THE GREAT ECOMMERCE REVOLUTION
Written on the 21 November 2011
ONLINE shopping comprises just $12 billion of the $295 billion retail industry, yet is applying plenty of pressure on the local economy as smaller retailers struggle to adapt to a new global marketplace.
While Australian retail giants are investing heavily in eCommerce to maximise their online presence, small retailers are lacking the knowledge and resources to vend online.
According to PwC and Frost & Sullivan’s eCommerce consumer survey, Australia’s online retail market is forecast to grow exponentially from $12 billion to $18 billion by 2014 - 40 per cent of which goes overseas.
Although the report’s senior research manager Phil Harpur says a ‘boom’ in eCommerce is an exaggeration, the figures are an ominous warning for those retailers yet to implement online strategies.
Australian Retail Association (ARA) executive director Russell Zimmerman agrees. He says the proportion of online spending is much higher than the 3 per cent annual retail spending figures indicate.
“Once you take into consideration that around 50 per cent of those figures are made up from food retail, it is actually 6 per cent. Particular retail areas, for example footwear, photography and music are even higher with around 16-18 per cent online sales,” says Zimmerman.
The Frost & Sullivan survey also shows shoppers value the convenience, range, prices and the ability to compare product costs associated with digital shopping.
“In this consumer-driven economy, savvy retailers already realise that multi-channel retailing is a way to expand their business by both engaging new markets and adding value for existing markets,” says Zimmerman.
“Operating online is no longer an option for Australian retailers and service providers, but an absolute necessity to gain the momentum they need to stay competitive in today’s changing consumer landscape. Over 8 million Australian consumers now use the internet to make purchases and this, coupled with global consumers, makes the online market place a very exciting space to operate in.”
Despite a number of initiatives, including PayPal’s ‘driving business online’ campaign, the figures indicate many SMEs are missing out on the funding and education required to stay ahead of their competitors.
According to PwC’s Global Retail & Consumer Advisory leader Stuart Harker, Australia’s retail landscape is making a structural shift as more consumers start to spend a greater share of their cash online.
“Large and small retailers alike are facing stronger than ever competition from digital channels, both here and overseas. Lower prices, convenience, greater product range and a growth in mobile devices are all factors fuelling online shopping,” he says.
Over the next 12 months, 86 per cent of online shoppers indicated they would increase or at least maintain their current level of online expenditure. In Australia, more than a third of survey participants indicated they were using a smartphone or a tablet device to buy products online.
“The tablet device has been one of the key drivers of online retail sales in the last 12 months and will continue to drive sales in the next year as new products are introduced into the market,” says Harker.
“Australians will each spend more than an estimated $600 online in 2011, compared with $536 in 2010.”
Recent ABS data shows micro and small businesses earned $10 billion in 2007-2008, while large businesses earned more than $41 billion, coinciding with a 35 per cent difference in customers ordering products via the internet.
Additional figures highlight wholesale trade and retail trade as the highest sectors for web features that aid in online purchasing, but large businesses are twice as likely to use the technology as SMEs.
The lag in adoption of eCommerce strategies in the small business market is seen to be a result of a rapidly changing market and a technology ’phobia’ among proprietors.
Zimmerman disputes this saying that even though they don’t have online stores, many small businesses are quick to embrace the internet in other ways such as using social media marketing.
A small business study by the University of Southern Queensland cites numerous internal and external factors holding back eCommerce implementation in SMEs.
Internal factors include a lack of awareness and knowledge; little skills and time to implement it; cost of implementation; and concerns with security and privacy. External factors range from the fundamental software and authentication needed to create online business to an absence of education and government assistance.
Industry research by the Australia Institute shows SMEs yet to employ online strategies are resorting to increasingly drastic measures to stay afloat.
Retailers are marking-up their wares to stay profitable as the strong Aussie dollar is encouraging further growth in online retail. The dollar’s strength has also caused a reduction in shipping costs, prompting online retailers to keep stock offshore and ship on demand.
Local retailers that source domestically or sell locally are struggling to compete in price against overseas products, with 18 per cent of consumers buying more than half their products from overseas websites. Declining domestic retail figures caused by the trend have prompted a number of questions about government involvement in online retail trading.
The Fair Imports Alliance (FIA) recently submitted six suggestions to the productivity commission to lessen the burden on retailers, including the removal of the low value importation threshold, which would impose GST on online shopping goods under $1000.
Harvey Norman CEO Gerry Harvey caused controversy earlier this year when proposing the same thing, but the colourful retail identity quickly backed down after a huge consumer backlash.
FIA spokesperson Brad Kitschke, says the Federal Government must act to instigate regulations that create an even playing field for domestic and overseas ‘e-tailers’.
“The crux of this issue is the market is changing. Poor and declining retail sales are being driven by a number of factors but there is no question that consumer preference for online retail has increased and is continuing to grow,” he says.
“We’re not asking the Government to give Australian retail an advantage over overseas suppliers. We are asking the Government to remove taxes on Australian businesses that are not imposed on those overseas and to give the retail sector the same importance that any other $240 billion sector in the economy is afforded.’’
The ARA’s Zimmerman is quick to dismiss the importance of GST and the rising dollar, saying government training and education is more important to small domestic retailers.
“(Businesses) are scared, they’re heading into unknown territory and they need expertise and assistance to guide them,” he says.
He is hopeful Australia’s small business retailers will adapt and says the shift online is just another change in the thousand-year history of retail enterprise.
“As retailers come to understand the online market, they will reinvent themselves to suit it,” he says.
Online shopping will increase to $13.6 billion in 2011 – up 13 per cent from 2010