COMMENT: Australian retailers and their domestic suppliers are facing an online time bomb which when it explodes and it will, will leave many of them wondering “what went wrong”.
The threat is not the lack of a 10 percent GST on goods purchased online from overseas web sites: it’s the sheer buying and operational power that big brand retailers like Staples, Best Buy, Amazon and EBay can throw at seducing Australian consumers to shop online.
A recent research study of 950 consumers by legal and accounting group MSI Global Alliances found that 75 percent of Australian consumers were already buying from overseas web sites.
Galaxy Research who surveyed 1275 Australian consumers in October for EBay, predicted that over a million people would visit the web site during December where they would make over 200,000 purchases.
Among those purchases would be phones, sound systems, Apple device accessories and IT products such as notebooks, netbooks and other home office products.
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|Amazon Warehouse in Wales stocked with online purchases ordered yesterday.|
The problem for Australian retailers is that have not taken online shopping seriously, as they tried to force consumers into buying from their bricks and mortar stores by denying them access to the same goods online.
Galaxy Research also revealed that Australian consumers shop online at Xmas because they “want to avoid crowds.” They also liked the idea that they could compare prices while also getting access to goods not sold by Australian retailers.
A big problem for Australian retailers is the lack of volume due to Australia’s small population of only 21 Million.
Global retailers like Wal Mart, Marks & Spencers, Best Buy, Amazon, Staples and a host of European operators are servicing markets that have populations close to 1 billion. The USA and Canada alone is over 350 million. The UK is 62 million. This gives them greater buying power and the ability to offer lower prices online into markets like Australia.
Earlier this year in a discussion about IPTV Services and the Australian market the CEO of a major Hollywood movie house described Australia as a “Piss ant country at the bottom end of the earth that had a population that was not even the size of greater LA. This is nothing. What we make in a year in Australia selling movies we make in a week selling into the US market”.
The threat to Australian retailers is real and frightening. Yesterday in the UK shoppers were spending $2 million a minute buying online as consumers flocked online from their offices and homes to get their Christmas shopping underway.
According to eDigitalResearch a UK online research Company the seven-figure barrier was broken just before 1pm.
Amazon who is already selling goods to Australians said that yesterday in the UK was the biggest day for online shopping this year.
The first week in December is thought to see the peak in online buying, because it comes after people have received their November salaries but before they are too worried to buy online in case their gift does not arrive in time.
Research carried out by eDigitalResearch recently found that 26.6 percent of people intend to do more shopping online than they did last year.
Analysis published by the IMRG, the UK trade association said that UK consumers will spend $19.4bn this Xmas online. If this level of online spending is achieved in Australia which has a population of 21 million Vs. 61 million in the UK consumers the total online spend over the 2011 Xmas period will be $6.25 Billion.
Consulting company Frost & Sullivan is already forecasting that Australians will spend $12 Billion online next year.
My tip is that Myer and Harvey Norman will go online from China as it is the only way that they can compete up against overseas competition. They will be followed by the likes of Woolworths and Coles, who consolidate shop front brands like Dick Smith, Officeworks, Big W, Coles and Woolworths into common backend operations servicing Australian consumers.
This will hurt hundred’s of independent operators who are currently paying big dollars to the likes of Westfield for their bricks and mortar space and have no capacity or buying power to compete against Australian retailers, who are setting up overseas or overseas operators moving into the Australian market.
Also set to be hit are the hundreds of distributors who currently supply local retailers, as big brand retailers move to buy from overseas suppliers at considerably lower margins than what they are currently paying in Australia.
In the USA last week where online retailing is mature, consumers being seduced to shop online with deep discounts, free shipping and clever online marketing.
According to ComScore US residents spent US$13.5 billion last weekend buying over the internet. The research company said that this was the heaviest online spending day in US retail history.
According to recent ABS data Australian retail sales are flat. Turnover in October was relatively unchanged, following a meager rise of just 0.1 percent in September 2010 and of 0.2 percent in August of the same year.
The seasonally adjusted estimate for Australian turnover fell 1.1 percent in October 2010, following a rise of 0.1 percent in September and 0.2 percent in August.
Right now Australian retailers are desperate, store sales are falling and online are growing and they are not getting a share of the online action.
The decision by Harvey Norman to follow Myer’s strategy, of developing a China based web operation that will sell and ship products to Australians hungry for GST free deals, is fraught with problems not only for Harvey Norman but hundreds of distributors who rely on being able to sell products to Australian retailers.
For IT distributors who have been operating on margins of between 3 and 10 percent the loss of business is not going to be as painful as for consumer electronics distributors like Amber Technology or Qualifi who sell brands like Onkyo, Marantz, NAD or Loewe TVs.
Apart from C Tick compliance issues, the biggest issue facing retailers is the lack of online infrastructure. This could take a while to put into place. They also have to change their delivery methods while also providing back up and support, which for Harvey Norman could be a problem if he does not include his franchisees in his online operation in China.
In the future big brand vendors could well be forced to set up their own display store operations so that consumers can come in and see a product prior to buying.
Sony, Canon, Samsung, Apple and Microsoft are already operating their own retail stores in several markets, where consumers can visit a corporate store get all the help they want and then buy online. This could well be the future for Australian retail, which if it happens spells big issues for Australian retailers and their suppliers.