The percentage of sales made online is tipped to rise even further, with an analysis showing online sales account for 8% of major American retailers’ sales, well above the Australian average.
The graph, compiled by James Stewart of liquidators Ferrier Hodgson and published on Business Spectator, shows that Urban Outfitters has the highest percentage of the sales from online, at 18%. Discount department stores Walmart, Target and Costco had the lowest percentage, at between 1%-2%.
Brian Walker, the Retail Doctor Group, says the average percentage of sales made online is probably 10% worldwide, and this will likely rise to 12 to 15% over time – including in Australia.
He says the graph, while significant, does not talk about the end of physical retail.
“What it is talking about is how does a retailer orchestrate itself in such a way that its physical store and online work together, so one doesn’t cannibalise the other,” Walker says, pointing out that 18 of the top 20 online stores have a physical store.
“I’m only pessimistic for retailers that don’t adapt,” he says, adding that department stores and big-box retailers are the most vulnerable.
The key, Walker says, is using online for price and product and then using bricks and mortar for customer experience.
“We like new experiences and things we can touch and feel. As long as physical retail can keep that human experience, it’ll be fine,” he says.
“It’s when retailers just try to compete on product and price, and don’t change their mix, that they really are quite threatened.”
Australian estimates are not precise: the Ferrier Hodgson graph puts the estimated sales online for Australian retailers at 1%; the Productivity Commission in December estimated online accounted for 4% of overall retail sales, although noted that market analysts put it between 3%-7%.
Meanwhile, a research note has delved into which listed retailers have the most satisfied customers, and are therefore more likely to withstand the onslaught from online sales.
According to a report by the broker Linwar Securities, JB Hi-Fi and Harvey Norman came in about average, with the Woolworths-owned electronics retailer Dick Smith below average.
The broker noted that customer service satisfaction levels for appliance retailers had declined 10 percentage points to 55% over the six years to 2011.
Linwar analyst Mark Wade says customer service for a specialty retailer is probably the single most important method of differentiation in terms of its customer offer, and agreed with estimates that online sales were about 1% overall in Australia.
He says high-end retailer Oroton is the leader when it comes to online sales, stating in September that its website accounted for more than 6% of brand sales, which was more than any one store.
“If customer service does suffer, retailers can expect that bad service will have a long-lasting effect,” the research report says.
“It would seem that customers have become more discerning over time, while at the same time appliance retailers have let standards of customer service slip.”