Record levels of online shopping causing retailers to rethink strategy

24 Jul 2012

  • Online shopping now the norm with a record 53 percent of Australians over 15 shopping online
  • Total online spend expected to grow to $26.9 billion in 2016
  • Retailers must rethink strategy, particularly role of real-estate and stores.
Online shopping is causing major structural changes in Australia's retail industry with a record 53 per cent of Australian consumers aged over 15 now buying online according to new research released today by PwC and Frost & Sullivan.

The Australian and New Zealand Online Shopping report found that in 2012 online shopping in Australia will increase 17.9 per cent to $16 billion, and is predicted to grow to $26.9 billion by 2016 at a compound annual growth rate of 14.1 per cent.

Offshore online shopping has increased by 20 per cent in the last year to $7.2 billion, and represents 45 per cent of Australia's total online shopping spend.

According to PwC Global Retail & Consumer Advisory Leader, Stuart Harker, online shopping is now mainstream and Australian retailers are under significant pressure to reset their business models in response to the new retail environment.

"Like retailers in the US and UK are doing, Australian retailers must fundamentally rethink their strategy, particularly in relation to their real estate and store portfolio. The days of growing by simply opening more stores are long gone," said Mr Harker.

Price increasingly important

There has been a shift in the motivation for consumers to buy online, with 55 per cent saying lower prices is the most important reason, up from 50 per cent last year.

"With online shopping becoming increasingly all about price, and less about convenience and range, retailers are under greater pressure than ever to give consumers a compelling reason to shop with them," said Mr Harker.

Over a quarter (26 per cent) of online purchases are now made on mobile devices, compared with 21 per cent last year, and this is expected to drive continued growth in online shopping. Mobile commerce is growing across age groups as well. In 2011, 18-25 year olds were the most likely to shop using their phones, but this year it's 26-35 year olds.

The most popular online purchases are still electrical items (62%), and clothing, footwear and personal accessories (61%). The category to record the biggest jump has been food and groceries, now purchased online by 23 per cent of shoppers, compared with 17 per cent last year.

The report also found growth in online shopping is being driven by evolving digital tools and increasingly sophisticated and connected consumers, who have high expectations of the retail experience.

Resetting business strategy

PwC National Digital Leader, John Riccio, said retail businesses now need to be structured so they can adapt to the evolving needs of increasingly tech savvy consumers, what we call a ‘consumer adaptive approach'.

"Adapting to the new retail environment means firstly re-evaluating the role and size of the store. These days for many retailers a number one ranking on Google is as important as a flagship store on Melbourne's Bourke Street or Sydney's Pitt Street Mall.

"The store will stay but it will continue to change, with retailers having to consider reducing store networks, cutting the size of in-store displays and subletting to other businesses, and in some cases converting under-performing stores into fulfilment centres for online channels.

"Retailers must also invest in better understanding the purchasing intent of their customers. This means recognising the role of price, online service and personalising offers based on an individual customer's interests and broader ecosystem rather than purely buying history.

"Retailers need to be integrated across all their channels. No longer is the store the physical door that customers enter and leave from. Now your door is just as likely to be an e-commerce site, a mobile app, an interactive billboard, through a friend's Facebook page or a video on YouTube.

"The retail industry is at a critical juncture and retail businesses that continue to operate in a traditional retail model run the risk of disruption and will not take full advantage of the opportunity that exists in this rapidly changing digital era," said Mr Riccio.

Frost & Sullivan report

The survey is based on a comprehensive survey of 1,000 Australian consumers between the ages of 15 and 65. Who have shopped online in the past 12 months. The definition of online shopping in this report is online purchasing of physical merchandise such as clothes books, and electronic items. This covers the same merchandise categories as used in the retail sales statistics published by the Australian Bureau of Statistics, and therefore online sales can be directly compared with total retail sales. The study therefore excludes online purchasing of services such as travel and accommodation, event ticketing, financial services products and media downloads, as these products are not included in retail sales statistics.

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