While competition in the e-commerce market is increasing, online retailing is still a relatively untapped market in Australia both for specialty and larger retailers. Raghu Rajakumar reports.
Despite the current economic downturn in Australia and a severe global financial crisis, IBISWorld expects revenue from total online shopping in Australia in 2008-09 to rise by 5.5 per cent to $15.9 billion and a further 5.7 per cent to $16.8 billion in 2009/2010.
In the short term, online shopping will remain resilient to a downturn in consumer discretionary spending. More Australians are expected to turn to the web to find bargains and a general increase in more well 'researched' purchases over impulsive spending is anticipated. Consistent growth is also projected over the next five years with online shopping projected to post average yearly sales growth of 5.9 per cent per annum until 2013/2014. While consumer and economic demand play a part, it is important to take note of sociological and technological trends pointing towards a sustained period of growth in the industry.
Firstly, online shopping will be given a boost by the increasing spending power of 'Generation Y'. This generation is roughly between 16 and 26 years old and may face a tough year or two with a difficult job market. In spite of this, as more of them leave school or university and enter full time work over the next five years, online retailers will benefit from a large category of spenders exposed to the internet from a young age and generally comfortable with transacting on it. This age bracket currently accounts for approximately 26 per cent of Australia's department store sales, expected to be worth $19.62 billion in 2008/2009.
Apart from this, IBISWorld expects broadband subscribers to reach 10.3 million by 2014, up from 6.9 million in 2009. With this rapid rate of internet penetration, along with better security and changing technology such as more wireless applications and a myriad of online platforms, the potential for trading in the online space will continue to grow.
Large Retailers Still have the advantage
Australians are the third biggest online consumers in the world (based on pro-rata population) and yet the country's online retail transaction facilities, while improving substantially, are generally poor. The four major players in the Australian department stores industry - Wesfarmers, Woolworths, Myer and David Jones - account for a combined total of over 90 per cent of total revenue yet online sales only make up an small component of this. According to IBISWorld, in Australia, online shopping is worth less than 3 per cent of department store sales. This is much lower than many other parts of the world. For example, online shopping comprises almost 7 per cent of all purchases in the British department store segment and 8 per cent in the US.
Having a wide range of search options, the ability to compare prices without spending as much time traveling and the chance to purchase goods at any time of the day attracts people to shop online. Despite this, a major factor limiting acceptance of the internet and online orders for fashion and clothing is the inability to actually touch the product. For the majority of consumers, the physical experience of shopping is vital.
This is where retailers, who already have stores to complement sales and have the ability to take a "multi-channel" approach, have a distinct advantage over 'online only' retailers. This approach includes additional service options for online buyers such as the chance to return goods ordered online and further customer service help from staff. Apart from this, for smaller 'online only' operations, it can be difficult to set up wholesale distribution points and delivery points. Larger retailers are also more likely to harness support from suppliers.
While there are many smaller retailers Australia with online transaction facilities, similar to the larger firms, the internet is still mainly used as a promotional tool to present a snapshot of products, brands and store information. The e-commerce space is an important channel, not just to boost market presence and penetration, but to clear stock and incrementally add to sales volumes.
For example, Sportsgirl has cutting edge transaction facilities and Babyco is also an example of an Australian specialty retailer that has successfully implemented online transaction facilities to complement store locations. The "multi-channel" approach can provide efficiencies, with consumers in many cases pre-shopping before going into a physical store. It can also help prevent, at the other extreme, consumers trying on clothes or shoes in store and then shopping on the internet to find the exact same piece at a lower price, either in Australia or around the world.
Do your homework
While a web presence is vital for nearly all small to medium fashion or clothing business, careful planning and costing is essential before setting up online facilities. Just like opening a new service centre, store or factory, a clear understanding of objectives is required before developing a web strategy and investing in online capabilities. IBISWorld research shows that costs and strategies vary depending on whether a retailer wants to provide information, a transaction facility, improve presence and brand recognition or all of these factors.
In all cases, a retailer not taking advantage of the internet and the changing consumer behaviours it causes risks missing out one of the most important shifts in the way retailing is conducted in Australia and globally.
Talking figures
Australians sure love to ask questions. Online search giant Google recorded 4.5 million queries for apparel and accessories in the first week of March alone. A breakdown of full year figures from 2007 and 2008 shows that queries for clothing labels and designers grew by 39 per cent, clothing retailers by 41 per cent and footwear by 40 per cent.
And, it's not just a case of purchasing power - Australians like to try before they buy. The Australian Centre for Retail Studies and Google published a joint study last month which highlighted the correlation between online activity and bricks-and-mortar purchases. A phone survey of 413 clothing purchasers in Sydney and Melbourne during December found most (60 per cent) had purchased from Myer, Target, Kmart, eBay and David Jones. Of the 413 purchasers, 149 had used the internet to research before they made their purchase ? that's more than one-third of shoppers.
While 15 per cent of these purchases were made online, the other 85 per cent were made in store. For the one in three shoppers who researched online, 60 per cent started with a generic search term (i.e. they did not start with a brand name when they searched).
Most of the people researched in the week leading up to purchase, which is a relatively short purchase cycle. Keeping the pace fast and furious, clothing purchasers overwhelmingly searched for "less than one hour" when they did their research.