Editorial / Insights / Research and Intelligence

Online Retail is Demolishing Bricks and Mortar

Demolishing bricks and mortar

According to data analytics firm Quantium, if Australia’s top 15 online retailers were combined, they’d be larger than Myer and David Jones, or roughly equivalent in size with Big W, the department store leader.

In the last year, online retail has grown by around 29 percent, roughly ten times the rate that traditional bricks-and-mortar retail is growing. Sales from the largest online merchants have now reached the point that they are turning over nearly as much stock as the largest Australian department stores (if the sales data from the largest online sellers were combined).

The findings are revealed in Quantium‘s ‘Market Blueprint’ analysis, which utilises credit data from NAB card holders. The report also shows that online shopping accounted for 4.9 percent of total retail sales in 2011, equating to $10.5 billion. The top 15 online stores account for $3.9 billion of that, which is more than Myer ($3.15 billion) and just shy of Big W ($4.15 billion).

Of the top 15 online retailers, only two have been found to have a bricks-and-mortar offering, indicating that Australian businesses are yet to embrace the omni-channel stratagem. In the US, by comparison, 13 of the top 15 online retailers also had physical retail outlets.

“The strength of the pureplay retailers in Australia is very profound and raises the more significant question about the ability for the bricks-and-mortar retailers struggling to work out what their online strategy would be,” said Quantium Director Tony Davis, who presented the analysis at the Group Buying Summit in Sydney last week.

Davis also revealed that, contrary to popular opinion, the share of online retail being taken by overseas operators is actually relatively small. Local retailers still accounted for three-quarters of online market share last year, even though overseas players did record growth of 40 percent year-on-year.

“Despite the wailing of many in retail, such as Gerry Harvey, suggesting that online retail is mainly going overseas, we don’t see that in our data,” Davis said. “Clearly overseas online is a threat, both because of the Australian dollar, but also because of the strength of and sophistication and service back up of overseas online propositions compared to the competitors in the Australian market.”

However, Davis points out that Australian retailers can’t expect consumer buying behaviour to change radically should the dollar slip below parity significantly. According to Davis, anyone hoping this will occur is “being very optimistic”.

“Consumers have been taught to trade online, part of it has been the overseas opportunity, and they’ve clearly become accustomed to and comfortable with trading overseas.”

On the other hand, perhaps local online retailers could be justified in optimistically looking forward to a drop in Australia’s dollar, as this would represent a better cross-border trade environment that would be otherwise impossible.

Quantium’s findings are consistent with the hard data that is produced on the online sector on a regular basis, however Davis has drawn a hard line when it comes to buying into the spin that traditional retailers tend to put on the figures.

These vested interests do regularly complain about the ‘pressure’ their business is put under by overseas online retailers. Last week, a collective of fashion retailers (including the notoriously recalcitrant International Fashion Group) went so far as to wrangle an agreement with their suppliers to restrict the sale of products to online retailers that are able to discount their product.

Even disregarding the fact that the action these groups are taking is blatant price protectionism (and therefore contravening ACCC ruling on anti-competitive behaviour), to continue to point the finger is simply absurd. There is no data to suggest the action is necessary, as foreign online retailers aren’t cutting into the market as much as local pureplay retailers are.

Will these traditionalist stalwarts then move to curb online sales in general? Their brands’ reputations are already taking enough of a hit over previous GST furores, followed by lobbying to lower staff wages. How much further will certain bricks-and-mortar brands sink before facing up to the fact that they got it wrong?

The fact is that these retailers have had a host of opportunities to create successful online businesses and the only factors that have prevented them are their own lack of knowledge and intestinal fortitude. Were these parties to continue complaining about online, then we can only assume they are hoping to slow the market down just enough to provide them the time they (desperately) need in order to get their  respective businesses up to speed.

The future of retail is omni-channel, there’s simply no fighting it.

Campbell Phillips

Article by

Campbell currently serves as Editor for Power Retail. He has a background in science communication and a long history in retail. Campbell has a keen interest in emerging technologies and their impact in the world of media and online retail. Campbell is an indoor sports junkie, to the point of playing in a local dodgeball competition once a week, “just for kicks”. Follow Campbell on Twitter, Google+ or connect with him on LinkedIn.

19 Comments

    • Russell
    • 16th May

    It’s quite understandable that online would grow so much when people can buy cheaper through tax avoidance and the benefits of a high exchange rate. It’s kind of like a black market activity and hopefully when we get a new Government who can manage properly then this black market hole will be plugged, or at least restricted some.

    Reply
    • Tony
    • 16th May

    Uh, Russell, I kind of think you are missing the point.
    Actually, a whole heap of points, but let’s keep it simple
    1. Online retail makes up currently just under 6% of retail sales in Aust, and most of the available data indicates most of that is spent with local merchants- not to o/s retailers
    2. As consumers, we want to shop where and when we please and sometimes to buy items that may not be available locally- if you have a good online site it will actually encourage me to visit your physical store and (God forbid) I may actually buy from there and even allow you to upsell me if I have a good experience in store
    3. Save the snide political comments for News Limited publications. I come to this site to avoid that

    Reply
    • Russell
    • 16th May

    No not missing the point Tony and I am free to express my opinions and they are not snide political comments as you say. Don’t read them if you don’t like them. I am ware of the advantages in the local market for online shopping but my point which you missed was about the gaping hole in overseas online shopping and the detrimental effects it has on the tax base. Most likely one of the reasons why the GST collections are down with NSW receiving some 4 billion less than previous years.

    Reply
    • peter
    • 16th May

    do you see the hypocrisy in your article?

    1. on-line retailers are ‘demolishing’ bricks and mortar as on-line sales grew 29% (on a small percentage of overall retail sales, being 4.9%), which is 10 times the sales of bricks and mortar stores.

    2. overseas on-line retailers sales grew 40% BUT they are no threat to local retailers as their percentage of on-line sales is relatively small (small as in what percentage…4.9% perhaps?).

    So whilst the 29% local sales growth of a relatively small percentage of total retail sales (4.9%) is the end of bricks and mortar retail….a 40% overseas on’line retailer sales growth poses no threat because it’s only a small percentage?

    ummmm…..

    Reply
    • Hello Peter,

      Thank you for your interest in Power Retail.

      I believe your response to my article is mildly misinformed, and I apologise if this was because my story does not make things clear enough for you.

      While overseas online retail sales are showing strong growth, they still only make up a small fraction of total online retail sales. Interestingly, research shows that the largest online shopper segment (Baby Boomers) prefers to buy from local online retailers.

      While the significant growth of overseas online sales is worrying, the data doesn’t support that the theory that it is the leading contributing factor to Australia’s flagging retail market.

      Instead, a variety of economic pressures, including the Aussie dollar and interest rates have a much more marked effect. On the other hand, the most obvious reason why Australians may be purchasing more from overseas online retailers is simply the fact that they often have a better option.

      Reply
        • peter
        • 21st May

        no, not misinformed…my response is in regards to the statistics you bandy around in your opinion piece (I can’t bring myself to refer to it as objective journalism) and your misues of these numbers to push whichever point of view you wish to push at the time without any analytical review of what the actual affect/result of the statistics are on each of the areas you are trying to address.

        the end result of your use of the quoted statistics in this article is a resounding Fail!!

        Reply
    • Tony
    • 16th May

    Russell, you are as welcome as I am to express your opinion. But I am heartily sick of hearing that online shopping is the main reason that retail is hurting. I have lost count of the number of times I have been to (mainly) larger stores and trying to buy things and cannot find a sales assistant who cares enough to take my money. I’m not alone in facing that scenario and I reckon that has a bigger effect on the tax base than the percentage of $ that go to o/s retailers

    Reply
    • Andy Ford
    • 16th May

    Tony – I agree but forget the lack of Sales Assistant interest – try going to Westfield Southland VIC and going in to EVERY sports shoe retailer and not be able to buy a single pair of runners in a size 12 because they ‘don’t stock them that big’.

    Walk in to a fashion store there or in any shopping center and not be able to tell which store you are in because they are all carry virtually identical stock.

    Retail Therapy? I certainly need therapy after I visit a shopping center

    Reply
    • KW
    • 16th May

    Where can I see the list of the top 15 online retailers? Be nice to see if any of them are not sale sites that sell product at up to 70% off.
    I find it interesting that official stats show OS online retail sales are a very small % of total sales, yet no one highlights that the pricing is general 1/2 of Australian retail prices so has twice the impact on Australian retail sales than the % would suggest. Ditto for the huge volumes sold via sale sites.
    We are sending retail businesses and obs OS like we did with manufacturing. Everyone will wake up in a year or two realising the $1,000 import threshold has cost jobs, GST, Duty and profit tax revenue to the detriment of us all.

    Reply
    • Hop
    • 16th May

    I have a business with an omni channel strategy. I have bricks n mortar shop, which we just recently increased in size. We are still growing, 50% increase in sales year on year.
    I think the headline is sensationalist, and the overseas online component is a bit general but the article is well written.
    Overseas online competition varies with industry. In a lot of niches the overseas online sales are a big part of the local sales figures. If the survey included Paypal data, it would show a different trend.
    The idea that online retail is going to destroy bricks and mortar is laughable. We love the hype, remember when the Year 2000 bug was going to destroy the world.
    Online will always be a chunk of the market. but only ever 5% to 10%. Does anyone really believe everyone is going to stay at home and order online, ask greengrocer.com.au – how did that dream turn out?
    The market is changing, shops will adapt and move online. I dont think the online market will grow past 10% but I do think the majority of shoppers will use online to find a local bricks and mortar shop.
    The real story, which is a lot less sexy and exciting is online will destroy distributors. You look at the channel and what will change? Internet kills the middleman – ie the distributor. Classic economics 101, when the market is fully informed…
    (I’d also call Westfield a middleman)

    I can buy from a US distributor and land it in my shop quicker than getting stock from an Australian distributor. However in most industries the distributor is a protected species. The big boys who complain the loudest are the ones protecting their distributor or their distribution business that props up their high margins which are unsustainable in a well informed market.
    ACC need to get off their arse and ask why can Australian consumers buy off US shops online but Australian shops are not allowed to buy off US distributors, they are forced to buy from Australian distributors. That is where the dice is loaded in US online shops favour. In my opinion, the reason many retailers in Australia are doing it tough.

    Here is a prediction – distributors will become major online stores. Oh yeah, that’s already happening (applicancesonline).

    Reply
      • Troy Hammersmith
      • 19th May

      Get the facts correct – Appliances Online is an online retailer, not a distributor – the business is owned and operated by Winnings Appliances in Sydney

      Reply
  • Nice to see a heated debate going on here :)
    I am basically pure play online retailer myself and from my purely business perspective it is because customers are simply easier to acquire online at the moment.
    I have to agree with Tony about the lack of service in a bricks and mortar store, I find personally far superior service online from a lot of retailers. Not sure why that is .Maybe it is simply that from my pc i can respond to 2 or 3 email enquiries pretty damn quick and i genuinely want to. I know that if I am slow the consumer can visit the next store in about 3 seconds flat. As we grow (quickly) growth is easier to handle online (again from my opinion) I had 3 B & M stores in the past and staffing was a king size headache. Online you are literally in closer communication with staff and it creates a better workplace.
    One of my staff is over 500kms away from me but we are in constant conversation via IM and it really works.
    Yes online is a small number at the moment but if the stores continue to offer mediocre service I can see that number increasing considerably.

    Reply
    • Dan
    • 16th May

    Is appliancesonline a distributor? I thought they were an e-tailer?

    Reply
  • Have had for 66 years two b&m outlets and this year launched aus wide online store. Opportunity occurred to move outside our usual purchasing through subsidiaries, distributors and agents, buying directly for this e-comm store from one Manafacturer with over 30 factories worldwide. I have to balance this with maintaining relationships with existing suppliers. It’s a tightrope. I feel for those in the middle who have been friends for years but we have had to look elsewhere for margins that can help sustain us in an omni channel world. The trick is in adapting both to work together. I don’t have the answers but we have an opportunity to give it a crack.

    Reply
    • Paul
    • 17th May

    I wish people woujld consider what they write before doing so.
    Sales assistants – there are none because retail is depressed. You want to pay online prices in your local store but want 50 staff at your beck and call at that price?
    Distributors – MANY brands need distributors to build and maintain their brand. There are few brands in most retail segements who can afford to not have local distributors marketing and pushing their product into stores. There are many brands who have faltered or gone altogether in the past few years in many industries because they didn’t have distribution in place that was profitable for both parties.

    Reply
    • Troy Hammersmith
    • 19th May

    Don’t I love reading all these whining grizzlers complaining about various issues with bricks & mortar retailers as if the online purchasing world was somehow 100% perfect – online buying suffers a plethora of issues same as B & M – advertised goods are out of stock, bait advertising occurs on goods, goods arrive late, goods arrive damaged, the wrong size or color gets delivered, the wrong product arrives and consumer has to go to hassle of returning it, wrong amounts get charged against CC’s, refunds on CC’s can take forever – and on it goes. Too many people have this myopic axe to grind with B & M retailers and their whining arguments are rarely ever balanced – just unfairly biased.

    Reply
    • Hi Troy,

      I love reading your spirited comments.

      The last three times I have been to Westfield in Doncaster, Victoria, I have had specific items in mind to buy and money to burn. I went into Esprit Kids…the two sales assistants talked behind the counter ’til they were black and blue, despite me standing there waiting to be served, and asking for help. I got daggers for asking that. I left the clothes on the counter and walked out. Same thing happened in Edward Meller (shoe store). I was holding a shoe at the counter while the lady just yapped in her mobile phone about her plans for that night. It was clear she was speaking to a friend too, and not a customer, distributor etc. After 10 minutes of patiently waiting, she hadn’t even made eye contact. I left. In Target, I got service of some kind. I had a faulty item–not my fault. Yet I had the service counter attendant tell me Target doesn’t replace faulty items, even though the sign on her desk read, “We replace all faulty items if they cannot be fixed or repaired.” I pointed this out. She still continued down this line. The manager was brought in. He also said the same thing,until I pointed out what the sign said. Silence. And a whole lot of “Well you are right Ms Lambert, except it doesn’t count in this case.” They couldn’t tell me why it didn’t count in this case. In the end I got a credit note, but it was full of hassles. I also got a round of applause from the banked up customers behind me who couldn’t believe Target was trying to back peddle out of that.

      I like to shop online too. Sure I have had my hassles online with receiving faulty items, broken items etc but in comparison, it’s a lot less hassle. I shop from trusted sites and always read returns sections thoroughly. If the return policy isn’t that good, I don’t buy online from that store. However, there seems to be something extra in the customer service I receive online, even when there is a mistake that’s my fault. I’m not made to feel stupid, I’m not made to feel like it is my fault. My queries are answered and I usually get the problem sorted with a voucher or sample product thrown in for the trouble. Yes there are problems, but it’s 99% of the time handled without the attitude that seems to have been present in my recent traditional retail experiences.

      So Troy, I don’t think you can say something is unfairly biased when people are recounting personal experiences. I am the first to applaud good service when I get it no matter which environment it happens in (I am the sort of person who takes time to call a manager or senior person to let them know when I have received good service, which I did about 3 months ago at the very same Target). On the same token, I can happily say I have been behind some of the Miss Terry Shopper articles that appear on this site, when the online customer experience has been distinctly lacking.

      What I have just commented on is based on my recent personal experiences in both the online and offline worlds, and currently, I prefer online shopping due to a spate of negative offline experiences. That’s just the way the it is at the moment.

      Thanks,
      Elisabeth

      Reply
    • Tony
    • 19th May

    Troy, I will make an assumption that you are including me as one of the “whining grizzlers”. I can only speak for my own posts, but I don’t think I’ve ever commented that shopping online is 100% perfect- of course it isn’t. The vast majority of my own purchases are made in b&m stores by the way but when I get a better experience and SERVICE as a customer online than I do instore- and that is happening more and more to me at least- and the price is often (not always, by the way) cheaper online, then I will shop where it looks like my business is appreciated

    Reply
  • Shopping online is not 100% perfect . But it has the profit.

    Reply

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