The Sorry State of Online Retail in Australia

How is it that the online retail industry is in such a sorry state in Australia that large, traditional retailers like Myer, Harvey Norman and Target are lobbying the Australian government for protection against overseas retailers? Why is it that we can’t buy a TV from the Harvey Norman website or have an experience on the Myer website that’s on par with department store websites in the US or UK? There are a number of historical reasons for this.

Power Retail - Catalogues
The UK and US transitioned to online after being used to mail order shopping. (Image Source: Keattikorn/FreeDigitalPhotos.net)

Mail Order Shopping
Back in the 1980’s and 1990’s significant mail order businesses were launched in the US and UK. Customers would browse catalogues then call a mail order business to place an order which would be delivered to them at home, an experience similar to shopping online.

With the growth of online retail in the late 1990’s and particularly the 2000’s, US and UK customers easily made the transition from shopping in catalogues to the much more interactive experience of shopping online. These mail order businesses never really developed in Australia, so it’s been a more difficult task for Australian retailers to train customers online.

Dotcom Boom and Bust
Many of Australia’s large retailers were burnt in the Dotcom boom and subsequent bust. Online retail was touted as the future of retailing and many Australian retailers invested millions of dollars in their online stores only to find that customers weren’t ready to shop online. After the bust it became nearly impossible to pitch an online strategy to senior managers and board members at the larger Australian retailers without being laughed out of the meeting: meaning Australian retailers went the other way and invested very little in their online stores.

Traditional US retailers like Best Buy and Walmart continued to invest in their online stores despite the bust and are now reaping the benefits. Online upstarts like US-based Amazon and UK-based Net-a-Porter and ASOS have grown to become major players in the retail landscape leaving Australian retailers far behind.

Lack of Support Industries
Delivery costs to ship goods purchased online in Australia are much higher than in countries like the US or UK. In addition to charging higher rates Australia Post contractors card inner city customers so they have to collect their online purchases from the post office, a terrible shopping experience. At Shoes of Prey we’ve had to resort to using the German courier company DHL to deliver our shoes to Australian customers.

Banks also leave a lot to be desired in how they offer merchant facilities to online retailers. NAB is the only Australian bank to offer a multi-currency facility which allows Australian retailers to charge overseas customers in their local currency. The software, processes and the time involved to set up the NAB facility are so trying that at Shoes of Prey we use the US firm PayPal to process all of our online transactions.

If we want a strong online retail industry in Australia we need strong supporting industries which we lack at the moment.

Less Competition = Lack of Innovation
The Australian retail landscape is dominated by a small number of large players.

Power Retail - Sainsburys
Sainbury's has innovated to create a fantastic online shopping experience.

Two retailers, Woolworths and Coles dominate grocery. Two retailers, Myer and David Jones are our only significant department stores. While there are more electrical goods retailers, Harvey Norman dominate the prime retail sites around the country. In contrast, in the US and UK markets there are a large number of companies in each of these categories.

Greater competition leads to greater innovation. To differentiate themselves from all the other electrical goods retailers BestBuy in the US had to learn to market and sell online which they are doing successfully in innovative ways. To compete with all the other grocery chains in the UK, Sainsbury’s have developed a fantastic online store which now makes up a significant and growing proportion of their sales.

There Is Hope
While the current situation is less than ideal, there is hope for online retail in Australia. We have an innovative, hard working culture and when we put our minds to it we can be very competitive internationally.

Australian online retailers like Kogan and Catch of the Day have managed to build strong, international online retail businesses. DealsDirect and OO.com.au have established very successful businesses domestically. JB Hi-Fi, BigW and Supecheap Auto have excellent online stores and Westfield have recently launched an online shopping mall.

What we need now is for the likes of Myer, Harvey Norman and Target to stop looking at online retail as a threat, and instead focus on innovating in the space. Let’s grow the industry so that Australian consumers can have a great online shopping experience and so that Australian retail jobs remain in Australia.

Wouldn’t it be fantastic if the next Amazon or ASOS was an Australian business?

Michael Fox also has his own blog 22 Michaels, which is a diary of the adventures, successes, failures and everything he has learnt, in the attempt to start his online retail business.

4 thoughts on “The Sorry State of Online Retail in Australia

  1. Very well said. The banks and delivery systems are poor in Australia. You’ve got to jump through so many hoops to get an Internet merchant account setup and if you haven’t been operating for at least two years, they won’t approve it. But how can you operate without online payment processing??

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  2. I second that… Very well said. Harvey Norman and Myer are giving more excuses to smaller retailers that are already finding it difficult to comprehend that their business(es) must also be online. The most mind boggling comment I heard in 2010 was… “But if I have an online store, people won’t come into my shop!” We (eCommerce Experts) all know that online promotes offline and vice versa and we also know that the main reason for people shopping off-shore isn’t because of price. So why does it seem that retailers are mostly twiddling their thumbs? Is it the cost of implementing a quality solution? Nigel…. PayPal is your saviour. It takes all of a couple of hours to plug them in and start processing credit cards.

    Reply
    1. Here here to PayPal. We use them for all our Australian and international credit card processing and couldn’t be happier with them. We actually went back to NAB after 12 months of trading history with PayPal and it still took a bunch of hoops to jump through to get a merchant facility with them, so we’re sticking with PayPal for the time being.

      Reply
  3. I am in a niche retail area servicing the welding needs of the community. We have grown each year and also through the GFC. No problems with door to door delivery either. Thanks for your article too BTW.

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