JavaScript disabled. Please enable JavaScript to use My News, My Clippings, My Comments and user settings.

If you have trouble accessing our login form below, you can go to our login page.

If you have trouble accessing our login form below, you can go to our login page.

Offshore retailers join the party

Video settings

Please Log in to update your video settings

Video will begin in 5 seconds.

Video settings

Please Log in to update your video settings

'What the global economy has handed us'

Australia's high exchange rate may have some unpleasant consequences says RBA governor Glenn Stevens. Vision: The Australian Financial Review.

PT0M0S 620 349

TWO months ago Swedish furniture company Ikea fingered Australia as one of the most expensive places to do business yet committed to doubling its store footprint in the next few years.

It seems Ikea is not alone. For all the whingeing by retailers about the tough conditions in Australia, including the high Australian dollar and an online disadvantage due to the GST-free threshold, ever more international retailers are opening up physical stores and customising their websites to target the Australian wallet.

In the past few years groups including Topshop, Gap, Zara and Costco have all opened stores in Australia. Costco is reported to have committed $140 million to opening up more stores. US department store Nordstrom now counts Australia as its second-biggest overseas market after Canada. And Saks Fifth Avenue's website, for one, now has a box that opens up on the home page saying, ''Now Shipping to Australia. We make it easy to shop from Australia with all prices in Australian dollars, duties and taxes calculated at checkout.'' It is a similar story for Macy's and ASOS, which has opened a warehouse in Australia.

Shoppers queue outside Zara's first Melbourne store.

Shoppers queue outside Zara's first Melbourne store. Photo: Penny Stephens

Besides the advantage of the GST-free threshold on internet purchases, which allows shoppers to buy overseas goods under $1000 in value GST free, the high Australian dollar has effectively made the Australian market at least 20 per cent bigger for these international players.

It goes a long way to explaining why British shirt maker T.M. Lewin and competitor Thomas Pink have come here. Another recent arrival is Finnish design store Marimekko and next year Japan's fashion outlet Uniqlo and US homeware group Williams-Sonoma plan to join the trend.

Depending on how successful they are, they will take market share and dollars away from Australia's existing retailers. Ikea and Costco together divert more than $1 billion in turnover a year away from the coffers of Bunnings, Harvey Norman and the supermarket chains. Speciality stores take foot traffic away from the department stores and offshore department stores are shaping up as formidable competitors as they target Australian customers.

Australian department stores have been relatively slow to migrate online, with online sales accounting for an estimated 1 per cent of total sales. In contrast, the US and British department stores generate up to 10 per cent of sales online.

A report by Goldman Sachs retail analyst Phil Kimber has investigated why the numbers are so low in Australia. His analysis suggests that a key contributor is the amount of investment made in technology and online capability. ''US and UK department-store peers allocated a significantly larger portion of their cash towards capital expenditure,'' he said.

The reason? ''The focus on maintaining strong dividend payout ratios, given the large weighting towards individual 'retail' shareholders and the tax advantages from fully franked dividends,'' he says.

It is an interesting observation that raises questions about the many companies - in all sectors - that have been reducing capital expenditure to accommodate investor obsession with dividend yields.

At some stage something will have to give. Companies that have underinvested in capital expenditure will have to make some hard decisions about whether to continue to direct cash to dividends or reinvest it in their business.

In the case of retailers, as offshore department stores beef up their marketing to consumers in Australia, Kimber argues that Myer and David Jones will need to reduce dividend payouts and lift their allocation of funds to online expenditure in order to compete and protect their longer-term sales.

Myer's higher level of investment in this area over the past six years, during which it spent $600 million replacing supply chain, investing in new stores, launching a new point-of-sales system and setting up four hubs in China, raises the question of whether David Jones will need to make a relatively larger increase in capital expenditure now.

The need for more capital to improve their online offering prompted Goldman Sachs to downgrade its earnings per share (EPS) estimates for David Jones and Myer over the next few years. It downgraded David Jones EPS estimates by 3 per cent in 2013, 7 per cent in 2014 and 10 per cent in 2015; and it downgraded Myer's EPS estimates by 1 per cent in 2013 and 2014 and 3 per cent in 2015.

Whatever David Jones and Myer argue about their investment in technology and their commitment to improving their online offerings, it is hard to dispute that many of their overseas rivals have been doing it better and for longer. Indeed, it wasn't until this year that David Jones and Myer provided investors with strategic plans for the omni-channel offering.

This was supported by a recent survey conducted by Credit Suisse of a panel 20 of upper-income shoppers who were asked to allocate $500 to $1000 among David Jones, Myer, Nordstrom and Net-a-Porter and rate the sites. The shoppers allocated 73 per cent of expenditure to Nordstrom, 16 per cent to David Jones, which relaunched its website in November, 7 per cent to Myer and 4 per cent to online designer site Net-a-Porter, more due to the cost of its designer products than the quality of its website.

194 comments

  • The paradigm shift to online shopping overseas will continue as long as the overseas continue to offer cheaper prices and a much larger selection. I for one do most of my shopping overseas online and find it quite simple, with many US and UK retailers now offering free shipping to Australia and there are are many informational sites on overseas online shopping such as zangle.com.au which make shooping online overseas more accessible then ever. For me the choice is clear.

    Commenter
    lexi
    Date and time
    December 19, 2012, 7:46AM
    • I don't do any online shopping, after a friend ordered 80 chairs for a restaurant from China online and was stuck with 80 children's size chairs! Let alone another receiving all goods smashed. I like to shop and wander around stores, it's about the surprise you might find around the next corner. Australian retailers have to get their mojo back and think outside the square. Australian businesses and government are always very slow to implement change or offer the consumer the real deal... Remember the 1960's GM America made sure the Holden in Australia came only with basics you had too buy air con, radio, heating. Along came the Japanese car industry all those things were thrown in for free. Perhaps the industries should start to wake up and realise Australians are not a herd of sheep they can corale.

      Commenter
      Pickled Herring
      Location
      Frankston
      Date and time
      December 19, 2012, 8:27AM
    • Same here. I'd much rather sit on a computer for an hour and have the option of purchasing hundreds of varieties of a product, each accompanied by heaps of information. Than waste half a day walking all over a Sydney shopping precinct to look at a variety of just 3 and have the rest of the shops have no idea what I'm talking about.

      Commenter
      Jonathan
      Location
      Sydney
      Date and time
      December 19, 2012, 8:38AM
    • Pickled Herring, not a real good example of something that could go wrong with online shopping. Your experience is of a bulk order from China. How you found and managed your Chinese supplier, the sampling process, etc. all will determine whether or not you will receive the product you expect. I do a lot of shopping from China, both personal and business related, small and large quantities and so long as you know how to pick the right supplier then there are no problems... or very minor ones in the worst case. Sourcing the right supplier is so much more than looking on alibaba or other online directories.

      My wife and I actively go out of our way to avoid Australian retailers now, instead buying from the US or anywhere in Europe. My wife just received a package of clothes from a Polish store and another from a US store. Sometimes we surf on Australian online shops if the price is comparable to overseas. If we buy from retailers such as Myer then we wait for the sales, the big sales.

      Commenter
      Jay123
      Location
      Melbourne / Shanghai
      Date and time
      December 19, 2012, 8:59AM
    • It's also that the "Australian" retail stores are on-selling goods manufactured overseas (typically with huge margins not seen in any other country)... why should we feel sorry to see the end of their price gouging? Goods made overseas are almost always identical if they are purchased from an Australian-based seller or foreign seller, and yet they are usually significantly more expensive here.

      Commenter
      Dave - Willoughby
      Date and time
      December 19, 2012, 8:59AM
    • @Pickled Herring, I could take that far more seriously if you didn't mention that you were shopping online in China. That's like going to a brick and mortar story called Insane Ed's Crazy Bargains for your business's computer network and then not bothering to ask for the computer specs, so your experience has nothing inherently to do with online shopping.

      Commenter
      Jon
      Location
      reality
      Date and time
      December 19, 2012, 9:02AM
    • I also do a fair amount of shopping online, both from overseas suppliers and some competitive Australian based ones. Try walking into a department store these days and find an employee willing to help you, or have any decent knowledge of the products they carry.

      Commenter
      Andy
      Location
      Melbourne
      Date and time
      December 19, 2012, 9:06AM
    • Don't forget about the substandard level of product knowledge that is common from the sales people. At least online I can short list my product and then hit some forums and review sites for real world reviews from people who have no agenda of selling you a product.

      Commenter
      Warren
      Location
      Burwood
      Date and time
      December 19, 2012, 9:06AM
    • @ Pickled Herring
      Australian retailers are so far behind its staggering. I would still run the risk of damaged products from overseas than buying locally. Cause it’s so cheap that if there are a few damaged goods, from shipping, it doesn’t even matter.
      The other day I was in an Australian bridal shop where one woman, after paying $7,000 for her dress, received the wrong one! 3 weeks away from her wedding. Overpriced and no clue, is what Australian retail is these days. All these retailers get everything from China anyway. She would have been better off ordering a similar dress online, herself, and not paying the exorbitant Australian retail mark-up.

      Commenter
      Zahra
      Location
      Sydney
      Date and time
      December 19, 2012, 9:07AM
    • I gave David Jones online store a go last week. Bought a coffee machine using a voucher that expired on Sunday which saved me $40. On Friday got an email notifying that the item had been shipped and would be delivered Monday. On Monday got an email saying it was out of stock and I'd need to call them to arrange a refund on my credit card. Meantime the discount voucher expired. Might stick to overseas purchases in future.....

      Commenter
      A2B
      Location
      Melbourne
      Date and time
      December 19, 2012, 9:15AM

More comments

Comments are now closed

Related Coverage





Featured advertisers

Special offers

Credit card, savings and loan rates by Mozo

Executive Style