An Inside Perspective: Q&A with Sucharita Kodali

You have been working as a retail analyst for more than 14 years. What is one thing that continues to surprise you within the industry?

That I still am learning something new every day! Retail is one of the most competitive and least profitable industries in the world but those of us who stay in it do it because we love it.

Retail has gone through countless changes over the last few years. What has been the biggest shift within the industry, and how has it affected what we see today?

The internet reduced search costs and that brought prices down even faster, but the big change now is that brands realise they don’t need retailers at all. So retailers must become their own brands and brands must become retailers. I think the future of marketplaces remains to be seen. They grew rapidly in a world of completely undisciplined promotional activity and product distribution. I think that will be significantly reduced in the future.

How would you describe the state of online retail in this day and age?

It continues to grow everywhere but it isn’t generating more revenue for retail as a whole. It’s cannibalised stores which has caused stores to go away and has made others completely reevaluate their economics. Online retail has some tremendous benefits—it enables selection and convenience that is unmatched in physical stores. But at the same time, it has benefited from the utter lack of regulation around third party sellers or brands holding anyone accountable for grey market goods. Some sectors continue to remain challenged, like grocery. We still don’t have a profitable online grocery delivery model in the developed world. On the other hand, there are no barriers to entry online and we’ve seen many brands that wouldn’t have existed 30 years ago, launch and grow because of the internet.

The United States has come a long way further than Australia regarding e-commerce. What is a key difference that you have found when looking at global, local and Australian trends?

Australia is a much smaller market so it’s not a fair comparison. Amazon is not as big of a competitor here in Australia and Amazon singlehandedly lit a fire under the hides of most US retailers. In the last decade, every retailer in the US lost share to Amazon and it was a huge wakeup call. Retailers stepped up their e-commerce usability and they all realised they couldn’t get rid of their stores, so they leaned into them with in-store pickup and ship from store programs. Some of the investments retailers have made in same-day delivery remains a fool’s errand because it’s not profitable and won’t be for a long time, but hopefully, retailers will eventually realise where it makes sense to invest and where it doesn’t.

When it comes to e-commerce, and even m-commerce, it’s always intertwined with the talks of automation, AI and VR. What are your thoughts on these advancements in tech, and do you think we will actually use them in our everyday online shopping habits?

Artificial intelligence means so many things to so many people. Many of the solutions that have been built are in customer-facing functions like cashierless commerce or computer vision but the use cases that have the biggest ROI are those that allow knowledge workers to do their jobs faster—it’s automating merchandising, identifying trends or exceptions, catching fraud. VR will be for gaming. The applications for retail are too nascent to make any sense at the moment. We’re seeing QR codes come back because the camera on phones is reading them directly now. That may have a big impact on offline ads in the
future. All our data says that online ads are far less effective for driving incremental sales than offline ads but distorted and imperfect ROI calculations continue to work in favour of online ads. I expect that to change in the future too. Google and Facebook need to be held to a much, much higher bar to justify the amount of ad spend retailers give them.

You’ve mentioned in previous interviews that loyalty programs are the key to retention. Do you still believe this is the case, and do you think there will be a more prevalent focus on these programs as e-commerce further develops?

Yes, especially as privacy laws become more commonplace around the world. Third-party data will be severely curtailed. First-party data and loyalty programs, therefore, become preferred. But retailers need to be more creative than just giving rebates. They need experiential programs with truly compelling benefits. If brands don’t get enough engagement to justify a great loyalty program—not everyone is like Starbucks which gets its best customers to visit daily—they must partner with an ecosystem of other non-competitive partners.

In Australia, we’re currently facing a tough environmental issue. Many online retailers across the country are going plastic-free, and relying on sustainably sourced products for their customers. What do you think the larger tech companies such as Amazon, eBay and Alibaba Group could do to make an impact on this current crisis?

I think this is great. Slower, consolidated shipping is something that everyone needs to invest in. On-demand shipping is one of the least environmentally friendly things we are doing in e-commerce and young consumers in particular need to be schooled on the tradeoff between getting things quickly and
the negative externalities speed generates. Governments should tax delivery trucks and packaging waste that is not compostable. Single-use plastics should be banned or at the very least should have significant surcharges to reduce their adoption. Internet companies should have ‘box-free’ delivery options and let local retailers store packages for pickup by shoppers.

In Australia, Buy Now, Pay Later (BNPL) platforms are taking over and surpassing credit card use. There have been a few issues surrounding the regulation of platforms such as Afterpay, to which the companies have rebuffed. Do you think these talks of regulation could be a silent killer for these platforms, and how would it possibly affect e-commerce?

We’ve had deferred billing programs in the US for years and none have become household names. BillMeLater, Klarna, Affirm and others have been in the market for years. US merchants haven’t really adopted these alternative payments in droves. I am concerned that Afterpay has a lot of hype. Forrester had a survey of almost 100,000 US shoppers and almost no one said they had used Afterpay in the last three months. Our survey of Australian consumers had 11 percent of consumers had used Afterpay in the last three months. That’s 11x bigger, but I’m not sure that screams blockbuster. Deferred billing businesses need really great credit approval algorithms or someone loses lots of money. And they ultimately make money from merchants who will only work with them if they are at least as attractive as alternatives (eg Visa, Mastercard) or by charging exorbitant interest rates and fees for shoppers who do borrow. That usually limits the addressable market. If Afterpay is operating under a different set of rules than incumbent financial services companies, that won’t be for long.

Sucharota Kodali will be an honoured guest and speaker at the inaugural Power Retail Outlook 2020 event. Power Retail is hosting its inaugural Outlook event, which will unpack the trends that will shape the Australian retail landscape in 2020. Unlike anything else, Outlook will look local and then take it global. For professionals within the digital retail landscape, this event provides unprecedented insights into the trends and predictions that will hit the e-commerce scene in 2020.

Outlook 2020 expands and explores these stats, facts and figures like never before. The future of retail is here. How will your company approach it?

If you are a retailer wishing to attend Outlook 2020, we have limited spots so please express your interest in attending by contacting [email protected]

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