Big-box retailers are under threat internationally. So what is the outlook for New Zealand’s big-box retail?
New Zealand big-box retail is doing quite well, if Briscoe Group is anything to go by. The owner of Briscoes Homeware, Rebel Sport and Living & Giving has just reported new highs for both sales and profit. It made more than $200 million in sales for the quarter ending 27 January 2019 and made a record net profit of around $63 million for the year ending on the same date.
Success in big-box retailing is all about being a specialist in your chosen field, according to Briscoe Group managing director Rod Duke. He expects to see more big-box specialisation in New Zealand, rather than generic department stores, such as the introduction of US pharmacy company Walgreens or make-up specialist Sephora. The big-box model works for customers, he says.
“Customers find it a lot more appealing, I think, to park at the front door and, if they’re buying housewares, to go to a housewares specialist who has the entire range in one location.”
But another part of Briscoe Group’s success comes from constantly updating and refreshing stores.
“Regrettably, we cannot stand still with the same format every time we open or refresh a new store,” Duke says. “It’s quite exciting for people to see differences in the store.”
These changes can be as small as changing the lighting from fluorescent to LED, to as large as completely relocating a store when the location is no longer suitable, perhaps due to size and parking, Duke says. Each store is replaced, resized or refurbished every five to eight years, on average.
While Briscoe Group’s next new store will be in a mall – Rebel Sport in Auckland’s new Westfield Newmarket this year – more big-box stores are planned. In Auckland, this includes a rebuild of the Morningside Briscoes Homewares, and new side-by-side Briscoes and Rebel Sport stores in Silverdale and Mount Roskill. Big-box stores in Napier are also planned.
One area of growth for Briscoes is online shopping. About 10 percent of sales are made online, with customers either choosing delivery or click-and-collect. But Duke says the physical shopping experience will always remain.
“It doesn’t matter how many surveys we do or other retailers do. One of the most favourite pastimes of New Zealanders is what? Shopping.”
Kiwi Property Group sees big-box retail growing in New Zealand. The company, whose large portfolio includes Sylvia Park, also owns two large-format retail centres in key growth nodes in Auckland – Sylvia Park Lifestyle and Westgate Lifestyle.
“Large format retailing is an increasingly important part of the retail experience in New Zealand as the population continues to expand and new households form,” says general manager retail Linda Trainer.
There will always be a need for both malls and large-format centres, with each having a different offering, Trainer says. And physical stores offer an important point of difference to online sellers, she says.
“For large-format centres, our retailers provide what online retailers cannot – the ability to see, touch and feel what may be large-value purchases, in person.”
Experts agree big-box retail is here to stay, despite bucking the advice for retailers to be unique and bespoke. First Retail Group managing director Chris Wilkinson says big-box retail will remain strong as consumers look for both value and convenience.
“Big-box retailers deliver the 'chore and staple' goods that people have as part of their everyday lives. It doesn't need to be experiential – just functional and, with that, a promise of selection and competitiveness. Briscoes proves that so very well, with continued relevance and performance, selling those items we need – not necessarily crave.”
But Wilkinson warns big-box retailers cannot simply stand still and deliver what they always have done.
“Future relevance relies on 'localising' your offer, being part of the communities you're established in, and having the agility to adapt quickly to need and opportunity,” he says.
Retail NZ GM public affairs Greg Harford agrees large-format retail stores will continue to be a key part of the New Zealand retail landscape.
“Many customers appreciate the convenience of large-format stores, and the good-value pricing that often comes with them.” However, customers also appreciate bespoke, niche shops and will shop across both for different things.
Harford says many large-format stores are transforming into destination experiences: “Cafes and children's play areas, for example, are often found in large format retail stores, and hardware and gardening stores often offer fun educational evenings for their customers too.”
While online shopping is growing, big-box retailers need to continue focusing on the shopping experience, Hanford says.
“Large-format retailers, like anyone else in the retail business, need to focus on providing outstanding customer experiences both in-store and online, and providing great pricing to support that.”
‘More than just a big box’
Super Retail Group auto retailing managing director Chris Wilesmith agrees successful big-box retail is about much more than just being a big shop. The Australian company, which owns SuperCheap Auto, competes with online sales by offering inspiration, advice and service.
“It’s no longer just about being a big box. You have to be inspirational, more than just product on a shelf,” he says. “If they [customers] wanted just a product, they could go online and have it delivered. We are really trying to provide a total solution.”
Wilesmith gives the example of car batteries. SuperCheap Auto not only sells car batteries now, it offers a free diagnosis for anyone having trouble with their battery or alternator, and can fit any new battery.
Having the best people who can provide great experiences for the customers is critical, Wilesmith says. “Any business is only as good as the people in that business. The brand on the front of the door is worth nothing more than the people inside.”
Super Retail Group is also hailing the success of SuperCheap’s Penrith “experience centre”, a next-generation concept store admired by both team members and customers alike. The centre has about 100 new innovations, with the most obvious one being a stockless area in the middle of the store, providing space for demonstrations, educational videos and advice.
Taking out an area that would have been “very dense” with fixtures and products has allowed space for customers to sit and learn, Wilesmith says. Despite 25 percent less stock being displayed in store, sales are up about 30 percent on SuperCheap’s average: “We’re utilising the space more effectively.”
Most concepts will be rolled out to SuperCheap stores in the next seven to 10 years, but Penrith’s 30-minute click-and-collect service was so successful, it is already implemented in all stores. Being an omni retailer – offering the best of physical and online stores – is going to be ever important for successful retailers, Wilesmith says.
Showpiece store offers customisation
Another retailer keen to offer customers something different is Vinod Kumar, managing director of Nido, a 27,000sqm furniture store set to open in Auckland’s Henderson.
“They [customers] probably haven’t seen something like this before; it will be ‘wow’. It will be huge, highly different and like a shopping mall,” Kumar says. With a floor space larger than three rugby fields, the $60 million store will have more than 100 display rooms, a playground and a food court.
“The more people can see, the more people can get inspired and get into it. That’s my own observations through my 29 years in retailing,” says Kumar, who helped develop the Mitre 10 Mega concept in New Zealand.
Nido is said to rival Swedish homeware and furniture giant Ikea, which announced in late 2018 it would be establishing a New Zealand store in Auckland “in the next few years”. Ikea is well-known for its affordable, Scandinavian-designed, flat-pack furniture and large stores, averaging 30,000sqm.
But Kumar says Nido will have some key differences, including the fact it will open in spring this year, while Ikea is yet to establish a site. Nido will also stand out because of its designs, offering 80 exclusive brands designed by the best European and US designers, he says.
Nido will also offer the ability to customise products. Wall-to-wall wardrobes made-to-measure will help save space in apartments and small houses, preventing the need for bulkier built-in wardrobes, Kumar says. “We are going to bring the price of houses down,” he says.
Ikea likely to have large presence
Both retailers and experts agree, Ikea will have some impact on the big-box market when it arrives in the next few years.
Rod Duke believes there will be customers interested in what Ikea offers, including the experience inside its large stores. But he is dismissive of the impact on Briscoes Homeware, saying the Swedish retailer specialises more in occasional furniture and bedroom furniture than homeware.
“If I were a furniture retailer – and I’m not – I might be a little bit concerned, and I might be wanting to jazz up my store, doing something special before they get here,” he says.
But AUT University retail expert and marketing lecturer Dr Megan Phillips says cheaper furniture and homeware stores will be impacted by Ikea. Some may even close.
“I think the likes of The Warehouse and Kmart are definitely going to feel some pressure in terms of Ikea and what they offer in furniture and homeware. The retailers need to be doing something to combat that.”
While Ikea’s introduction will have some impact, another concern for big-box retailers is the arrival of Amazon. The online sales giant is advertising for key roles in Auckland, driving speculation it is about to set up a New Zealand office.
Phillips says if the likes of Amazon enters the Kiwi market, big-box retailers are going to have to do better. Good retailers should be leading in two of the four key areas: price, brand, experience and frictionless shopping, she says.
“I don’t think they [New Zealand big-box retailers] are really in the game at the moment in comparison to what we’ve seen overseas. They really need to start innovating and re-thinking the use of their physical areas so they are more experiential.”
Phillips says Ikea is an example of a retailer offering an “amazing” in-store customer experience, with display rooms showing how products work in real life.
“It offers the ultimate touch-and-feel experience. Merchandising enables customers to visualise the products, then take them home. They take the customers on an exciting treasure hunt.”
Ikea has also found the recipe to get customers to stay in store for longer, with its in-store restaurants offering famous meatballs. Phillips says this sort of offering is increasingly important for big-box retailers.
“Ikea has been very successful in including a restaurant in their big-box stores. I think that enables people to hang out and be there for a lot longer.
“If you can’t grab a coffee, or sit down and eat something and go to the toilet, you can’t stay there and can’t spend as much.”
Using technology for good
Phillips says big-box retailers also need to offer omni-channels for shopping. While some Kiwi stores do online shopping and social media shopping well, others need to improve to capture Millennials’ dollars, she says. All big-box stores should work like distribution centres for online delivery and click-and-collect, she says.
Phillips points to Alibaba’s New Retail, which is transforming shopping in China by integrating digital. Its Hema supermarkets have an app where customers can read reviews or find out when a product came into the store as they walk around the shop. Customers can choose fresh seafood and have it cooked on-site or they can have their groceries delivered within 30 minutes if they live within a 3km radius. The concept is so popular, people are moving to be closer to Hema stores.
Phillips says there is plenty of scope for big-box retail to integrate technology to make in-store shopping a better experience. A self-confessed Millennial who doesn’t know her way around a hardware store, she would like to see an app that helps her quickly find a product inside the likes of a Mitre 10 Mega store. “For me, that would be taking away that pain point in a store.”
But Phillips is buoyed to see big-box retailers trying new things, such as a concept store set up by The Warehouse in in Auckland’s Albany. “I walked in and thought ‘am I inside The Warehouse?’” As well as a more modern look, the new store includes furniture displays to show how furniture will look at home, Phillips says.
“It was a really great concept in terms of testing and learning, measuring customer behaviour and what customers are actually purchasing,” she says.
This story originally appeared in NZ Retail issue 761 April / May 2019
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