by CharotteHannah

“The last few years have been interesting times for online retailing in Australia. Just as there have been claims that there are rivers of gold to be made online, there have also been claims that there is no money to be made in this manner and that anyone who thinks differently is throwing money away.

There have been some interesting launches in the online retail space and certainly there is a lot of talk that major bricks and mortar retailers are on the verge of  entering the multi-channel world. Big W went live in May, The Good Guys also went online with a ‘pick up in store’ offer just last month and more are set to follow as we head into the Christmas season.

While this has been happening here in Australia, in the USA and the UK we are seeing the likes of Best Buy, Tescos, Walmart and many others reporting significant revenue through their online channel.

At a financial level there are two parts to the equation that need evaluating. These are the top line revenue that can be made and the costs associated in realising that revenue. The costs element varies significantly from business to business but can be established with a reasonable level of accuracy. The issue for online retail has been quantifying the top line opportunity. With very little local Australian data to reference, there has always been a question as to whether Australian consumers are in some way different to their overseas counterparts and the impact any differences might have on revenue.

That was until very recently.

Now two reports have given us some insight to the market that we haven’t seen before and the results may surprise you.

The first report was a presentation made by Patti Freeman Evans (VP, Research Director for Forrester) at Online Retailer in July. Freeman Evans reported that Australians are on average more likely to purchase online than Americans, and only slightly less than the British. And that isn’t all. Conversion rates in Australia are higher than the US, cart abandonment is lower and the average basket is higher.

I have to say that when I first saw this information it didn’t feel right. My experience when moving to Australia from the UK nearly 4 years ago was that I couldn’t get anything like the range of products I was used to purchasing online and that those I could get didn’t offer the savings I was used to seeing via the online channel. And I don’t feel things have shifted very far in the last 4 years. So where are these people spending all their money?

Until I read a report from Frost & Sullivan, I was concerned that Freeman Evans could have got things wrong. The Frost & Sullivan report – simply titled ‘Australian eCommerce Market 2010’ – made an interesting discovery: 40% of all online expenditure by Australians happens on overseas sites. In my view, the reason for this is that Australian retailers aren’t meeting the needs of Australian consumers. In their press release, Frost & Sullivan were more direct: “A key reason for the lag in local activity is the lack of online presence by many of the large retail chains and department stores.”

So, customers are exhibiting mature online purchasing behaviour (so mature that they are sourcing products internationally in large volumes), it is just that the local retailers aren’t servicing them.

Several estimates place the current Australian domestic online market at around $12 billion a year. That means that Australian consumers are spending approximately $20 billion a year online. The amount spent domestically online is increasing every year and is predicted to rise to  around $18 billion in 2014 (according to the Frost & Sullivan report). Compare that to June retail sales that saw a year on year fall of 0.7% and while it may not be rivers of gold, it would suggest to me a significant opportunity for a retailer to drive top line growth.

However, in a market where online revenue is increasing when the total market is relatively stagnant, the issue of channel cannibalisation rears its ugly head. For my thoughts on that you will have to read my next blog article. But for now, suffice to say the revenue opportunity for the online channel is certainly a very real one.

Of course top line growth does not necessarily equate to profit. Introducing an eCommerce channel into a retail business is much more than ‘opening up another store, just online’; it is truly business transformational. In a presentation at Online Retailer, Russell Harte, Head of Business Development & Delivery for boots.com, talked about how they are only just getting the Boots online model right after 10 years of multi-channel retailing. Learn from these companies and invest smartly. Leverage the global understanding that has been developed in this space to avoid the costly mistakes others have made. Because heading down the right path now could well lead to those rivers of gold, while going down the wrong one could be a costly exercise.”

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