost in
responding to the reviews.


Why retailers can expect more attention
from the ATO
Historically, limited attention has been
given to the appropriateness of tax
claims for fit-outs or digital spend. A
regular approach was to align the tax
treatment with accounting, so that all
(or most) fit-out costs were claimed
over the life of the tenancy, and digital
costs were deducted up-front.

This approach will need to change
given the frequency of reviews, and
the focus of the reviews, from the
ATO, reflected in the Tax Avoidance
Taskforce on Australia’s top 6,000
taxpayers receiving $1.7 billion in funding
since 2016[1] and a further $200 million
earmarked a year, through to 2026,
to continue undertaking reviews. This
funding, and our recent experiences,
means that retailers can expect more
attention from the ATO, with increasing
challenges around both the governance
of claims and the granular details
of claims, including challenging the
common approaches to such spend.


These challenges can cause delays
and costs, either spent reconsidering
and documenting the historic
approaches taken to satisfy the ATO or
in adjustments that increase tax payable
over the historic period.

Considering the ATO’s increased
scrutiny and enforcement, the potential
negative impacts for retailers failing to
optimise their treatment and support
the approach include:

-  elements of the fit-out not being

claimable over 40 years as capital
works. Much shorter periods typically
claimed (for example, leases shorter
than 10 years). From the ATO’s
perspective, capital works can include
non-structural items like painting
walls, non-structural partitioning/
ceilings and many types of flooring
installation. Where care hasn’t been
taken to determine this aspect up
front, it can be difficult to justify the
fit-out elements at a later date

-  lack of deductions on termination ►


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P L A N F O R S U C C E S S


of a lease where structural items
are left for the lessor for re-use or
destruction

-  digital spend needing to be
capitalised rather than immediately
claimed

-  significant cost and time dealing with

the ATO, with increased focus if you
can’t respond effectively to queries

-  impacts on the ATO’s assessment of
your governance, leading to increased
focus across all areas.

We are seeing
retailers invest “
towards enhancing
digital platforms and
physical stores.”

How to optimise your approach
As the retail sector is expected to enter
a lower growth environment, where
recovery in retail spending may not occur
until Christmas 2024,[2] the after-tax
impact of failing to manage these issues
could have a material impact.

While some of the outcomes will
arise under the tax law regardless of the
work done, an adjustment to earlier tax
liabilities, and the resources needed to
respond to ATO requests, will come as an
unwanted surprise for any business.

There are real benefits for retailers

that adapt their approach to optimise
their outcomes, with relatively minor
upfront costs. To do so, retailers can:

-  as part of a governance-focused
approach, create a template tax
analysis of the typical fit-out, which
can be applied across each store
to categorise spend, and ensure
contractor documents reflect this
categorisation where appropriate

-  use software development tools to
optimise any software spend that may
be deductible over time

-  implement a disciplined approach
to leasing arrangements, including
considering the impact of incentives
on after-tax cash flows and the
treatment of assets at the end of the
lease.

These steps will ensure the best aftertax result is achieved, limit the time and
cost spent managing ATO enquiries, and
ensure that the main attention gained is
from customers, not the ATO.

1 "About the Tax Avoidance Taskforce” Source:

Australian Taxation Office, July 13, 2023

2 Source: KPMG Australia, “Retail Health Index”
(December 2023); pg 4


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P L A N F O R S U C C E S S

The retail turnaround rules

When trading gets tough, here are some guidelines that will help
businesses, management and board members survive.

James Stewart, National Leader, Consumer and Retail, KPMG Australia

Gayle Dickerson, Partner, Deals, Tax & Legal, KPMG Australia

David Hardy, Partner, KPMG Australia

perfect storm of the rising cost
of doing business and falling
consumer spending is likely

A to weigh on the fortunes of some

discretionary retailers in 2024.

Sometimes, sales and margin
underperformance happen quickly; on
other occasions, it takes a while for
management to realise they are trending
downward.

Rule 1: ‘Houston, we have a problem’
When a business is financially challenged,
time is of the essence.

The first rule for managing a turnaround
is acknowledging the performance
problems early enough, rather than at the
11th hour, when there are few cards left in
the deck to play.


Owners, boards and management
teams too often struggle to step back to
look at the bigger picture of what is going
on and remain stuck in the day-to-day
business operations, or remain attached
to a strategy that isn’t working.

That is why it is essential to do a hard
reality check as early as possible and have
a realistic and current assessment of the
business’ actual financial position (cash
flow, P&L, balance sheet) and its forecast
performance looking forward.

Rule 2: Taking the lead, winning
confidence
The second turnaround rule lies in
genuinely understanding the management
team’s capability because it doesn’t
matter how good the plan is if you simply
don’t have the right people to get the job
done.

The challenge here is that leading any
business through a turnaround requires
the confidence of key stakeholders that
the board and management team are up
to the task.

Initially, the most important
stakeholders are your employees. And
in a crisis, the best talent will always
leave unless they have confidence in
the business leadership and believe the
turnaround can be achieved.

After that, it’s all about building trust
with your external stakeholders, who
may be inherently sceptical about the
prospects of success.

Rule 3: Hope is not a plan
Retail turnarounds don’t just happen.


They demand a diligent approach to the
strategic and tactical initiatives that
will drive the future performance of the
business. This includes understanding
the customer, challenging the relevance
of the business core value proposition,
and identifying the operational levers
to improve profitability, cash flow, and
enterprise value over time.

The guiding principles of turnaround
planning are:

-  Define success: All turnarounds are
different, and success is always
contextual. Be realistic about what
is achievable, over what time frame,
with the working capital available.
Also, understand clearly what your
stakeholders want. Their interests
and yours may not be the same.

-  Leave no stone unturned: No one
has a monopoly on good ideas. Often
the best ideas (and the easiest to
execute) come from the shop floor.
You just don’t know until you ask.

-  Keep it simple and be ready to pivot:
Make and keep promises that are
simple and realistic. Don’t develop
a plan A without a credible plan B,
C, or D.

-  Managing stakeholders is hard to do:
Sometimes you will need to hire an
independent, credible adviser who
can verify that your turnaround plan
is realistic and that the business can


execute it.

-  Other people’s money is expensive:
Cutting costs, improving margins,
and releasing cash from working
capital are always cheaper than
distressed debt/equity. However,
sometimes a distressed debt
investor is a smart play to fund a
turnaround plan when other options
don’t exist.

-  Don’t let ‘perfect’ get in the way of
‘good’: Few businesses achieve 100
per cent of their turnaround targets.
It’s often about demonstrating
positive momentum to build
stakeholder confidence and create
shareholder optionality.

Rule 4: Know when to fold ’em
Unfortunately, the best-laid turnaround
plans don’t always work.

Australian corporate law places
directors at risk of personal liability
for insolvent trading if the business
ultimately collapses into liquidation.
This means directors should remain
contextually aware of the business
performance and the viability of the
turnaround plan at any given point.

Australian Safe Harbour laws offer
some protection to directors undertaking
a turnaround, provided the plan is
independently assessed as more likely to
result in a better outcome for creditors
than a liquidation.


-----

P L A N F O R S U C C E S S

Kiwi Corner:
How to win in 2024

Competition is soaring in New Zealand retail, as big
international brands move in while economic conditions
become challenging. What can local retailers do to thrive?

Leon Bowker, Partner, KPMG New Zealand
Greg Burton, Manager, KPMG New Zealand

ew Zealand seems like a land far away their supplier relationships, and optimising the end
when looked upon across the ditch, but procurement process.
recent conversations with senior leaders Not only will this lead to cost savings and
have revealed its retail industry is facing similar N better margins, it will also maintain a retailer’s
challenges to Australia’s. competitiveness.

Over the past few years, New Zealand’s retail With the growing importance of e-commerce with
industry has faced competitive threats locally and customers, thanks to the pandemic-accelerated
abroad, with the arrival of Costco, the planned entry shift towards online shopping, we are seeing a key
of Ikea, and the emergence of local competitors theme emerging from retailers, which is staffing a
diversifying and offering new products. dynamic omnichannel workforce. This means staff

In addition to the competitive threats, business members who can switch seamlessly between
leaders are also struggling to keep up with the pace picking click-and-collect orders or replenishment, to
of change, weighed down by projects that aren’t serving customers at the till.
yet delivering the expected return on investment. Recent data has shown a 22 per cent year-on-
And many retailers continue to face challenges in year drop in online spending in the first quarter of
effectively using data to make informed decisions. 2023, with customer demographics still demanding

For New Zealand’s retailers, the solution is to a wholly separate bricks-and-mortar and online

focus on refining their core product offering and shopping experience. This means retailers can no
finding ways to reduce procurement and store costs, longer isolate their channels,as there isn’t enough
while improving distribution and working-capital volume to justify it.
performance. Because of this mix of customer preferences,

retailers shouldn’t shun one for the other. Instead,
the solution would be to keep a workforce that

Excess inventory is adaptable and can switch between channels seamlessly.
“becomes a problem How to improve working capital

Lastly, retailers also need to be aware of the

when the cost of capital hidden costs of working capital, as excess inventory

becomes a problem when the cost of capital

increases.”

increases.

By managing inventory more effectively and

Addressing the core product offering in 2024 returning from the post-pandemic ‘just in case’

means assessing the existing range architecture, strategy to the pre-pandemic ‘just in time’ norm,
understanding what percentage of sales come from retailers can improve working capital and reduce
segments across the range and making informed the cost risks associated with excess inventory.
decisions, based on data, about what needs to be Winning in New Zealand in 2024 requires retailers
kept, discontinued or consolidated. to innovate to protect their turf, prioritise key

By doing so, retailers can help keep themselves initiatives that will return tangible benefits, and
relevant in today’s changing marketplace with build a dynamic workforce across omnichannel.
profitable and in-demand core products, which in As diverse as these changes are in a challenging
turn will improve their business’ revenue and drive economic environment, they are all essential for
growth in 2024. retailers, as the consequences of keeping to the

This leads to the second key metric: margins. With status quo in a changing market are significant.

a refined core product offering in place, retailers Losing market share to competitors is a short-
can set about improving procurement costs through term pain but losing relevance among customers
better price negotiations from suppliers, deepening would be the death knell for any retailer.


-----

P L A N F O R S U C C E S S

NRF 2024:

Key takeaways you need to know

While the NRF conference demonstrates how quickly
retail is evolving, it’s the in-store experience in New York
City’s retail meccas that makes it real.

James Stewart, National Leader, Consumer and Retail, KPMG Australia


n late 2022, the world embraced
OpenAI’s ChatGPT at a take-up rate
not seen since the launch of the
iPhone in 2007. Some analysts suggested I
that within two months of launch, it
had achieved over 100 million users.
Fast forward 15 months, and generative
AI solutions have almost become
ubiquitous in our daily lives, as we
have found new ways of leveraging the
technology for efficiency, functionality
and engagement.

This year, the National Retail
Federation’s annual conference, Retail’s
Big Show, in New York City, was all about
AI, data and tech for retail and consumer
brands. Indeed, so many sessions had
an AI, data or tech theme to them, that
it would be easy to think you were at
a technology conference not a retail
conference.

That said, and to keep it real, I spent
two days before the conference doing
what all good retailers should do –
visiting stores. Williamsburg in Brooklyn,
Hudson Yards, and the mega mall just
across the river in New Jersey, The
American Dream. And wow! I was blown
away by some of the retail concepts, the
use of tech to drive engagement, and
the investment in sustainability, purpose
and ethical values that retailers have
made as part of their product and value
proposition since 2019.

So here are my top takeaways from my
retail store tours and NRF’s Big Show:

-  Sustainable messaging front and
centre: Successful retailers have
amped up their messaging on
sustainability, ethical sourcing and
community values. Stores and
products shout it out loud and clear.

-  Personalised product offerings

as the norm: Personalisation and


customisation of fashion apparel
have become normalised. Brands and
consumers see bespoke individual
product offerings as worth the cost.

-  It’s all about me (and my dog): Health,
wellness, beauty, and pets are the
new rockstar categories.

-  Technology is the new driver of
in-store customer experience:
Whether via streamlined self-checkout
functionality, Amazon’s palm pay
(yes you really do pay with a wave of
your hand), or the use of augmented
reality, holograms or avatars to
enhance product display and personal
try-on functionality, in-store tech has
become a ticket to play in customer
experience.

-  AI as the enabler: AI is seen as the
backbone of customer experience,
organisational efficiency and
competitive advantage. There are
literally hundreds, if not thousands,
of use cases for it in retail. Be
warned, however, the challenge of
AI is twofold: One, identifying the AI
use cases that will move the dial on
performance; and two, starting with
clean data. Without an effective data
cleansing strategy, AI will not deliver
on its promise. This is where the
heavy lifting often happens.

-  Technology, beyond DIY: Bestpractice retailers are partnering with
tech houses and transformation
specialists to change their businesses
at scale rapidly, rather than adopting
a DIY approach, where day-to-day
operations can slow down progress.
Technology is advancing faster than
ever, and to meet or exceed customer
expectations, retailers are chasing
efficiency to deliver a customer
experience that keeps them ahead of
the game.



-  Shifting retail models: Retail models
continue to change. In short, there are
only three places to play: value (be
the cheapest), luxury (it’s all about
me), or experiential with a bespoke
proprietary product proposition (high
engagement and highly valued by the
customer).

-  In-store and online channels no longer
exist: It’s all about unified, seamless
commerce across all available
channels. Reducing friction for the
customer at every engagement point
is where best-practice retailers are
laser-focused.

-  Destination malls have become
entertainment centres: American
Dream is a mega shopping hub spread
over about 300,000sqm, with over 100
retail stores, but more importantly,
an entertainment precinct that needs
not one, but at least two postcodes
An indoor ski field, an indoor wave
beach, a Nickelodeon theme park, an
aquarium, and a huge Lego play area
are just some of the attractions that
draw visitors to the mall to stay for
an average of up to six hours a visit.
This is a must-see, next time you are
in NYC.

So, what does this all mean for

Australian retailers?
There is no doubt we have some of
the world’s best retailers in arguably
one of the world’s most competitive
markets. Retail’s Big Show simply
demonstrates how the bar continues
to shift for retail models and how the
investment in technology has become
core to agile and efficient retail models.
AI (including generative AI) has simply
become the next important enabler
of retail transformation and customer
engagement.


-----

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Retail
Profiles


-----

R E T A I L P R O F I L E S R E T A I L P R O F I L E S

Ikea Australia
champions affordability
and the shopping
experience

CEO and chief sustainability officer Mirja Viinanen shares the
retailer’s innovation and growth agenda for the year ahead.

By Heather McIlvaine


-----

R E T A I L P R O F I L E SR E T A I L P R O F I L E S

buy-back service, where we buy back and
resell preloved Ikea items, along with the
as-is market and free spare parts offer,
are just some of the ways we’re enabling
customers to be part of the shift to a
circular economy while also saving money.
While 2024 is expected to be another
challenging year, we will continue to
focus on growth and our vision to create
a better life at home by increasing the
affordability and accessibility of Ikea,
made possible by our 4000 dedicated
co-workers.

ARO: What opportunities do you see to
continue experimenting with physical
retail in the year ahead?
MV: In recent years, we have invested
heavily in our journey as an innovative
omnichannel retailer, opening Plan
and Order Point locations in Greater
Melbourne and Sydney, enabling us to
be exactly where our customers need us
to be, which is a key part of our growth
strategy for Ikea in Australia.

In 2024, another Plan and Order Point
will open in Cannington, south of Perth,
for customers to get one-to-one, expert
planning advice.

This Plan and Order Point will also have
a Pick Up Point for customers onsite. This
means customers will be able to place
an order online conveniently for products
across the full Ikea range, with the option
to pick them up from Cannington.

We remain dedicated to enhancing both
the in-store experience and accessibility
for customers; for example, our Shop
and Go feature on the Ikea app enables
a faster and more convenient checkout
experience in-store, and the installation
of self-serve bistro kiosks in all stores
reduces wait times for customers and
also improves operational efficiency.

ARO: What role do you see innovation
playing in Australian retail in the coming
years, and what areas of innovation are
you focused on now?
MV: At Ikea Australia, we have an ambitious
growth agenda, with innovation playing
a key role in delivering this ambition and
our vision as a company ‘to create a better
everyday life for the many people’.

The rising expectations of customers
are propelling our omnichannel strategy
at lightning speed. For us, growth in
online sales driven by the Covid-19
pandemic has led us to transform service
formats and customer meeting points,
reimagine stores as fulfilment centres,
and evolve our customer service centre
for customers to shop with us remotely.
These actions ensure our co-workers
can remain focused on ‘value-add’
engagements for customers.

We are focused on creating further
personalisation at scale, leveraging
artificial intelligence, self-serve tools and
automation where it makes sense, such
as with Billie the Chatbot. We want to
ensure our co-workers are available to
provide more complex support and advice,


_Australian Retail Outlook: Affordability_
was a big focus for Ikea Australia in
2023, with the announcement of price
reductions on 700 products. What impact
has that had on the business?

Mirja Viinanen: As you know, 2023 proved
to be a challenging year for retailers
globally. We responded by ensuring
affordability was at the forefront for
the customer. While the cost of goods
increased in the past year, where possible,
we did not pass these costs on to
customers. Instead, we kept our prices as
low as we could and reduced the prices of
many of our iconic products.

Despite challenging conditions, our sales
grew almost 5 per cent from FY22, and we
saw double-digit growth across many of
our iconic products, such as Malm beds
and chests of drawers, Kallax storage, Kivik
sofas and Trofast children’s storage.

As we move forward, we will maintain
our focus on affordability by increasing
our investment into lowering prices even
further, and across more products.

Customers

“

will be able to place
an order online
conveniently for
products across the
full Ikea range.”

ARO: What are your expectations for
consumer sentiment and spending in the
year ahead?
MV: It’s likely that the first half of 2024
discretionary spending will remain tight for
many Australians. We estimate the second
half of the year will show an increase in
consumer spending as we hopefully begin
to see relief for mortgage holders after
multiple interest rate increases. However,
international shipping disruptions in the
Red Sea and global conflict’s potential
impact on oil prices will continue to put
pressure on product availability and costs.
We take the responsibility as a retailer to
maintain our product offer through these
times and not pass on these costs to our
customers where possible.

In the property market, things are
slowing for now, but the record shortage
of rental properties will continue to drive
prices up for tenants, particularly in our
capital cities. Housing affordability is at
its lowest in decades and will continue to
make the wallets of Australians thinner.

Customers may be considering items
that are not necessarily new but new
to them, by purchasing second-hand
items. Research and consulting firm Fifth
Dimension states that the second-hand
market in Australia is now worth $60
billion and growing 25 per cent a year. Our


which will enable us to meet our goals in
a sustainable and cost-efficient way.

For fulfilment, we are prioritising
automation and artificial intelligence,
building ‘demand sensing’ into our
forecasting tools, and leveraging machinebased learning to forecast needs and
improve stock integrity. We also maximise
the availability of inventory across a total
market and over multiple states, enabling
us to hold less inventory but provide
much better availability to a customer and
maximise their potential to purchase.

In the future, we will be looking to
introduce and integrate ‘pick to person’
solutions with full automation for parcel
delivery. For home deliveries, we are
exploring technology for optimising route
planning with our transport partners, so
we can maximise productivity gains and
cost structures.

In terms of sustainability, we have
big goals to fulfil by 2030, which will
demand that we innovate to achieve
them, through optimising resources,
enhancing energy efficiency, and enabling
sustainable solutions.

Despite the challenges to the
decarbonisation of the transport sector
in Australia, we remain committed to
our ambition to achieve 100 per cent of
customer deliveries by zero-emissions
vehicles by 2025. In the past 12 months,
we’ve achieved exponential growth on
this ambition, with 32 per cent of truck
deliveries now via a zero-emissions vehicle.

ARO: What are some of the retail
fundamentals that you think are worth
remembering?
MV: The customer experience is the
absolute priority and remains at the
forefront of our transformation.

Each week, we receive more than
10,000 customer reviews through
different channels, which informs the
actions we take as a business. Ease of
shopping is essential for customers and
something we are always dedicated to
improving, whether through our Ikea app
and the online customer experience,
improvements in payments or reducing
waiting times for customers.

As we continue to develop digital tools
to enable a better shopping experience,
we recognise that co-worker interaction
remains a top driver for customer
feedback and is a fundamental we keep
in focus.

Finally, being the world’s largest home
furnishing retailer, we are proud to be
a pioneer in environmental and social
responsibility. However, we never lose
sight of the fact our product range is
at the heart of our business – and the
offer of affordable, high-quality home
furnishings is who we are and what we
do. It’s what our customers love most
about us, what we have been relentlessly
dedicated to for over 80 years, and what
will ensure Ikea stays in the hearts and
minds of ‘the many people’ and their everevolving needs and desires in the future.


-----

R E T A I L P R O F I L E S

Jeans for the
greater good:
Outland Denim

Targeting shoppers at the higher end of the market and
emphasising its purpose are two ways the ethical fashion
brand aims to navigate pricing pressure in 2024.

By Joshua Gliddon


-----

R E T A I L P R O F I L E S

Looking into 2024
As the economy gets tighter, consumers
will look more towards brands with
purpose, he said, and noted that
even fast fashion brands like Shein
are starting to attach themselves to
sustainability.

“If we have brands like that seeing
the need to attach themselves to
something that has purpose, then I think
it’s really clear for brands like Outland
that purpose has to be even more at the
forefront.”

Retail is down across the board,
and Bartle said this is something he
hopes will change in 2024, but he’s
also realistic about interest rates and
the cost of living having a long-lasting
impact.

“So, we know that communicating
the impact of a purchase and people
being a lot more considered about their
purchases are important.”

One of Outland Denim’s strategies
to take on the tight retail and spending
environment is to address what Bartle
said is a part of the market where
“there’s less up and down”. And that
means pushing towards higher price
points, which is where the brand sees its
opportunity to grow and insulate itself
from the broader economic situation.

To do this, the company is looking
at its construction and materials, as
well as the trend pieces it is bringing to
market.

“We’re bringing those things together
to address the needs of that woman
who’s looking to make good purchasing
decisions and having the right product at
the right price in the right demographic
of people – and doing it all at the right
time,” he observed.


remium jeans label Outland Denim
was launched in 2016, but planning
for the venture stretched for six

P years before that, founder and CEO

James Bartle said.

“We worked on the social impact model
and proving what it could do,” Bartle said.
“The idea and the concept behind it is
that we believe you can use consumerism
for good.”

At the heart of the consumerism for
good strategy is a policy of empowering
the people – mostly women in Cambodia
– and paying them living wages. Outland
brings people out of modern slavery
and sex trafficking situations and gives
them the opportunity to learn how to be
seamstresses over several years.

Bartle said consumerism is viewed as a
dirty word, at least in some quarters, and
there is much talk of slow fashion and
buying less. There’s some environmental
benefit to this, but he believes it’s not
looking at the whole picture.

“Our perspective is to use business
so that every time you create a product,
you’re benefiting both humanity and the
planet.

“How do we genuinely create a circular
economy so that every time someone
buys one of our products, they know
that the impact of buying that product
was to make someone’s life better?” he
continued.

Core market
Outland Denim’s target market is women
aged 25-45. They care about social
justice issues, they’re educated, and
they understand the realities of their
purchasing choices.

“So, she’s coming to us and looking
for solutions, to be able to buy products
that align with her values,” Bartle noted.
“And that’s where our brand steps in.”

Melbourne is the biggest market for
Outland Denim’s products, followed by
Sydney and then Queensland.

Outland Denim focuses on getting the
message out about how its products
are made through word of mouth. Bartle
said one of the most powerful brand
promotions is when people go out and
talk about the product and how it’s
made.

On the inside of the jeans is a
message from the seamstress who
made it, and the swing tags have a QR
code so customers can send a message
to the seamstress who constructed their
jeans and let them know they appreciate
their work.

Bartle said: “It’s about that
educational piece where the customer
is able to communicate and understand
the realities of what their purchase
meant for someone else.”


What Outland Denim won’t be doing is
competing on price, because Bartle says
doing so becomes a race to the bottom,
and it’s something he views as poor
strategy.

Markdown strategies are damaging in
the long term, and would interfere with
the social justice mission Outland Denim
is trying to achieve.

Ultimately, Bartle said, navigating the
economic challenges of 2024 is a matter
of targeting consumers who are better
insulated and have higher disposable
incomes.

It also means re-evaluating the path
to market, and how Outland Denim,
word of mouth aside, promotes its
products. Ads with Facebook and
Instagram owner Meta just don’t work as
well as they once did, he said. Email and
SMS marketing, on the other hand, still
works well as a promotional medium –
with the right approach.

“If we’re going to ping inside
someone’s pocket, then we need to
be adding real value. We can’t just be
spamming people trying to get a sale out
of them.”

If we’re going
“
to ping inside
someone’s pocket,
then we need to be
adding real value.”

Outland Denim has a retail presence,
and also uses wholesale as a route
to market. “We’ve got our direct-toconsumer and our wholesale business
and personally I am very passionate
about our wholesale business,” he said.

Wholesale, with retailers like David
Jones, is the backbone of any brand,
as it lets potential customers touch
and feel the product and experience it
before purchase. “I don’t think this will
change, particularly for a brand that’s
selling denim pieces.”

By targeting the high end, Outland
Denim hopes to be able to capture a
market that’s socially progressive, and
cares about how and where a product
is made. It also wants to insulate
itself from the realities of the current
economic situation, where consumer
spending is tight. By having a purpose,
Outland Denim is looking to differentiate
itself in a crowded market, one where
consumers are increasingly sitting on
their hands, rather than putting them
into their pockets.


-----

R E T A I L P R O F I L E S

How Lush is finding
the scent of success
in tough times

By Heather McIlvaine


-----

R E T A I L P R O F I L E S

transparent and ethical supply chains,
activism efforts, or effective ingredients –
is one of the most powerful communitybuilding tools we have. An engaged and
passionate team is one that wants to get
it right for the customer, and that is the
most impactful thing we can focus on in
the current market.

Focusing
“
on the customer
experience will
make the sales
results come.”

ARO: Loyalty is always a hot topic in retail,
but especially when consumer sentiment
is down. What is Lush’s approach to
loyalty, and how are you planning to
further invest in it in 2024?
BG: At Lush, our approach to customer
loyalty revolves around immersive
storytelling and exceptional customer
service that transcends traditional
customer loyalty programs. As an
environmentally conscious brand, we
insist on buying only the best and freshest
ingredients for our products, and paying
our suppliers fairly for this. Likewise, we
price our products fairly to reflect their
true cost all year round, rather than
hiking prices to cover the cost of loyalty
programs or regular sales.

Sampling is also key to our loyalty
strategy. Cosmetics are deeply personal
and the effects of a single product
can change significantly from person
to person. It’s important to us that our
customers never take home a product
that will go to waste if it turns out not to
be right for them, so we offer extensive
consultation and sampling opportunities
to ensure customers’ investments in our
products will always meet their needs and
encourage them to return for future topups. In 2024, we will continue our heavy
investment in staff training, to ensure
that our teams are more than qualified
to connect our customers with products
they’ll love.

Another approach that our community
will see more of from us in 2024 will be
more direct channels to share feedback,
product requests and connect with others
within the Lushie community. In particular,
we’ll be focusing heavily on Discord as
a community channel where our most
loyal Lushies can come together to hear
the latest news from the business, see
a sneak peak of new launches, and even
give their input on product development.
For example, in November 2023, we
released seven limited fragrances, the
scents for which were suggested and


_Australian Retail Outlook: What were the_
biggest highlights of 2023 for Lush ANZ?
Britanny Gian: It was a huge year for Lush
ANZ. To pick just one highlight is a task
in itself but a true standout moment for
us was our first foray into collaborations
with other brands. Having never partnered
with another brand before November
2022, Lush launched four massive
collaborations in 2023 with the likes
of One Piece, Super Mario Bros Movie,
_SpongeBob SquarePants, and the iconic_
_Barbie. From a retail perspective, these_
collaborations were incredibly successful
at helping us captivate new customers
and reminding our existing ones about
the innovation behind every one of our
products. For example, our Super Mario
_Bros Movie collaboration alone contributed_
to more than 5 per cent of our brand’s
growth globally – a huge testament to the
success of this partnership and a definite
incentive to continue partnering with wellaligned brands.

We were also very pleased this year
to return to our campaigning roots with
social justice organisation Get Up, in
support of First Nations justice and the
Voice to Parliament referendum. Although
the outcome of the referendum was not
as we hoped, as a business that has been
campaigning for social justice for nearly
three decades, we were proud to use
our storefronts to amplify First Nations
perspectives throughout this important
moment in Australian history.

ARO: Many retailers have described
2023 as ‘patchy’, with several external
factors, such as rising internet rates and
global conflicts, dampening consumer
sentiment. What was your experience in
terms of consumer spending, and what
strategies did you deploy to navigate the
challenging economic environment?
BG: It certainly was a challenging year
for our industry, with so many external
factors influencing customers’ behaviour.
My mantra was ‘focus on what you
can control’. This meant our strategy
centred around customer experience and
staff training. We can’t control what’s
happening in the outside world but we
want our shops to feel like an oasis of
kindness – somewhere where you can
come in and receive an experience that
exceeds all your expectations, from staff
with expert knowledge. Focusing on the
customer experience will make the sales
results come, and we’ve seen healthy
growth in our customer conversion rate as
a result, over 40 per cent, year on year.

To achieve this, we have consciously
transitioned back to face-to-face training.
And we have further plans to expand on
this, with an Australia and New Zealandwide staff training tour set for the coming
months. One of the most powerful things
someone once said to me was ‘People
don’t want to sell something, they want
to belong to something,’ and we find
staff training – whether it be on our


voted for by devoted Lushies on our
Reddit and Discord channels. This was an
extremely successful initiative, with five
out of six of the fragrances selling out
entirely in less than a fortnight.

ARO: What are the business’ other
priorities for 2024?
BG: We’ve just seen our new Parramatta
store open in December and we’re excited
at the prospect of spreading the Lush
message further with more new locations
on the horizon for 2024. With our decision
to come away from social media, our retail
stores are so important to us in being able
to share our ethos and fresh cosmetics
with a wider audience. With this in mind,
we’ll be rolling out a new concept shop
focused on our brand values and ethics at

new and existing locations over the course
of the year, too.

Alongside our property projects, we also
have more collaborations in the pipeline.
Of course, we can’t share who with just
yet, but we’re confident these are going
to capture a new audience and delight
our customers with the same success we
saw in the year just gone. In addition to
the product innovation the collaborations
bring, we’ll be focusing on our fragrance
range this year. Fragrance has always been
core to the Lush range, we are known
for our smell after all, and over recent
months, we’ve seen the online virality of
our fragrances such as Super Milk and
Sticky Dates help drive growth in the
range of 45 per cent, year on year.

Finally, you can expect to see more
campaigning from us as we continue our
mission to leave the world Lusher than
we found it – for our planet, animals and
communities.

ARO: What are the biggest challenges on
your radar in 2024?
BG: Unfortunately, I think we’re going to
continue to contend with an uncertain
economic climate and we expect to see
consumer confidence fluctuate across
the year ahead. We’re confident that by
staying true to our brand message and
centring our in-store experience we can
continue to see growth for our brand
despite the potentially shaky outlook.

ARO: Are there any ‘quick wins’ you’re
hoping to leverage in 2024?
BG: We have seen our seasonal launches
get bigger year on year, with sales of
our gift range in particular experiencing
double-digit growth. We are looking ahead
to a year of celebration, kicking off with
Lunar New Year and Valentine’s Day, with
our customers celebrating their loved
ones with pampering gifts and getting
treats for themselves. The inclusion of
new ranges for more cultural holidays,
including Diwali and Eid, has been a
welcome addition to our product range.
We want to provide an environment
and experience where everyone can be
celebrated.


-----

R E T A I L P R O F I L E S

Finding beauty in
simplicity: Milligram

The stationery specialist is banking on its omnichannel retail
model and broad range of functional and beautiful products to
drive growth in the year ahead.

By Joshua Gliddon


here’s a term the Japanese use
to describe finding beauty in
everyday objects – ‘wabi-sabi’.

T The meaning runs a little deeper than

that, but wabi-sabi is essentially what
Milligram, a retailer of stationery and
other personal goods, is all about.

The business was started in 2007 by
Scott Druce and Matt Harris. Back then,
it was called NoteMaker, and it was run
from Druce’s kitchen table. Fast forward
to 2023, and the company was renamed
Milligram to better reflect what it does,
and it now combines e-commerce with
physical retail stores.


At the time of writing, Milligram had
six locations in Melbourne, a seventh
in George Street, Sydney, and was on
the cusp of opening an eighth in the
cosmopolitan inner west Sydney suburb
of Newtown.

“Before we did physical retail, we
sold – and continue to sell – into about
1400 retailers across Australia and New
Zealand,” Druce said.

The bricks-and-mortar piece
The third-party retailers Milligram sells
into include Officeworks, David Jones
and Myer, and it was this experience


that gave the management team the
appetite to move beyond e-commerce
into physical retail. “We gained a lot
of experience in that as part of the
business, and we really wanted to come
into the physical space,” Druce said.

“It was an evolution for the growing
business and us becoming more
confident about retail.” E-commerce,
he added, only takes you so far, and
physical retail is a great way to connect
with customers and be part of their
journey.

Milligram is looking to add another
four stores to its retail network, but with


-----

R E T A I L P R O F I L E S

reason, Druce said, is home ownership
levels are lower among this group.

Another factor, post-Covid, is
Milligram’s CBD locations, which have
been experiencing growth in foot traffic
since the health crisis eased, Druce
said. “If you look at suburban shopping
centres, they’ve experienced at least a
10 per cent decline in traffic, but CBD
locations have grown.”

Milligram is
“
looking to add
another four
stores to its retail
network.”

Immigration and international student
numbers have also bounced back,
helping the bottom line, as the people
who fall into those categories are looking
for high-quality products and a retail
environment suiting their mindset and
interests.

It’s the desire for high quality and a
passion for sustainability driving market
trends in Milligram’s space, Druce said.

“We frequently survey our customers
and sustainability is one of their top two
or three priorities.”

Also driving trends in its market is
the omnichannel experience, he said.
Customers want to start their journey in
one place, be it online or in-store, and
then complete it elsewhere. “We have


this comes another challenge: how to
curate the stock mix in the stores, given
e-commerce allows an almost infinite
number of products, but in a shop, shelf
space is limited.

The retail presence, Druce said, is not
cookie-cutter. Milligram uses a designer
to tailor each store to its location and
demographic. And the demographic is an
important consideration when it comes
to stock.

Each store has a core range and from
there, it depends on the people who
come through the door. The Bourke
Street, Melbourne, location, for example,
attracts lots of tourists and students, so
the travel category is twice as large as
other stores in the network.

But being an e-commerce retailer
also means if a customer comes in and
what they want is not in stock, it’s just a
matter of ordering it from the warehouse
and having it shipped, either to the
customer’s home or back to the store
for click-and-collect.

“You only have so much room
in-store,” Druce said, and with the
e-commerce component Milligram can
meet its customers’ needs, regardless
of whether an item is physically in stock
or not.

Cost-of-living crisis not a factor in
growth
Druce said the cost-of-living crisis hasn’t
had a great impact on the business, and
this comes down to the demographic
the company serves. A large proportion
of its customer base is either Millennial
or Gen Z, and those generations aren’t
experiencing the same interest rate-led
challenges as older demographics. The


to make sure the online experience is
closely aligned to the in-store experience,
so it makes sense for the customer and
it’s easy for them to make a transaction.”

Challenges and opportunities
The first market challenge Druce sees
is that retail is generally flat, and there’s
not a lot of growth for some retailers
in the market. “We’re doing well, and
that comes down to our demographic,
products and location, but it’s certainly a
bit bleak out there.”

A second challenge is the shift by
some retailers to become vertically
integrated, something Milligram will avoid
so it’s able to offer the broadest product
range to its customers.

“This is a real opportunity for us
because we’re a multi-brand business,
but vertical integration definitely
challenges the retail landscape.”

To navigate these challenges, Druce
said Milligram will look at providing its
customers with more value but will
avoid discounting. It could come through
bundling, a gift with purchase or free
shipping, he said.

“We’re also constantly reviewing the
range. We’re a product-led business and
while some businesses are marketingled, or guided by aesthetics, we’re always
about the technical and functional
aspects of our products,” he said.

In the end, Milligram is about wabisabi. It’s about selling beautiful,
functional goods to a discerning
demographic, one that’s concerned about
function, sustainability and style.

“The customer mindset is constantly
evolving, and so we have to be really
connected with what they want.”


-----

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-----

R E T A I L P R O F I L E S

Incu focuses on
the digital experience

After overinvesting in technology during Covid-19, the multi-brand

retailer is seeking to refine its e-commerce offering by taking a

more personalised approach.

By Joshua Gliddon


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R E T A I L P R O F I L E S

Returning to the example of the highend bread shop and the pork roll store,
Incu’s customers might buy an expensive
product, or they may purchase something
more affordable, but so long as there’s
a story behind it, and it speaks to them,
then they’re into it.

Opportunities in 2024
Low said Incu’s biggest opportunity in the
coming year is in digital, a space it has
operated in for around the last 10 years,
but one where he feels the retailer still
has room to improve.

“I feel like because we naturally
understand bricks-and-mortar it’s been
easier, but we still haven’t been able to
translate the experience we offer into
digital, and so we’ve been assessing how
to do that in a better way.”

He said Incu probably over-invested
in its tech stack coming out of Covid-19,
something they did because “we had no
idea what we were doing”.

“You get bombarded with people
offering you the world, but what we’re
now looking at is simple things we can do
internally.”

One of the areas where the company
has struggled to translate its physical
experience into digital is the buying
journey. When customers come into a
store, they’re greeted by a staff member
who will chat about what the customer is
looking for, what they like, their lifestyle
and the occasion for the purchase.

“And then they’ll pick out something
for you.”

With digital, the human touch isn’t
there. The recommendation tool might
be accurate sometimes, but other times
it’s way off the mark. In-store, he said,
the staff member can show the customer
around and gauge what they want. “So,


s long as the product speaks
to the customer, and there’s a
story behind it,” said Douglas

Low, CEO of clothing and accessories “A
retailer Incu.

He makes the comparison of a highend bakery, selling expensive bread,
and then an inexpensive shop selling
Vietnamese pork rolls. Incu’s customers
would go to both because the stories
behind those shops resonate with the
buyer. It’s the same with Incu, he said.
People want products that appeal to
them, and speak to them as individuals,
and it’s those products the retailer will
stock.

Incu has been in business for just
over two decades and operates seven
branded stores on Australia’s East Coast,
which stock a range of domestic and
international designer labels, such as
Anna Quan, Christopher Esber, Esse
Studios, Dries Van Noten, Acne Studios,
and Simone Rocha.

It also operates stand-alone stores for
several overseas partners, including Rag
& Bone, Ganni and APC. “So we are like
their local partner, and we will also stock
their brands within our own stores,” Low
explained.

Understanding the demographic
Unlike retailers that look at their
customers in terms of their age group
or socioeconomic status, Incu takes a
broader approach. “Our customers are
interested in design, they probably have
similarities in the way they shop and the
food they eat, and what they’re keen on
in terms of art and the music they listen
to,” Low said.

“They’re not after something different
for difference sake, but they value
authenticity,” he added.


we can really personalise the experience
in a way that’s quite challenging for
digital to do.”

For Low, the human touch that
physical retail offers is critical to the
company’s success. With digital, Incu
is looking at how to make the online
experience more high touch, even down
to adding a handwritten note to the
package for the customer to read when
they get their delivery.

For Low, the
“human touch that
physical retail offers
is critical to the
company’s success.”

Challenges in 2024
One of the headwinds Incu faces is the
fact that, while it has in-house brands,
it also stocks a wide variety of products
from other retailers. If those retailers
reduce the price on global e-commerce
platforms, then customers realise they
can get the product cheaper there than
going into an Incu store.

“So, I think one of the challenges for
us is the economic headwinds locally,
but also managing and reviewing how
things are going overseas to see how our
brands are protecting us as retailers.”

He sees Incu’s competitive
differentiation as that in-store
experience. “When you come into one
of our stores and have that connection,
then it’s hard to beat.”

And providing a welcoming
atmosphere isn’t just about making an
immediate sale. Customers could come
in to browse, but the experience they
have when it is time to purchase a new
pair of jeans, shoes or a dress, means
they feel valued when they come back in
to buy something.

The cost of living has also meant that
aspirational shoppers are tending to go
elsewhere and buying products that are
more affordable and, as a result, Incu
has found its average transaction value
has crept up. More affluent shoppers,
those who are insulated from cost-ofliving pressures, are still spending, and
when they do, they’re spending more,
Low said.

Those customers are also more
experimental in what they buy, reflecting
changing gender and identity norms in
Incu’s core market, he noted.

Low has been with the business for 19
years, starting out on the shop floor and
working his way through to the C-Suite.
“It’s been a great journey,” he said. “I
love the company and the opportunities
it presents.”


-----

R E T A I L P R O F I L E S

Stepping up its
APAC presence:
Hoka

The footwear brand’s head of APAC distribution and
e-commerce discusses launching in Australia and
investing in technology.

By Stephanie Caite Chadwick


-----

R E T A I L P R O F I L E S

personalised shoe recommendations
based on 3D scans of an individual
customer’s feet. How does the brand
view the role of technology in the
customer experience? And how does it
plan to continue investing in technology
in 2024?
PB: We are committed to delivering a
premium and personalised experience
to our customers. Our global partnership
with SafeSize enables our team of run
advisers in Hoka stores and events to
conduct a lightning-fast 3D foot scan
that takes less than two seconds and
creates a unique and precise foot
profile for each individual customer.
Based on this technology that delivers
an individualised foot profile, we can
recommend the best-fitting shoe
from Hoka tailored specifically to a
customer’s needs and preferences.
The use of SafeSize’s 3D foot scanning
technology is aligned with our brand
purpose to offer a more personalised,
efficient and accurate service. We will
continue to invest in technology that
helps us deliver the highest level of
comfort and performance based on our
consumers’ individual needs.

ARO: Looking back on 2023, what were
some of the biggest challenges Hoka
faced as a brand?
PB: The pandemic fuelled fitness
globally, and we saw consumers turn


_Australian Retail Outlook: What is the_
overarching vision fuelling Hoka’s retail
expansion into the Australian market?
Prasanna Bhaskar: The Hoka online and
wholesale businesses have shown 20
per cent growth in Australia and New
Zealand over the past year. We see
progression of the brand, allowing our
retail teams to serve our customers and
build a strong community. Following the
successful launch of the Hoka concept
stores in Asia, we view retail expansion
as a new growth channel to serve our
customers and continue building a
brand presence in the performance and
lifestyle category in Australia.

ARO: What has the response been like to
Hoka running shoes since launching in
Australia?
PB: Australia is a very important market
for Hoka – where the outdoors is hugely
accessible and staying active is a large
part of the lifestyle. As a newcomer to
the performance footwear space, we
offer a unique point of difference in
the way we provide cushioning, overall
comfort, and unique design. Whether
you’re running an ultra-marathon or
a fast 5km, or taking a walk around
the block, the feeling you experience
when you lace up a pair is uniquely
Hoka. Australians have embraced the
unique level of comfort as we’ve refined
and improved our initial offering with
pinnacle running franchises like Mach X
and hiking styles like Anacapa and Kaha.

ARO: Community-building initiatives
have long been part of Hoka’s
marketing strategy. Can you share the
thinking behind this, and a few recent
community-building initiatives that have
been successful?
PB: At Hoka, our reason for being is
our community. Our purpose is to
share the power of movement with
as many people as possible. We have
been building grassroots initiatives
with our retail partners, who have been
successful in bringing runners and fans
of Hoka in the community together. We
believe Hoka lives in the spirit of our
community.

This year, we launched our first large
scale community event in Australia –
the Hoka Fly Run Sydney – an inclusive
run event with inspiring masterclasses
and exciting product trials. The event
uncovered a significant appetite for Hoka
community events in the market. Within
the first 24 hours of going live, the
event was booked out with hundreds of
runners from ultra-marathoners to firsttimers. We have plans to further build
momentum by offering masterclasses
with our brand ambassadors and
reaching a wider audience by partnering
with run clubs that share the same
brand purpose.

ARO: Hoka was one of the early adopters
of SafeSize technology, which provides


to the outdoors and to running amid
lockdowns. Supply was one of the
key challenges, as demand for Hoka
continued to soar after the pandemic
reflecting a consumer shift to a fitness
lifestyle. Our DTC [direct-to-consumer]
channel is growing exponentially, and
we have pivoted to digital, focusing
on a seamless consumer experience.
Our teams and partners have played
a pivotal role in being nimble and
embracing digital even more in a postpandemic world.

In June 2023,

“

we launched
our largest
global integrated
marketing
campaign.”

ARO: What was the biggest highlight for
Hoka in 2023 – either in the APAC region
or globally?
PB: In June 2023, we launched our
largest global integrated marketing
campaign, ‘Murmuration’, under our Fly
Human Fly brand platform. The campaign
explores the concept of murmuration
– the flocking behaviour of birds – and
highlights the brand’s belief in the
transformational power of movement.

We reinforced the idea of community
through the introduction of the Hoka
Fly Run – a community event designed
to celebrate the joy of movement. We
brought the international series to
Australia’s own Bennelong Lawn, next to
the iconic Sydney Harbour.

ARO: Are there any major projects or
initiatives Hoka has in the works for its
Australian customer base in 2024?
PB: Without giving away too much, we
will continue our community-building
initiatives through brand experience
events and relationships with regional
run clubs. Exciting projects are in the
works for our Australian consumers. We’ll
also look at aggressive retail expansion to
provide a unique Hoka experience to our
consumers in our stores.

ARO: Hoka was founded by creating a
shoe to make running downhill easier.
What’s the next problem Hoka is trying
to solve with its principle of radical
change?
PB: We have been innovating and
diversifying in the outdoor and hiking
categories consistently. Our innovation
and design team are always working on
the next big thing. We will just have to
wait and see.


-----

R E T A I L P R O F I L E S

From e-commerce to
bricks-and-mortar:
Edible Blooms

How one of the last of Australia’s original e-commerce businesses
is tapping into omnichannel retail, and why it’s the right time for
businesses to look for new channels.

By Joshua Gliddon


our could say we’re like a
florist, but you get to eat our
bouquets when they arrive, so
it’s a product that combines the best “Y
of gift-giving and floral giving in one
delivery,” Edible Blooms co-founder and
managing director, Kelly Jamieson, said.

Edible Blooms was founded in South
Australia in 2005. And after 18 years, it
is one of the last of the original wave of
Australian e-commerce businesses still
standing, Jamieson said. And it’s not
standing still. In 2023 and into 2024, the
company is expanding into the physical


retail space through a partnership with
the TerryWhite Chemmart chain, as well
as establishing a presence in places like
hospitals and convenience stores – all
places where people are looking for
an appropriate, yet premium, gift for
someone important in their life.

Inside Edible Blooms’ offerings
“When I look at what we do and what
our purpose is as a business, it’s about
delivering joy and making people happy
every day,” Jamieson said.

Jamieson said Edible Blooms’ products


are about celebrating life’s moments,
making people feel special, and ensuring
it’s easy for someone to make a person
who is near and dear to them feel
amazing.

“So that’s our role in life, to spread
happiness and joy.”

The company’s signature product
is its chocolate bouquets, made with
Melbourne-based Lindor Chocolates, a
family chocolatier Edible Blooms has
worked with for the last decade-and-ahalf. More recently, it has expanded into
fresh fruit bouquets. Strawberries are ►


-----

R E T A I L P R O F I L E S

or the traditional gift hamper but, as
Jamieson noted, once people saw and
understood what Edible Blooms offered,
it went viral. Recipients who get one of
its bouquets suddenly have a lightbulb go
off in their head, and then order for the
people who are important to them. “It
creates a flow-on effect.”

We’ve
developed a brand“
new range and
created a mini-florist
for retailers to have
in-store.”

A shift from being a pure-play
e-commerce business
Founded as a pure e-commerce
business, Edible Blooms is now shifting
its strategy and has begun partnering
with key retailers.

“We’ve developed a brand-new range

and created a mini-florist for retailers
to have in-store,” Jamieson said. “We
are already in 200 retail points around
Australia and the goal is by June of 2024
to be in thousands of retailers.”

She said the new strategy is all about
making sure Edible Blooms’ products
are where its customers are. The added
bonus for retailers is the products have
a six-month shelf life, and so for those
partners, it’s a different offering to the


traditional fresh flowers, which have a
short shelf life and can look wilted and
not at their best after a week.

The new strategy is all about listening
to customers and responding to where
they want to make a purchase, which is
both online and in retail.

“So partnering with a pharmacy was
a really strategic move for us because
pharmacies are places where, if you’ve
got somebody who’s unwell, often you’re
filling a script for a family member

[and you may want] the ability to buy
something to cheer them up while you’re
filling the script or if you’re a busy parent
and you need to get teacher gifts, you can
collect them from the pharmacy,” she
said. “Pharmacies have great locations,
and they have great opening hours.

“So, we saw that as a really brilliant fit.”
Jamieson said she wondered why
the company didn’t embark on a
retail strategy 10 years ago – “I guess
we’ve been busy and just focusing on
e-commerce” – but added that it was
a realisation they had a unique product
that eventually drove the new approach.

Like all retailers, she worries about the
economy and cost of living and said the
company is watching trends carefully. “It’s
one of those challenges you have to work
around, but you don’t have control over.”

The cost of living has also had an
impact, and the company has seen
growth numbers slow, but the business is
still growing.

“I think when things do get tighter for
retailers, it actually pushes us all to think
outside the box and look for those new
channels,” she concluded.


dipped in chocolate and presented in a
gift box.

“We have a really strong gourmet gifting
range, which is how we started, but we
also now do gourmet gift hampers and a
plant delivery service, because the way I
see it, we are more than a gift.

“We’re creating those special
moments in life where you get to
acknowledge whether it’s a special
birthday or a thank you.”

Corporate gifting is also a core plank

of Edible Blooms’ offering. These gifts
are personalised with individual swing
tags and the ribbons used to wrap the
products are corporate-branded, she said.

“So, if you’re Telstra or similar, and
you want to send out a thank-you to
customers or clients, then you can
really make our gifts look like your own
branded gift when it goes out.”

A passion for gourmet and gifting
Jamieson started the business in 2005
with her sister, who is still general
manager. Growing up in country South
Australia, they both went to boarding
school and when they finished their
education, they had friends scattered
across the nation.

“We often needed to send flowers

and gifts to our friends. We also loved
gourmet gifting and flowers and so
we kind of put them together and
created Edible Blooms,” she said. “It
was quite a novel concept when we first
introduced it.”

One of the early challenges they faced
was in educating the market about the
idea there was an alternative to flowers


-----

R E T A I L P R O F I L E

Fashioning, a softer
greener future: Paire

By Stephanie Caite Chadwick


_Australian Retail Outlook: What is the_
overarching mission of Paire?

Nathan Yun: Even from the beginning of
Paire, our mission still hasn’t changed.
Our brand was established as an act
of resistance against the fast-fashion
trend. Our mission is to create garments
that optimise comfort and functionality


without causing harm to the Earth or
exploiting labourers. We leverage the
latest advancements in materials science
to produce high-tech essential clothing
with the finest materials.

ARO: What does Paire see as the biggest
barrier in the Australian retail industry to


launching a sustainable start-up?
NY: The majority of consumers are not
ready to spend on high-value products
that have a higher price point than fastfashion brands. Most people are still
choosing cost, rather than supporting
sustainable efforts, which can mean a
higher price point. ►


-----

R E T A I L P R O F I L E S

Fabric

“

technology is
essential if we
want to combine
functionality,
comfort and
sustainability.”

ARO: Does Paire have any advice for
brands and retailers that are looking to
create a more sustainable business?
NY: Really focus on the functionality
of your products. Greenwashing is as
popular as ever and the buzzword
‘sustainability’ tends to be overused.
To overcome this, create products that
customers will buy because they’re
simply great products, not just because
they’re sustainable. Being sustainable
should be the bottom line of every brand,
it shouldn’t be a selling point. We always
have to make decisions that are right for
the labourers, our customers, and the
Earth.

ARO: How is Paire overcoming the
challenge of educating its customer base
about the quality and sustainability of its
products?

RZ: In our early days as an online
brand, we gave away our socks for free.


Rex Zhang: To overcome this barrier, Paire
focuses on providing functionality with a
sustainable approach, made possible by
our materials science background.

ARO: What was the biggest highlight for
Paire in 2023?
NY: The biggest highlight of 2023
was the launch of our first bricksand-mortar shop at QV Melbourne. It
definitely changed the game for us as an
e-commerce brand, especially in [terms
of] customer experience and acquisition.
Since the start, many customers have
expressed that we should open up our
own shop, because the biggest point of
difference in our products is how our
material feels.

ARO: Paire has created and patented five
high-tech fabrics to use in its production
of garments. How does the brand view
the role of technology in creating a more
sustainable brand?
RZ: We learned that fabric technology
is essential if we want to combine
functionality, comfort and sustainability
all in one product. We had to create
something new, and it’s because of these
innovations that we can proudly present
our products as a combination of optimal
functionality and our efforts to be
sustainable. Take our RegSilk for example.
Our textile engineering team and I
wanted to create a fabric that was kind
to sensitive skin whilst being sustainable.
After an arduous development process,
we created RegSilk, which is made from
the remaining silkworm cocoons that are
considered waste after the traditional silk
procuring process.


By taking away the barrier of pricing,
customers are able to experience the
difference in the quality of our material
and design. We have found that tactile
interaction with our products is truly
the best way for customers to learn
and understand why our products are
made the way they are, and the positive
response to our recent pop-up store
reaffirms it. As customers come in
to touch and feel the products, they
can appreciate the quality and our
sustainability efforts.

ARO: As an e-commerce business, how
does Paire view the role of bricks-andmortar stores in helping the business
scale?
NY: Bricks-and-mortar has been a crucial
step for us as a business. It helped
us reach a much broader and newer
audience. It completes the shopping
experience that we envisioned as a
brand, with an emphasis on the material
of our products. The offline space
also gives credibility to the brand and
improves business performance/scale in
all aspects.

ARO: Are there any major projects or
initiatives in the works in 2024?
NY: There are always new exciting
products to come. Moreover, with our
pop-up store’s success, we are now
working on a bricks-and-mortar retail
strategy and finding more opportunities
to get Paire into people’s hands. We’re
also exploring wholesale channels, so
there are more touchpoints for more
customers to experience our products
offline.


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R E T A I L P R O F I L E S

Forty Winks:
Don’t sleep on the need
for community


The bedding specialist is leveraging its franchised store owners
and investing in marketing and technology to attract the next
generation of consumers.

By Joshua Gliddon


um and dad-owned stores
might seem like a quaint
throwback to a quieter, less

M inclusive era like the 1950s, but for

bedding specialist Forty Winks, local
stores owned by local people – plus
modern values like diversity and
inclusion – are an integral part of the
way the 40-year-old bedding company
does business.

“We’re 100 per cent franchised,” said
Forty Winks director Cameron van den
Dungen. “We have no company-owned
stores, and that’s the strength of our
network.”

Having local owners and operators
means the Forty Winks franchisees are
very engaged with their local communities.
“They work hard for their communities
and that’s one of the benefits of having
owner-operators in all our franchises,
whether it’s Forster in NSW, Albany in WA,
or Launceston in Tasmania.”

The market is down, but new
demographics beckon
Covid-19 supercharged many markets,
including work-from-home technology


and, in the case of Forty Winks and its
space, the household and bulky goods
sector. But with the health crisis now
behind us, discretionary spending on
items like travel is back on consumers’
radar and competing for a share of
wallet space.

Then there are all the factors
contributing to the ongoing cost-ofliving crisis, including interest-rate rises
and inflation, making the consumer
dollar even harder to win. For Forty
Winks, this has led to a stark reality: van
den Dungen says the market is down by
about 20 per cent on the same time last
year.

“All these pressures are putting the
pinch on wallets,” he said. “But we’re
actually outperforming the category, and
so we’re going after market share.

“That’s the focus for the next 12-18
months. How do you become the
dominant player in the category and take
market share from others?”

Those mum-and-dad store owners?
They’re a competitive advantage
Forty Winks’ franchisees are embedded


in their communities but, during the
cost-of-living crisis, they’ve also been
prudent with their money, van den
Dungen said.

“They’ve held onto their savings,
they’re very strong and they’re investing
in their marketing,” he said.

And it’s the marketing investment
that’s important. Forty Winks has
embarked on a major campaign called
Unslept, which is an acknowledgment
that, as a society, we’re simply not
getting enough sleep, and the sleep we’re
getting isn’t of sufficient quality.

Van den Dungen’s passion about
people getting high-quality sleep – or,
as is the case, not getting enough good
sleep – is infectious. It’s something he
brings up at social gatherings. And while
it may not constitute the last word in
BBQ small talk, he’s got the stats and
facts to back up his claims.

In a nutshell, lack of sleep releases a
hormone that promotes obesity, he said.
It also speeds up the ageing process and,
for every hour of sleep someone misses
out on, they lose the equivalent of one IQ
point the following day. “So, lack of ►


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R E T A I L P R O F I L E S

values while attempting to educate
people about the fact sleep is something
we can’t neglect if we want good health
and a long life.

We’re actually
outperforming the “
category, and so
we’re going after
market share.”

2024: a brand repositioning
Forty Winks was founded in 1984.
Van den Dungen’s dad was one of the
founding members of the group. The
core demographic back then was the
Baby Boomers, and it’s a market that has
remained loyal to the company.

The problem is, the Baby Boomers are
getting old. “We don’t want to lose or
leave that group, but they’re moving into
other areas of the market now as they
go into retirement living and need more
assistive technology in the bedroom.”

Because of this demographic shift,
Forty Winks, in van den Dungen’s words,
needed to find another group to grow


sleep puts on weight, speeds up ageing
and potentially makes you dumber,” he
somewhat wryly observed.

Then there’s the elephant in the room,
with some evidence pointing to disrupted
sleep in older people leading to the early
onset of dementia. “It’s not settled, but it
looks likely.”

These sleep facts aren’t a secret, but
van den Dungen said there’s very little
cut-through to get the average person to
rethink what they’re doing when it comes
to sleep. And so, the Unslept campaign
was born.

“We thought we can be scientific, we

can be straight, we can be boring, and we
can be clinical,” he said. “But Forty Winks
isn’t boring, and it isn’t clinical.” So again,
it comes back to those mum-and-dad
franchisees.

Van den Dungen said if someone spent
any time with Forty Winks’ store owners,
they’d spend half their time laughing.
They’re a fun group of people who are
part of their communities.

“They’re not too serious, other than
the fact they’re very serious about what
they do, about trying to help people get a
better night’s sleep.”

And so, the Unslept campaign, in
taking a lighthearted approach to the
sleep crisis through individual store
owners, aligns with Forty Winks’ cultural


old with. The company did in-depth
studies. It engaged market experts and
consultants. It spent a lot of money, and
when it came out the other side of the
process, it realised it needed to engage
the ‘bed in a box’ crowd. That is, Gen Z
and younger Millennials.

“It’s a younger crowd, but they are
really focused on health and wellbeing
outcomes, and for us, that’s a desired
future customer.”

But to reach those customers, Forty
Winks had to reinvent its tech stack from
top to bottom. It needed to meet the
future customers where they are on their
buying journey, be it in-store, a traditional
e-commerce web environment, or
somewhere else those young folks hang
out, like Instagram.

“Our journey eventually led us
to realise our model is far more
interesting and relevant to them,
having the ability to transact wherever
they are,” he said.

Instagram might seem a long way
from a mum and dad-owned store in
a regional area. But there’s common
ground. Instagram and family-owned
stores are both communities, just
different kinds. And as Forty Winks

came to realise, when you’re selling

a better night’s sleep, it’s community

that counts.


-----

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