Is Australian online retail really that bad?

A recent Round Table discussion we held asked the question “Is Australian online retail really that bad?” Recent reports have highlighted that online sales in Australia continue to grow but that a large proportion of these sales continue to go overseas.

In June Pacific Brands chief executive Sue Morphet told an Australian Institute of Company Directors event that Australia was about three to four years behind other countries in retailing trends, (source – The Australian 27/5/2011). She said online represented about 10 per cent of total sales in the UK and 8 per cent in the US, but only 3 per cent in Australia.

Overseas online retailers have a disproportionate share of the market, and whilst the market is growing overseas suppliers will grow their market share to the detriment of local online retailers. It also seems to be generally accepted that Australia is 2-4 years behind the US and UK (our closest cultural comparison) in online retail and eCommerce.

In response to the current situation, a number of major Australian Retailers (Harvey Norman, Coles, David Jones) have called for a tax on overseas online purchases. (source – Power Retail 15/6/2011). It remains to be seen whether the Government would apply this tax to overseas purchases made online but the call for action by retailers highlights the threat they perceive from online competition.

Currently most major Australian retailers have an online presence but not all have an online shop. Our own recent research into how the large Australian high street retailers are approaching online showed that 64% have an online shop whilst 36% don’t. Feedback at our round table event was that doing online well isn’t a choice, it’s a must.

Source – Largest Australian Retailers Industry Research Report

It is generally accepted that the cost of retail space and staff salaries in Australia is more expensive than overseas. While it is accepted that there are differences in the local market, the market will always win in the end. It is also the case that where the Government has tried to protect certain sectors. The book sector is a good example where local prices have been kept artificially high compared to overseas markets, when global competition has come to prominence, local businesses cannot react quickly and cannot compete. The gap to be bridged is just too far.

The Australian economy is currently strong and is often credited with being the envy of the world in the current post -GFC climate. The Australian Dollar is strong, currently trading at $1.07 against the USD. This makes it harder for Australian retailers to compete with overseas retailers, but the differentiation in some cases is much higher than a pure exchange rate problem. Many retailers haven’t changed their pricing models when the price of raw materials and wholesale pricing from overseas has effectively gone down due to the strong AUD. Consumers recognise that prices are cheaper overseas and that the internet means they can effectively shop anywhere in the world from the comfort of their own home.