The ace up Myer’s online sleeve: Bartholomeusz

The coalition of major retailers trying to lobby the Federal Government to impose GST on offshore online retail purchases, are focusing on the perceived threat to their sales. At least some of them might find it more productive to focus on the opportunities.

My colleague Robert Gottliebsen hit the nail on the head when he likened the position of the retailers to that faced by print media proprietors when first confronted by the threat of online classifieds. Their instinct was to defend their legacy positions and cashflows and sunk capital, which has turned out to be a disastrous strategy.

The parallels between the position of the retailers and newspaper owners aren’t exact. Until the internet took off, the great advantage of incumbency was the size of the barriers to entry created by the capital required to establish a printing facility, the complex and costly distribution network and sheer numbers of skilled and relatively highly-remunerated employees required to produce a major newspaper.

There aren’t the same barriers to entry into retailing, although the major retailers do have an advantage in terms of their buying power and the leverage they have as sought-after anchor tenants within the major shopping centres.

The incumbents’ dilemma for retailers isn’t, therefore, quite as intimidating as it was for the newspaper proprietors. While some of the big retailers – like David Jones and Harvey Norman – do own their sites, or at least their key sites, and have made massive investments in their supply chains, they don’t have the same amount of capital tied up in fixed assets as the publishers to protect.

Those retailers that do have capital tied up in prime retail property should be able to easily extract it in the near- to medium-term.

As Bill Shorten noted, online retail sales in Australia are only a fraction of the overall market and overseas purchases a further fraction of online sales. Others have made the point that whether or not GST is applied to overseas online purchases, there are a host of reasons why such purchases would still be attractive and would still provide compelling value.

Regardless of whether the retailers win their campaign (which looks improbable) all the experience of online commerce says that online retailing will continue to grow, probably at a steeply accelerating rate. For the big retailers, the choice is to emulate the newspaper publishers and try to resist the irresistible or position themselves early to participate in that growth.

There are some obvious attractions for the major retailers in establishing themselves online before new entrants build strong domestic online brands.

A key issue with eCommerce is trust. The big retailers have big and very familiar brands that consumers will trust and deal with. Dealing with offshore retailers or smaller domestic brands carries at least the perception, and sometimes the reality, of risk.

Increasingly the major retailers also have direct sourcing capabilities and relationships with logistics service providers in Asia and Australia. One of the problems for existing domestic online retailers is access to sufficient inventory – those retailers with direct sourcing capabilities don’t face that obstacle.

Moreover, online consumers are used to paying for delivery – they fund the logistics piece of the retail chain online.

Thus, in an online transaction, the retailers can leverage their brands, their sourcing capabilities, probably elements of their existing supply chain and their ability to negotiate volume deals with local small parcel transport groups like Australia Post.

The online opportunity ought to be particularly interesting for Myer. Myer’s MyerOne loyalty program, which generates an extraordinary 60% of its sales, has more than three million members.

Myer could use its direct sourcing capabilities to access or create brands and make special offers to those members of product it doesn’t currently stock in-store without directly cannibalising its existing sales.

In any event, the issue of cannibalisation is not necessarily straightforward, as the newspaper owners found. If the existing retailers don’t capture the inevitable growth in online retailing someone else will, so they might as well do it to themselves.

Because the online channel doesn’t have to be supported by lease payments for someone else’s expensive bricks and mortar, lower prices needn’t necessarily translate to lower margins. Growth in online sales might also obviate the need to be continually rolling out new stores.

Online retailing in Australia is still in its infancy but, for an increasing proportion of internet-comfortable consumers, represents a new and attractive model for a widening range of purchases and, for those consumers, a model that is superior to the traditional retail experience.

The big retailers can ignore the destructive experiences of other industries whose models have been challenged and undermined by the internet or accept and embrace and take advantage of the opportunities that wave of change will bring. If they don’t, someone else inevitably will.

This article first appeared on Business Spectator.

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