Do the big retailers even want to succeed online?

It’s hard to believe that this debate about the GST exemption on overseas web purchases is entering another day.

Surely by now, I thought, the big retailers would have realised what a huge PR disaster this campaign has become and would have started to back down. But this morning, reports suggest more print ads and even television and radio ads could be rolled out in the next few weeks.

It’s all getting a little strange, really. Why smart guys Bernie Brooks, Gerry Harvey and Solomon Lew are pushing ahead with what looks like a completely futile campaign is beyond me. Yes, there is a principle at stake here, but these are guys who would know when they are banging their heads against a brick wall.

Many comments on this site and others have urged the big retailers to stop whining and get on building websites that can actually compete with the global leaders in online retail, such as Amazon and Book Depository.

Yesterday, I had a few suggestions about how the retailers could innovate and invest in their web presence and show the consumers who have slammed them this week that they are actually listening.

But after some more thought, I am not entirely sure they actually want to spend the time and money that would be required to build competitive online platforms.

Why? Because they do not believe they would make any money by doing so, and in fact they could damage sales generated by their physical networks.

Take Harvey Norman, for example. As has been well documented, one of the big barriers to the company selling online is the fact that stores are actually little franchise hubs – one operator runs the computer franchise, another runs the bedding franchise, another runs the electrical franchise and so on. If the parent company Harvey Norman was to start an online shop, it would actually be competing against its own franchises.

Myer is another example. If it does follow through on its threat to set up a Hong Kong online commerce site to sell goods to Australians with the GST removed, there is a risk that it could damage sales at its extensive and expensive retail network. There is a distinct danger that customers mindsets could shift even further towards the web – if you can go to Myer’s Hong Kong website and buy goods at a sharp discount to the prices in its Australian stores, why would you bother going into the stores at all?

I think another reason the big retailers aren’t so keen to invest heavily in their online platforms is that they don’t think they will get a good return. And in the short-term, they might actually be right.

While the costs of building an online store are far lower than building a physical store, there are still costs, particularly if you want to build an industry-leading site. In addition, the revenue that a company like Myer would generate online would not be huge, particularly from a standing start. By way of example, you might recall that late last year Thorn Group, the company which owns and operates Australian retail icon Radio Rentals, decided to ditch its fledgling online retail electrical goods store for the simple reason that it couldn’t get a return.

Finally, the big retailers may well consider that there is little point investing in online because they would struggle to compete. Let’s face it, it would take Myer and Harvey Norman years to catch up to the likes of Amazon, given their lack of infrastructure, knowledge and experience in the online environment. It’s hardly surprising that companies like Harvey Norman, David Jones and Myer, which answer to shareholders every few months, consider there are better places to invest capital.

So there are reasons the big retailers have only moved into the online area in what can only be described as a half-hearted way. You could even argue that in the short-term, their limited online platforms don’t matter, as they are no missing out on big profits anyway.

But what happens in five years? Or 10 years? When online shopping isn’t just contained to a relative minority (at 3% of total retail spending, that’s really what online shoppers are) and instead part of the mainstream.

If Myer, Harvey Norman and David Jones don’t listen to their customers and change their strategy, and keep doing what they’ve done for decades, where will they be?

Hopefully someone in these companies is looking beyond next quarter’s sales results and worrying about this question right now.


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