What Part Does the Aussie Dollar Play in Retail’s ‘Perfect Storm’?
The comparative value of currency can play an important role in influencing a consumer’s decision to buy. But what happens if the Australian dollar is below parity and there are still no good, local options?
In October 2010 we were all knocking back invitations to USD-AUD Parity parties.
The hype around our little Aussie Dollar being worth the same as the (once) Almighty Green Back was generating quite the media frenzy – and to be fair, it was a huge piece of news given it was the first time parity had been achieved since being floated in 1983. TV news outlets ran constant tickers showing the dollar value, while news anchors discussed other events. The only thing missing were streamers and balloons falling from the ceiling as the AUD ticked over to 1.00. In fact, I am sure that occurred somewhere.
But what does parity mean for our local e-commerce industry? This week the AUD has fallen below parity for the first time since late 2011; this week being the third time it is below parity since October 2010. Apart from reaching the highs of 1.10 briefly, our dollar has mostly been around 1.04 for the duration of 20 months.
A high Australian Dollar is a dream for importers, holiday makers going overseas and online shoppers looking at overseas sites. Juxtaposed against these are the exporters, local tourism industry and local bricks and mortar retailers.
Generally speaking, items have been cheaper overseas forever – and will probably always be – due to numerous factors such as population size, buying power, geographic location, wages, rents etc. With Australian e-commerce going through a boom – achieving double-digit growth since 2010 – the high Australian Dollar unfortunately came at the wrong time for bricks-and-mortar retailers.
During the time the Australian Dollar has been above parity we have also seen unprecedented numbers news stories about the ‘threat’ of online businesses: Gerry Harvey has traded blows with Ruslan Kogan, National Retailers Association has blamed online for job losses and store closures, and recently importers are looking to try and protect local profits on fashion brands. It’s rare that we go a week where the major news outlets (whether in print, television or online) haven’t had a story featuring online retail in both positive and negative light. In one way or another online has been discussed around the water cooler.
So we have a ‘perfect storm’ for online sales, with more and more media coverage driving interest and traffic online to see what all the fuss is about, underpinned by the high Australian dollar. These two facts are compounded by an increasing population of internet users: those embracing all facets of online – doing banking, communicating, socialising and finding a life partner – all online. These same connected Australian consumers are also seeking more value for money in tough economic times.
However, local retailers must accept some portion of blame as well. While they cannot influence monetary policy, or global financial situations, they can embrace online and present options in this space – especially at time when more and more people are going online. Present an option which is complimented by local service, local Australian angles, and quicker delivery. Get involved rather than blame others for sliding business.
Online sales account for perhaps six percent of all retail sales, and of that figure it is estimated that just over a quarter of that goes overseas. These figures would lead you to believe that perhaps the overseas threat may not be as big as some make out and that there is still significant growth online locally. Generally speaking, Australian consumers will prefer to buy from an Australian site that features the logos of businesses they trust and have grown up with, backed up by a local email, ‘1300’ number or live support.
Let’s say, hypothetically, that the dollar continues to slide below parity. Are local businesses ready to provide the options for local consumers, or will they still head overseas looking for more variety and better value for money?
Example: let’s say a consumer can buy a pair of jeans – Jodie White women’s jeans – for $196 USD, with shipping through a freight-forwarder at $24USD (trust me, they can). Our shopper could also buy the same jeans from an Australian-based online store for $259 with free shipping. Even if you add GST to the overseas price it still puts the international option in front price-wise (considering current AUD value), but the shipping takes longer and I can’t return them if I want to.
However, if the dollar slides to be only worth .94 USD, then the price of jeans overseas increases for our Australian shopper by around $12. Shipping also increases $1, and all this brings the two prices closer together. But still it is cheaper overseas. Yes it will take longer to ship here and yes, there is still no option for returns. So what is the price of convenience? Our Aussie consumer wants these jeans now and she’s probably unsure about size – to my mind, this is the exact reason why local retailers need to embrace online rather than blame it.
The Australian dollar may or may not stay above parity (unfortunately I am certainly not well placed to answer that question), but local options do work. Not everyone wants to buy from overseas, but they will if they have to. Plenty of overseas businesses are established on the back of sluggish local retailers, and they’re ready and eager to take Australian dollars.