Five things holding back online retail in Australia - Part 1: lack of retail brands selling online

A five part series by Chris Hitchen, Managing Director of Getprice

The consumers are there already - credit cards at the ready, wanting to take advantage of the convenience and transparency afforded by the internet - but they are unable to buy from some of their favourite, most trusted brands. Forrester and AC Nielsen estimate that between 62% and 78% of Australian internet users are also online shoppers. So why are we so behind other countries and how do we resolve it?

Below I've listed my top five reasons that the industry continues to lag, both in terms of other verticals within Australia (e.g. travel, cars, jobs, real estate and finance), as well as in comparison to international markets.

1. The lack of known retail brands selling online
2. Fulfilment costs
3. Wholesalers' attitudes to online retail
4. Online retailers themselves
5. Online marketing expertise

Part 1 - 06.11.07

1. The lack of known retail brands selling online

We have all been frustrated by not being able to buy goods online from the big-named Australian retailers like Harvey Norman, David Jones, Woolworths, Coles, Myer, Target, Kmart and JB Hi-Fi. Some are making headway, for example Coles with its Officeworks and Harris Technology sites (let's hope Wesfarmers continue to invest in these areas, should their planned takeover proceed as expected) and Woolworths with Dick Smith Electronics, however many leading off-line retailers remain either inactive or ineffective.

When I recently tried to buy a gift from the David Jones gift registry, I was able to browse the products online, but not pay for them. After having paid using a credit card over the phone, I fired-off a frustrated email and received a response, explaining that they closed the online store in 2003 in order to "enhance shareholder return". The response went on to say to create an online purchasing facility for a store of their size would be a "complex solution both technically and logistically". As Abe Lincoln said, "opportunity is missed by most people because it is dressed in overalls and looks like hard work"!

Some Australian retailers are already operating effective multi-channel strategies, for example Bevilles, Ezy DVD, Home Couture, Pharmacy Online and Organiser World, in addition to the larger companies named above and the mobile phone networks 3, Virgin, Optus, Vodafone and Telstra. A survey by the Aberdeen Group revealed that 33.3% of world wide retailers and consumer goods manufacturers engage three channels in their marketing: store, catalogue and online. 19.5% have both a physical store and an online retail presence, with only 4% relying solely on their physical store. As such, the large Australian retailers are in the minority with their one-channel approach when compared to their worldwide counterparts. C'mon Australia! Whilst there are undoubtedly complex issues to overcome, these have been surmounted in other markets and successful case studies exist for Australian retailers to examine.

Department stores like David Jones quote complexity and cost as issues, however international department stores like John Lewis, Harrods, Selfridges, Marks & Spencer, Next and Debenhams in the UK have established good ecommerce functionality, as have their US counterparts Target, Macys, Bloomingdales, Barney's and Saks, to name a few. Similarly, international retailers of Consumer IT, Computing equipment and Homewares are far ahead of Australian retailers when it comes to ecommerce; Argos, Tescos, Dixons, Comet, PC World, Currys, Pixmania and Dabs in the UK, and Best Buy, Circuit City, Office Depot and many more in the US.

Of course it requires a quantum shift for the Australian businesses to expose their pricing on a medium as transparent as the internet, but pricing transparency is happening anyway and to pretend otherwise is to be at best desperately defensive and at worst grossly negligent. Leading retailers need to realise that they can compete on factors other than price, for example trust, payment options (not many pure-play online stores offer a "pay nothing until 2010 to rival the likes of Harvey Norman!), after-sales service, returns policy, fast delivery and product bundles. As a shareholder of any of these businesses, I would demand to see their strategy for future-proofing the business against pure-play online companies. At what point do the online specialists like Deals Direct, with an estimated 2007 turnover in the region of $50m, become a threat for the behemoths and a catalyst for them to take things into their own hands?

International retailers hamstrung by similar issues have thought around the pricing issue. Take UK retailer Comet for example, who launched vertical white-label sites under completely new brands (see http://www.laskys.com and http://www.kitchenscience.co.uk/). This allows them to test different price points and online strategies from the core Comet.co.uk website, whilst still leveraging their core infrastructure (fulfillment, customer support, marketing etc.). See also http://www.bootskitchenappliances.com and http://www.sainsburyskitchenappliances.co.uk for vertical approaches to online retail leveraging known brands.

I also applaud the likes of Argos and Comet in the UK who offer a ‘click & collect' option to their customers, allowing them to reserve an item for collection and payment in their local store one hour later. For traditional retailers in Australia looking to drive people in-store to take advantage of their existing infrastructure, including trained sales staff who are incentivised to up-sell accessories and high-margin products, this is a savvy multi-channel strategy that does not need to be overly complex to set-up.

In the case of franchise business models, retailers are understandably loathed to take business from their franchisees. So why not cut them in? The role of a franchisor is to provide support and infrastructure for their franchisees to sell product; by taking a consumer's postcode, such operations can pass the sale and order-fulfilment to the franchisee closest to the consumer, thus avoiding so-called channel conflict. Some forward-thinking Australian franchises already operate a multi-channel strategy, for example Shaver Shop and Dymocks. In a world where Amazon has a loyal Australian customer base without even having a local site, it is tough for Dymocks to compete. CEO Don Grover has previously said that their "online business equates to a very large store's turnover, but [we] think it will grow significantly as we bring more product into the mix." He is spot-on that a larger inventory is necessary to grow and compete, however he will also need to address pricing, given that Amazon not only has a much larger range, but can also deliver product considerably cheaper - and often faster - to Australian consumers than Dymocks in almost all cases at present. As an Australian I want to buy from Dymocks, but logic prevents it!

Australia's retailers would also do well to examine the trend of manufacturers going direct to the consumer. Companies like Dell, Sharp and Apple have been doing this for a long time (in Apple's case playing them squarely in competition with their resellers, with a clear margin advantage) and other examples include HP, Lenovo, Acer and Sony. As these multi-national powerhouses have realised, the internet removes the need for the middle man in certain circumstances and this is a trend that will only increase as they grow their reach and improve their direct marketing skills. Although Harvey Norman has formidable market power in Australia, the balance is slowly shifting and removing these household brands from their shelves and replacing them with lower quality no-name imports would hardly constitute a long-term, customer-winning strategy.

Whilst Australia's largest retailers might be focused on increasing footfall into their stores, they would be well-advised to create a consistent multi-channel environment that fosters customer loyalty, drives incremental sales, increases brand recall and loyalty, and allows them to get to know their customers better. There is a clear first-mover advantage for a major retailer to dominate the online shopping space, which is set to become a significant market in Australia.

Next article - Part 2, Fulfillment costs