Economy

The companies successfully delivering the dough in online retail

Bernard Keane /

Yesterday, after the Australian Bureau of Statistics revealed that online purchases below the $1000 GST limit topped the $7 billion mark in 2012-13, and are a bit higher than the Bureau’s previous estimates of around $6.2 billion.

It was a reaction so predictable that Fairfax’s Peter Martin forecast it, saying “Retailers are certain to jump on the figure and say it shows how much they are being undermined by untaxed and unchecked parcels from overseas.”

Cue grave old plodder Gerry Harvey: “[i]t’s huge and it doesn’t surprise you because every second Australian buys something online overseas. Retailers have been going on about this for some years now, telling government what’s going to happen, but the government has just ignored it totally and it was always going to come back and bite.”

Cue young – OK, not so young — frisker Russell Zimmerman of the retailers’ industry group: “The concern isn’t that people are spending money online – either locally or overseas. The concern is that it’s not a level-playing field. We believe that the firm of online [shopping] generally will grow, and as that figure grows, there will be a bigger loss of income to the states and territories if they don’t do something about the low-value threshold.”

As Barclay’s chief economist, Kieran Davies, noted, while offshore online transactions have been growing rapidly, they only form a tiny part of retail sales. That’s the way it’s been for the last couple of years.

The Bureau has promised more detail on local online purchases by consumers in the November retail sales report (to be issued next January). But the statisticians at Belconnen in Canberra have already published a small amount of detail which hints at the way traditional retailers are being left behind in Australia and its not that they are being swamped by the pure online operations such as Gray’s or The Iconic, but the likes of fast food floggers, such as Pizza Hut and Domino’s, are doing it better as well

The ABS said in its July retail sales report that around $4.6 billion a year was being spent on online purchases by consumers in Australia. Total domestic online sales were put at 1.8% of May’s $21.87 billion in sales, seasonally adjusted. That’s around $400 million. According to the ABS “[p]ure-play online retailers contributed approximately 40% of this estimate. Multi-channel retailers contributed the remaining 60%, of which half was food-related (i.e. derived from the food retailing and food services industries).”

So takeaway/home delivered food derived from online ordering, plus the home delivery of groceries and other items accounted for an estimated $120 million in May, or more than $1.2 billion a year. That will be an eye opener for a lot of online retailing enthusiasts and technology advocates. Domino’s and Pizza Hut are as much ‘bricks and clicks’ retailers as Myer, Harvey Norman are – in fact their ‘clicks’ are far stronger than the ‘bricks’ which are just storefronts in many cases. They have adapted far more quickly.

Multi-channel retailers refer to the likes of Myer, David Jones, Noni B, Specialty Fashion Group, Kathmandu and similar bricks and mortar operators who are slowly expanding their online offers. They account for another $120 million a month. or more than $1.2 billion a year. Speciality Fashion said its online sales jumped 50% in 2012-13 to $22 million and Noni B said its online sales reached $1 million in the year to June. Kathmandu has reported that its sales are growing quickly and were around $18 million in the year to July.

The “pure-play online retailer” accounted for around $160 million a month of retail sales, or close to $2 billion a year.

So if Gerry Harvey and his mates want to be really honest with themselves, they’d take a look at the success of Pizza Hut or Domino’s. These groups are competing for the consumer dollar online and winning because they understand about pricing (low) and order fulfillment (you have to aim high and stay there).

And this of course doesn’t include the growing pure on line downloads, such as ebooks from Amazon, gambling, video games, software, and playing games on line. Buying games online, egistering on the New York Times, or the Financial Times, and a host of other goods and services are all part of the online world where Australian retailers can’t or won’t compete. And how to you find out? And how do you levy GST?

But don’t expect any of that to sink in to traditional retailers. Instead, expect them to come tumbling out again in January when the Pied Piper of Belconnen produces some more online retail data.

This story first appeared on Crikey.

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