Adapt to ecommerce or perish?

by Jeni Bone on 28 Dec 2010 Interest rate rises, deflated consumer confidence, an Aussie dollar at parity with the US dollar and the rise of internet shopping are causing Australian retailers to forecast 'devastating' effects on their annual profits. But ecommerce sites are squaring up with OS offerings by focusing on expertise, support and service.

According to retail giant and 'no interest purchase' pioneer, Gerry Harvey, shopping online and most heinously with OVERSEAS vendors will irrevocably damage the Australian retail landscape.

Back in November 2008, Gerry Harvey told anybody who’d listen (the Australian Financial Review, The Australian, Smart Company) that online selling was 'a complete waste of time' for retailers and he was not going to invest any more in to it. At the time, the Australian Retailers Association responded to Mr Harvey and stated emphatically that all savvy retailers must have an online presence or risk losing market share.

This year, at the Harvey Norman AGM in November he was quoted as saying: 'Pretty much every retailer has noticed it. We have certainly been affected with practically every category we sell.' And the culprit is the bargain pricing of merchandise available online to consumers who dare to shop around.

Access Economics estimates that online purchases totalled between AUD$19 billion and AUD$24bn in 2009, or around 3% of total retail sales. But while 3% may not seem a lot, it’s the potential for growth that has local retail giants worried.

Forrester Research has estimated that Australian online spending grew by 2%, compared with just 2.2% overall retail growth over the 12 months to the end of October, the most recent figures released by the Australian Bureau of Statistics. Analysts surmise that Aussie consumers are spending between $3bn and $12bn with foreign based e-tailers – representing a loss of GST revenue to the Government of around $2.5bn annually.

And that is the point Mr Harvey and co are highlighting.

So incensed is Harvey (joining the chorus with Myer, Target and the Just Group), he is calling on the ATO to end tax exemptions for online purchases under $1000.

Fortunately, despite the column centimetres devoted to Mr Harvey and his blustering about not being able to make a profit on flat screen TVs these days (after a free run for the past decade), the ATO has taken the rational position that it’s just not worth it, given freight practically evens out the price.

Assistant Treasurer Bill Shorten seems confused on the subject and has said: 'We'll have to work something out and assess if it is administratively feasible.'

The government has commissioned the Productivity Commission to conduct an inquiry into the future of the retail sector, with results expected to be delivered to parliament in September 2011.

Savvy retailers are sharpening up their online offerings. Westfield has created an online portal for its merchants, David Jones has relaunched its website and Big W and Kmart launched transaction sites in 2010.

Harvey Norman has come back with another concept, tax-free shopping directly from the distributor (Asia in most cases), and Myer announced last week following weak prediction for the pre-Christmas retail figures, it will launch a website early in 2011 that will ship goods directly from a warehouse in southern Shenzhen China that will dodge Australia's 10% GST.

But finance pundits and online retailers are saying Harvey’s plans are unlikely to be realised and are in fact a hoax.
'Harvey Norman will never open an online store selling direct from China,' said online electronics retailer, Ruslan Kogan of Kogan Technologies.

'This is an absolute hoax. It's nothing more than Gerry trying to force the government’s hand to change the GST laws.'

Among proponents of the marine industry, opinion is still being formed. Phil Yeomans from Deckhardware says the company hasn’t formed a policy about pricing to combat rising competition with consumers buying direct from overseas.

'We do monitor overseas pricing and adjust our prices accordingly. We are fortunate that we have an arrangement with our manufacturers, all over the world, that if consumers approach them direct, they refer them back to us. We get many emails from our suppliers referring customers to us. We find our customers prefer the local support and services.'

Les Sparks at Boat Bits, an online chandlery in business for a decade, has seen some migration to overseas sourcing. 'While the dollar is so good, consumers will look overseas for larger items which they can get a lot cheaper in many cases. A lot of foreign companies offer warranties now so they are covered in that regard as well.'

But, he says, it’s a case of buyer beware. 'I have had clients that have bought sight unseen over the Net. Unless you really know what you’re looking for, you can end up with an expensive mistake. Product codes for marine can change from year to year, and there are so many makes and models. If you order the wrong parts, you can be stuck with them or forced to send them back at your expense.'

Then there’s the local expertise and back up. 'People appreciate that we really know our business and have access to the full range of products through our reliable network of wholesalers.'

Boat Bits records around 'one million hits a month', according to Les and boasts regular clientele with repeat business. While Les insists offshore competition will not alter his pricing, Boat Bits does offer regular specials via its newsletter to around 12,000 boaters and boating clubs.

The lead up to Christmas this year was exceptionally quiet, says Les. 'I don’t think there are dollars to spare,' he observes. 'People are spending on the essentials to keep their boats on the water, but nothing extra. There’s a lot of uncertainty about interest rates.'

Whitworths - one of the country's largest marine accessories retailer with 16 stores in every state except the Northern Terriroty, a phone order business and online sales - says that it has noticed increasing consumer interest in foreign etailers, but the overseas' companies cannot compete when it comes to service, advice and repairs.

Whitworths' policy is to 'match any Australian bricks and mortar retailer's price'. But if a consumer can find something cheaper online, they say to 'go aheadand take your chances'. Their opinion is that consumers, boaties especially, do not want to risk their hard earned buying items online with overseas entities that could disappear tomorrow. They say the majority of their customers say that if the part ever needs repair or replacement, support or specialist advice, it's comforting to know there's professional help here at home.

The internet is increasingly important for sales, not just research. Brands and retailers who ignore it do so at their peril.

eMarketer (www.emarketer.com) research reports that eCommerce in Australia is scheduled to grow by as much as 25% in 2011 as brands realise the true 'multiplier' effect that the web has on traditional Retail centre sales. According to eMarketer, a retailer’s web presence influences its offline sales by a factor of approximately 3.5.

With increasing uptake of broadband, greater consumer trust in the web and the success of multicategory online retailers, brands and retail entrepreneurs of all kinds need to take notice.

Watch this space!