Is There a Saturation Point for Online Retail?

By Chris Morley | 23 Jul 2012

As the recent results of NAB’s Online Retail Index reveal an industry slowdown, many have begun asking if we’ve reached an internet shopping saturation point. Chris Morley discusses the considerations involved in this knotty problem.

Earlier this month, the NAB Online Retail Index was released for the month of May. General findings from the index were that online sales grew at 14 percent (slightly down from the figure of 15 percent for April and the 19 percent growth achieved in March this year). The total online retail sales figure was around $11.3 billion. This level is equivalent to 5.2 percent of traditional bricks & mortar retail spending (excluding cafés, restaurants and takeaway food).

The slowdown of online sales isn’t unexpected given factors such as lower consumer confidence, the unknown impact of carbon tax as well as job uncertainty – all circling around the consumers head when they go to make a purchase. NAB Economist Gerard Burg has told StartupSmart that it’s too early to draw firm conclusions about the reasons for the slowdown but offered stated that a “saturation point” will be reached, where online retail will have to plateau, but he says the market is currently too volatile to be able to say whether or not we’re nearing that point.

While reaching a limit or ceiling of online sales will eventually happen, trying to guess what that percentage of total retail that will be is difficult to say the least and suggesting that we might be nearing it is laughable. The saturation point arises as consumers have a need that cannot be fulfilled by online selling – that being a need to touch, feel and have a human experience.

Research from the Retail Doctor Group suggests that “53 percent of consumers would prefer to see, feel and touch a product before buying”.  Based on this research, we might expect to see online sales grow to 47 percent of total retail – astronomical given online is just above five percent currently.

There are a few other factors at play as well; such as the fact that internet acceptance is still growing. As the acceptance increases so too will online spending, and as more people buy items online, they will expand their selection of products that they purchase. A few years back, I said I wouldn’t buy jeans online – I have since bought at least three pairs. Currently, I feel I wouldn’t buy a suit online, but give it time my friends. I am sure I will have made the leap by the end of 2012.

As the online sales slow a little in Australia, it is worth looking at the percentage of sales that our leading e-commerce markets such as the UK and USA boost – remembering that these markets are several years ahead of ours. The US e-commerce market was stated as being seven percent of total retail in 2011, and it’s expected to reach 10 percent by 2016, according to Forrester Research. The UK currently sits at 8.5 percent of total retail. The growth figures of each nation is also on par with our own, with the UK year-on-year growth at 15.2 percent according to the Office of National Statistics and the USA’s e-commerce sales growing at 15.4 percent according to eMarketer.

Its fair to say that placing a saturation point on online sales in any of the three markets we have looked at will be impossible. The question also must be asked – will the saturation point be a similar percentage point in each economy? With Australia having a bigger disparity of population spread compared to the USA and the UK, it might well be that Australia actually surpasses these markets for online sales as a percentage of total retail (as access to products is difficult in remote areas, ensuring a high demand for online shopping) This fact is exacerbated by Australia’s resource rich, vast landscape. Retailers have an opportunity to provide not just clothing to the miners and their families, but other products also, like DVDs, jewellery and toys for their kids.

Another point to consider is that as Generations Y and Z and beyond reach ages of financial independence, how will they shop? Retailers cannot assume it will be the same as we have in the 90s or even in the 00s. The internet has changed our lives and has perhaps been the biggest adjustment retailers have had to make since trinkets, gems and gold were used in exchange for goods – there is even a chance that the saturation point doesn’t exist at all.


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