Harvey Norman has been among the large, bricks and mortar retailers to suffer from online commerce. Photo: Ian Waldie
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After a rocky start, Australia's retailers have embraced the world of online commerce. But the sector still has some way to go before catching up with peers overseas.
Online shopping in Australia was worth about $12.1 billion in the year to September and represents about 5.5 per cent of total retail spending excluding food, according to figures provided by National Australia Bank.
By comparison, online sales accounted for an estimated 9 per cent of total in the US, worth about $US200 billion ($191 billion) a year.
"There is still a fair way to go in terms of that increase in share," said NAB economist Gerard Burg.
But the ongoing effect of internet sales was "fundamentally changing the way a lot of people view the sector", said Mr Burg. "There are some smart retailers around the country that are not looking at traditional retail online but looking at idea of multi-channel retailing, to combine online and traditional retailing for the best effect."
Rocky road online
Australia's entry into online shopping has been a tumultuous affair.
For years, pure-play online upstarts, such as electronics retailer Kogan or daily deal site Catch of the Day exploited the gap left in the market by traditional bricks and mortar players to build online businesses and loyal customer bases.
Then, about two years ago, the strengthening dollar began propelling what had been traditional shoppers of David Jones, Myer and most notably electronics retailer Harvey Norman to overseas rivals.
Since then, the erstwhile giants of retailing have had to integrate new online sales channels alongside their existing retail network. At the same time, they must convince investors that after years of delay, they are capable of getting ahead of the curve.
The most recent figures available from NAB show that about 27 per cent of all online shopping goes to overseas sites.
International sales increased more quickly, rising 22.1 per cent in the year to July compared to growth of 20.2 per cent for domestic sales in the same time. Total retail in Australia measured by the Australian Bureau of Statistics has risen by just under 4 per cent in the year to September.
Simon Trivett, national head of retail at consultancy Grant Thornton, said that viewing online sales in isolation, "Australia is comparable with other pretty well developed consumer countries like the US, UK and parts of Asia".
Where it falls "well short" of overseas rivals is the link between bricks and mortar retailers and online sales.
"Overseas they have this concept of omni-channel retail where they view a customer as the same whether they're buying stuff online or coming in the store to do stuff," he said. "We segregate a little in Australia."
He gives the example of UK department store John Lewis, where customers can pick up goods bought online at shops. If you're in the store and see something you like, you can scan your bar-code and order it online and have it delivered at home, he said. "It's that integration we don't have yet."
Whatever happens for retailers, the profit plunges have added urgency to their need for change. David Jones, Myer and Harvey Norman have seen their profits tank along with their stock values as investors punished the companies for not having a cohesive strategy to bridge traditional and online sales.
First quarter earnings sank 20 per cent at Harvey Norman, hitting $50.1 million, with global sales down 10 per cent on the same period last year. David Jones, while flagging a full-year profit drop of 40 per cent in September to $101.1 million, put a price tag on its flagship properties in order to assure investors of the underlying value of the company.
This month David Jones relaunched its website, promising to sell 90,000 different products by Christmas. In a bid to cultivate online customers of the historic department store, David Jones is offering free shipping on all items until the 14th of December.
Analysts noted that smaller, more nimble players were competing not on price, as much as speed. Pearson-backed Bookworld.com.au, for example is trying to beat off-shore giant Amazon on speed and price.
"One of the trends we're seeing at the moment is the idea of competing on a non-price basis and delivery time is one of the things local retailers are focusing on," said NAB's Mr Burg. "There is quite a bit of innovation going on that's helping to change the sector."
One promotion, Click Frenzy, seeks to copy the US shopping day known as Cyber Monday, when retailers offer limited-time sales at the start of the Christmas shopping season.
City Index chief analyst Peter Esho said the success of the event would determine whether it became a regular feature.
"I'll be very interested to see the products they put up and how genuine the offers are," he said. "And if the offerings aren't genuine, then the success of replicating Click Frenzy in the future won't be that great."
Online retailing in general was maturing, said Mr Esho, but at an uneven pace.
"Within the speciality space, I think it's definitely increasing at a much faster rate and has a good chance of having a high penetration rate," he said.
Broader retailing, for food and petrol, for example, would remain more contained to traditional shops, he predicted.