Consumer spending is down, competition is fierce and the pace of technological change is blistering. New Zealand retailers are being warned to step up their customer experience or face oblivion.
It’s a tumultuous time for the New Zealand retail sector. As big-name international brands including Costco and Ikea make their way here, and cut-price shopping apps like Temu muscle in, consumers have more choice.
Meanwhile, figures from NZ Post show Q2 retail spending in 2024 was $13.4 billion, down 3% from Q2 last year.
The decline was entirely in in-store spend. Online shopping edged up 1% to $1.39 billion, but still only accounted for 10.4% of overall retail spending.
Shopping is now a combination of physical and digital (hence the term “phygital” retail”), and retail marketing experts say it is vital not to neglect the in-store part of the customer journey.
Focus on the physical
Bruce Gourley, Head of Strategy at retail marketing and media agency Hyper, says the retail spending data doesn’t paint a picture of an ‘online shopping era’.
“The reason I think this is important is that many marketers focus on the digital channels to the detriment of the physical. It also plays out in the much-repeated myth: ‘the death of physical retail’,” he says.
“As [author and keynote speaker] Steve Dennis notes, physical retail isn’t dead. Boring retail is.”
Gourley says one of the challenges for retailers is that the physical space or channel has many stakeholders, each of whom have different KPIs and means of measurement.
“The best way to create seamless experiences for the customers is to have more cross-functional alignment within retailers regarding what they want the channel to provide the customer,” he says.
“A great example is that, when done right, the store can be a powerful point of human contact, great for service and advice. These kinds of metrics translate to a focus on ‘customer lifetime value’ instead of purely short-term sales.”
Too much friction
Sonia McConnachie, Director of consumer marketing and engagement agency Commando, says it’s vital to have consistency in retail campaigns, and failure to do so can create “friction” which is a barrier to purchase.
“It’s about making sure that whatever journey people are on in the out-of-store environment, that when they physically go in-store and go to make their purchase, it feels comfortable.
“When it’s not, it’s jarring and it makes people second guess,” she says.
“It’s like you build a fancy website for a car yard, and it’s shiny and glossy because you had a really nice graphic designer on it, and then customers go into the car yard, and you’ve got buildings falling apart and rusting fences.”
McConnachie says the store is another extension of a retail campaign, often the destination and the exit point. “Some people see the exit point of a campaign as being digital and they forget about actually driving a sale.”
She says her role is to bring a “360-degree view” to campaigns.
“A lot of agencies and a lot of clients have an area of expertise, so they will focus on that because that’s what they know best. And oftentimes your agency won’t understand the retail environment and your retail agency won’t understand the digital environment.”
Reinventing retail
The world of retail “feels a little fragile”, but this really isn’t anything new, according to Juanita Neville-Te Rito, Managing Director of retail consultancy RX Group.
“For decades, retail has experienced cycles of inflation, deflation, economic instability, geopolitical impacts, new entrants, emerging models and technological change.
“In this rapidly evolving retail landscape, consumer preferences are in a perpetual state of flux, businesses face an existential imperative: adapt or risk obsolescence.”
Neville-Te Rito says stores are being reimagined as destinations that offer more than just shopping.
“This includes hosting events, providing interactive experiences, and creating spaces for customers to engage with products in unique ways.”
Brands are creating highly engaging and shareable in-store and online experiences to attract customers and build communities around their brand lifestyle, including “Instagrammable” store designs and pop-up experiences, she says.
“This has also seen a rise in retailers experimenting with temporary stores and pop-up stores including zero-inventory models to test markets before committing to permanent locations.
“This can vary from how Lush allows you to touch, try and smell, coffee and tea stores taking you on a ‘culinary taste matching experience’ through to the old tried and true in-store demonstration events.”
Shorter funnels
Shopper marketing works best if you plan a campaign out through a path to purchase, but that path is being “truncated” according to Kristyna Hotchin, Managing Director of retail and shopper agency Raydar.
“You might see a brand awareness ad on TikTok and that ad is shoppable, which means that it’s going from an awareness piece to a conversion piece pretty quickly.
“You’re cutting out the middle of the funnel, so we’re seeing shortening of funnels.
“We’re still seeing people go into physical stores to shop, but they expect more from those physical shops. They expect those physical shops to provide them something special, something that they’re not seeing online.”
One way of doing this is via in-store promotions, a time-honoured method that can now be connected to the digital and social realms.
The Warehouse made ‘Allie the Alien’ the face of its recent annual Mega Toy Sale in a campaign with DDB, with kids being invited to find Allie in-store and win prizes.
Meanwhile, Woolworths has been running a ‘Disney Worlds of Wonder’ in-store campaign with collectible cards featuring characters from Disney, Pixar, Marvel and Star Wars.
Hotchin has worked on Bluebird’s ‘Free the Golden Bird’ and Sanitarium’s ‘Weet-Bix Stat Attack’ and says such campaigns can be very successful at drawing in customers if they are executed well.
“New Zealand shoppers are super promiscuous, in the sense that they’ll shop multiple banners. What it does for a period of time is it directs all those sales into one banner, if it’s a good one.”
However, Hotchin is not a fan of promotions offering prizes like knives and kitchen storage containers: “I’m so sick of collecting cutlery.”
Different strokes
Ben Goodale, Founder and CEO of strategic marketing agency Quantum Jump, says the principles of effective retail marketing haven’t changed much, but modern technology allows for a greater range of ways for people to shop.
“We’re better educated, and people can work a smartphone and so on, but the way that people think is largely the same. I always view that every time we get an iteration with tech, all it does is allow us to try new ways of connecting with people.”
He says one brand at the forefront of retail innovation is Freshippo, a Chinese supermarket that is part of the giant Alibaba Group.
“When you’re in store, you can check the providence of any item on the spot to find out where it came from, how long it’s been in store. Then you can do a click and collect order or a delivery order, and you can just add them things to your cart on your phone as you’re going around. You don’t need to have a trolley,” Goodale says.
“The beautiful thing about that from a retailer point of view is they also have all the data on what’s working and what isn’t working… but it also comes back to customer centricity.”
He says New Zealand retailers are behind in some of these trends because “the leaps that you need to do are expensive” relative to our small population base.
Crime control crucial
All these innovative in-store tools and concepts are for nought if customers are too frightened to go to your shop.
Rising crime has been a concern for many town centres since the Covid era, and the Newmarket Business Association (NBA) in Auckland decided to tackle this issue by investing in its own security service.
NBA CEO Mark Knoff-Thomas says security is important for a town centre’s reputation and if people don’t feel safe, they won’t go.
“The feedback we’ve had has been monumentally positive that people feel safer. For June this year, we were 33% down on June last year in terms of retail crime, so we’ve had a massive impact.”
The NBA has also found success with old-school print marketing; Newmarket magazine’s spring issue has ramped up its print run to 50,000 copies, being distributed not only in Auckland but affluent suburbs in Wellington, Christchurch, Queenstown and Dunedin.
“If you’re somebody in Christchurch or Wellington and you’re thinking about going across to Sydney or Melbourne for the weekend to do a shopping trip, think again because we’ve got all of that capability right here in Newmarket now,” Knoff-Thomas says.
Green shoots emerge
Auckland’s City Centre is seeing a difficult trading environment, with June quarter spending and foot traffic down year on year, but there are signs of green shoots, according to Heart of the City Chief Executive Viv Beck.
“Shopping trends are changing and we’ve seen a move to retail and hospitality experiences that you can’t get online for some years now, such as Britomart and Commercial Bay,” she says.
“Smith & Caughey’s decision to retain a bricks and mortar presence on Queen Street, with a refreshed online presence to align with the new offering, is another illustration of the changing landscape.
“Overall, we see the ongoing transformation of our city centre, with mixed use developments and new arts and cultural experiences, as a sign of confidence in the future of our city centre.”
Advertisers are playing their part in enhancing the experience in town centres and shopping malls, such as the Pepsi New Zealand rebrand campaign which saw a 2.5m by 2.5m Pepsi globe installed at Commercial Bay in July via oOh!Media and OMD.
The brief was to create a “stop, stare, engage” moment, says Katie Smith, Network Performance Director for oOh!Media New Zealand.
“The idea was to bring to life the globe logo to gain consumers’ active attention and interest.”
oOh!Media recently released a list of eight ‘Creative Commandments’ to achieve maximum impact in store or out of store.
When it comes to creating a seamless transition between the two, “the more you can connect the dots the better” is Smith’s advice.
“Ultimately, it’s the age-old marketing gold of ‘right place, right time, right audience, right message’.”
This was first published in the 2024 September-October NZ Marketing Magazine issue. Subscribe here.
