Online Retail Industry in Australia - Christmas 2007 and Beyond

Friday, 15 February 2008

According to Hitwise data in January 2008, the Australian online retail stores have performed quit well over Christmas 2007.
Sectors including appliances, electronics, books, music and video-games have experienced records web traffic, with increases in excess of 30% during the last quarter of the year.
Overall visits to Shopping and classified websites have increased by 9% comparing December 2006 and December 2007. Such trends have a good impact on the e-commerce and online retail industry in Australia.

However, the Australian online retail industry does not seems to be as healthy as in other market overseas. Mike Zeederberg, managing director of Digital Agency told B&T that:

There is a lot of discussion about why e-tailing is not growing at the same sort rate as the other markets, and the fact that Australia does not have the catalogue culture

This assumption is a little superficial as Australia is probably one culture that is really mail-order focused due to the size of the country. Therefore this is not really the issue

If you look at the ranking of the top 10 shopping and classified websites in Australia, it is quite scary to notice that except Trading Post Online and Email Cash, there is no real Australian online retailers in the top 10.

Major Australian Retailers are not taking the initiatives of going online

Some of the reasons that explain the actual state of the online industry, is the lack of initiatives from major Australian retailers such as Coles/Myer, Woolworth, David Jones or Harvey Norman. According to Chris Hitchen, managing director of Get Price, most of Australian retailers have limited or no online shopping facilities. Moreover they do not operate multi-channel strategies and if they do they concentrate their efforts in driving visits to their physical store. Paul Greenberg, managing director of Deals Direct recently elected Australian number 1 online department store, said in an inteview that he almost felt embarassed to be the first online department store as they are a privately own company with no real competition.
This is the result of a real lack of confidence in online retail from traditional retailers. Big retailers are often afraid of the unknown and the cost associated with starting an online division.Moreover most major retailers are afraid of competing on prices and do not see the benefits of online retail.

A lack of efficiency of the Australian online retail model

Another reason that can explain the situation is a real lack of experience with the online business model. Most retailers find it costly and difficult to understand. Those who have tried are still not mastering all the challenges of an online business. For example Dymocks, which is one of the rare major Australian retailer that took the opportunity of moving online, is still struggling against its overseas counterparts. While Dymocks generates a large share of its revenue online, their offer is still inferior to Amazon in terms of price, delivery and customer service. Indeed Amazon offers cheaper prices and deliver much faster while being located in US!
David Jones is another example, they invested a large number of money the late 90's with a 14 Million invetment. However they did not managed to understand the model or did not spend enough time to understand the challenge of the Australian model and never came back!

A lack of expertise in marketing products online
Finally many Australian retailers that have moved online have not mastered the way of marketing their products online. I have seen many online retails websites that do not have a clear online strategy and especially a clear and defined search marketing strategy. If you look around many Australian online retailers do not have well optimised websites and many of them do not even use paid search.

But opportunities exist and are not fully explored by major brands

However Australian want to shop online. Forrester Research and AC Nielsen discovered that 62% to 78% of Australian internet users are online shoppers. Looking at the growth figure in the US, online retail grows at 25%, while traditional retail grows at 4 to 5% a year. Early online players, who rationalized their online business model are enjoying a dominant position on the market and are actually putting traditional retailers in danger. For example Deals Direct enjoyed a $50 Milion dollars turnover in 2007 exclusively online and has been elected number 1 department store in Australia in less than 3 years.

As a result there is a real need from major retailers and especially Woolworth and Coles to take the step and make a move online. At the same time,the same companies wil l need help from agencies to fill the gap in knowledge and manage the transition from operating and managing a business offline to online. Conferences and industry gathering such as the Online Shopping Conference have also a real role to play to educate and help the Australian retailers to move online or improve their online activities. The challenges are real, but the opportunities are far greater!