The clock is ticking

In Australia after landing a hotly contested future retail contract for Bunnings against WPP, Accenture and Deloitte, Publicis Sapient's head of global commerce strategy, Jon Reily, a former Amazon executive, sees huge digital transformation and e-commerce gaps and opportunities in Australia. Compared to more advanced markets such as the US and UK, he says it’s like going back to the future.

“Australia has a little bit of a blessing in that we’ve all dreamed about going back to secondary school as adults, knowing what we know as adults,” says Reily. “Australia, in terms of digital and e-commerce, is in a very similar position because it is not yet at the level of North America and Europe in terms of maturity.”

He suggests retailers bracing for the Amazon onslaught should take advantage of that opportunity. 

Australia, Reily suggests, is “a wealthy first-world country with a digitally native population that is starving for e-commerce”. Rather than taking affront to being cast as an e-commerce backwater, Reily says firms here can reap the benefits of last mover advantage and learn from the expensive mistakes made by their peers in other markets.

That means Australian companies “can be successful before Amazon gets its tentacles into Australia and dominates this market like it has every other one it’s entered”.

That domination, he predicts, will be complete by “2025, 2027.”

Long distance, long game

Australia is an e-commerce laggard for cultural and geographical reasons, suggests Reily. That buys retailers some time to get their act together.

“Mail order has never been a very large thing in Australia culturally, unlike the United States, where they have been doing that for 130 years.

“So the transition from buying things via catalogue and having them mailed to my house to buying things on the internet and having them shipped to my house is a pretty easy transition.

“Australia didn’t have that.  Australia has always been let’s get in the car and go to the store type of thing and as a result, it hasn’t really had to step into e-commerce.”

But now demand is rising – and while Amazon’s market entrance has been relatively low key to date, Reily thinks it will now start to pick up the pace.

Entering Amazon’s second phase

“They just broke ground on a new distribution center in the Western suburbs of Sydney.  They’re moving into the home and garden category.  They’ve opened Amazon Pantry, and have assigned a new country manager experienced in starting new country markets,” says Reily. “It’s pretty evident that Amazon does have its sights on Australia.”

Reily thinks Amazon’s new country manager, Matt Furlong, will move the needle.

“[Furlong] was responsible for expansion in Germany, which was very successful. As a former Procter & Gamble man, he understands how to run a business,” says Reily. “That shows me that Amazon is serious about Australia.”

While Jeff Bezos may be somewhat relaxed about short term profit and quarterly targets, Reily knows first hand that his managers are measured by a different yardstick.

“Having run a business within Amazon myself, I know that I’m being graded on whether or not my business is making money. And I want to do that.”

Hence Australia’s retailers starting to more urgently consider digital transformation – and those that promise to deliver it.

Reily cites companies like the Good Guys and its new client Bunnings as those grasping the nettle. But he says companies have to entirely rethink traditional structures.

Transformation not tinkering

For all marketers’ talk of becoming ‘omnichannel’, most companies haven’t fully realised that digital transformation isn’t about shuffling things around, Reily suggests.

“The tricky part is that companies are attempting to transform themselves by simply [updating] their current 20th century organisations to deal with the digital future as opposed to reinventing how they actually interact with their customer. Because their customer wants to be digital and that’s an important distinction,” says Reily.

That means consolidating P&Ls, he suggests, rather than protecting disparate fiefdoms.

“When I’m dealing with you and I can tell when I’ve crossed the P&L, you fail from a customer service perspective,” says Reily. “I don’t care what your different divisions are as a consumer.  I’m dealing with the brand and it doesn’t matter to me whether I’m dealing with this part of the brand or this vice president or this senior vice president. Ultimately, many companies are still … competing with one another inside the company [as separate P&Ls] as opposed to a shared P&L to help the entire company succeed,” says Reily.  While the word ‘omnichannel’ is overused, it can only be delivered under that kind of structure, he warns.

Hence the reason consultancies see pots of gold.

“I would be engaging in reckless understatement if I said that I was not aware that Australia spends more money per capita [on consultants] than any other country in the world.  That doesn’t mean that it’s not a valid thing.  That doesn’t mean that it’s not needed,” says Reily.

“It’s 2019 where these companies need to reinvent themselves because in just a few years, we’re going to have 5G level technology [enabling] wearables and things that seem like science fiction, and enable interaction with brands in ways that can’t even be predicted today.”

Restructure or die

Given the restructuring required, it is little wonder consultancies are going not to the CIO or CMO, but direct to the CEO.

“The CEO has to have the vision to be able to convince the board that this is how the future is going to be and then impact that culture down through the company,” says Reily. “Because at the end of the day, a CEO’s job is to create culture and reinforce good decisions.  So I come in at the CEO and I say, “This is the way that the world is going to be”.  [Then as a CEO] I need to go to my board and say, “Gentlemen, ladies, if we don’t make these changes, we’re going to lose.  Here’s a laundry list of companies that are lining the roads in terms of corpses that did not make these changes around the globe.  Unless we want to be like those companies, we need to make these changes.”

Those changes need to be made sooner rather than later, says Reily, citing Walmart by way of example.

Walmart: The late bird

“Walmart took seven to 10 years in order to embrace e-commerce.  It probably cost them upward of $10 billion to get it right.  They’re doing fine now but that was a very expensive slow move for them,” says Reily.  “If they had moved faster and been able to convince their middle management [to act], they probably could have saved themselves several billion dollars.”

Walmart, says Reily, offers both a cautionary and redemptive tale to Australia’s retailers.

“Walmart was a traditional retailer that was suspicious of the internet. Their ground troops and their store managers saw Amazon as an interloper that probably wasn’t going to have a large impact on them,” says Reily.

“And then, Amazon’s strategy - trying to hollow out the centre of Walmart by taking away their staple purchases of paper towels and brown goods so people didn’t go to the store that often - hurt Walmart bad.”

Walmart then shot itself in the foot by making “ham-fisted choices in the early days where they didn’t embrace technology… and suffered and lost market share to Amazon,” says Reily.

“The one day Walmart woke up and [CEO] Doug McMillon said this is not how we’re are going to do things. He created a vision for Walmart that was not competing with Amazon but co-existing with Amazon - and finding a world where it could operate digitally and reinvent itself as an organisation.”

As a result, says Reily, Walmart remains one of the largest grocers in the world “and they offer an outstanding end-to-end customer experience.”

Three years ago, anyone suggesting Walmart would be an e-commerce leader “would have been laughed at”, says Reily. “Now, they’re experiencing 500 basis point growth quarter over quarter and they have knocked Amazon on their heels in terms of grocery.”

The ghost of media’s future?

As Gen Z becomes the single biggest cohort and boomers die off, Reily suggests traditional media – at least as a marketing vehicle – will continue to lose relevance.

“You and I are of [broadly] the same age and are able to talk about television shows that we had in our youth,” he says.

“We don’t have that with people who are younger people anymore because they don’t consume the same media.  The YouTube generation has created the million channel TV thing that we were promised in the nineties to the point where it’s very difficult to have a shared experience for anyone in terms of media,” Reily suggests.  “That makes it very difficult to get messages to those people.  However, that doesn’t mean that you shouldn’t do it.  That doesn’t mean it can’t be done.  It just means that there are different ways to do that.”

…And the end of brand loyalty

Gen Z’s rise could also sound the death knell for brands – at least that fail to adapt, reckons Reily. He says the scale of the shift cannot be overstated.

“Generation Z will be the largest generation in just a few years and they have a completely different mindset than anyone we’ve ever had.  We’re having the largest shift that we’ve seen since World War II in first world countries with Generation Z.  These people have never lived in a world without free shipping.  A lot of them have never lived in a world without something showing up at your house in two hours.  They have a completely different mindset than every generation before them and they have no brand loyalty.”

On the flip side, perhaps brands shouldn’t panic, as Gen Z also has no money.

“That’s very true,” admits Reily. “However, it would be dangerous not to build a seawall because the storm is still 10 years away.”

Digital regulation: Should marketers be worried?

As regulators around the world attempt to curb personal data exploitation, strengthen privacy and update competition law, should marketers now reliant on the big platforms be worried about the impact on their business?

In Europe, maybe, says Reily.

“The EU is probably a little bit distracted at the moment by Brexit,” he says. “But perhaps once all that nonsense has fizzled out, [regulators] will look more carefully at what those big companies are doing.”

Reily is less convinced that much will come out of the US, for all the talk of breaking up big tech.

“In the United States, it’s a different story.  The anti-trust laws are from the early 20th century and were meant to break up standard oil.  They’re not made for technology companies,” he says, pointing to the unsuccessful attempt to rein in Microsoft in the nineties. 

“Our congress can’t even pass the budget.  They’re not going to fix those laws no matter what any candidate running for president is saying they’re going to do. So ultimately, Amazon and Google and Apple, etc. don’t face a huge threat in the United States at the moment.”

While a “black swan event” such as a major data breach could change that outlook, “I wouldn’t plan for that risk if I were running one of those businesses,” says Reily.  “I would just keep doing what I am doing.”

Proxy wars: smart speakers

While Amazon is starting to win the global smart speaker race, Google dominates in the Australian market. Can Google contain Amazon with its voice strategy?

“In the short term, yes.  However, you have to consider what the voice strategy is,” says Reily. “So, conversational commerce is not practical in its current form.  It’s very difficult to shop for anything but staples, given you can’t see the responses the device returns for you,” he suggests.

“It’s also gaming the system a little bit because it’s always going to choose what’s best for it rather than what’s best for you - as evidenced when Amazon started offering conversational commerce via Alexa,” says Reily. “It dominated the online battery market within 24 months and now controls a third of that market, because when you ask it to order batteries, it orders Amazon basics batteries.”

Small shopping niches aside, Reily says the tech platforms have much loftier ambitions that conversational commerce.

“[Shopping] is a sort of a cherry on top that helps offset the cost of the business.  Those businesses are never going to make money, given the research and development that’s required to run them by giving away devices and having people order paper towels with them,” says Reily.

“The long game for voice recognition [is] to build machines that are more like the computer from Star Trek - which is what the literal vision is for the Amazon Echo.”

Hopefully they will end up more Enterprise than HAL.