The fallacy about online shopping
Tuesday, June 10, 2014/
When it comes to dispensing doom and gloom about the state of Australian retail, I’ve come to the conclusion we are a very excitable nation – especially when it comes to the discussion about ‘losing out to online’.
So let’s take a deep breath about this online hype and have a think about it from a different perspective.
Before ‘online retailing’ came along – what did we do? Well, we would phone a retailer and have something sent out directly from the store. Alternatively, we picked up the phone to a call centre after we saw a direct mail piece, or watched an advertisement on TV. We also devoured mail order catalogues with gusto and had regular packages waiting for us when we arrived at home or work.
As an island nation with vast expanses of distance, Australia has always had a predisposition towards using out-of-store channels for research and shopping. Prior to our digital days (or should I say ‘daze’), direct mail, call centres and catalogues were all channels for retail business. In fact, some catalogues even had their own readership profiles as they were shared and left for weeks on coffee tables and kitchen sides.
However, nowadays, much of these channels’ sales have been ‘sucked up’ into this thing we call online, so the net gain is not actually zero based online growth, it already began with a percentage. When you factor this in, perhaps these growth numbers are, therefore, not that big.
We are also seeing that many online retailers in Australia are not making money, due to quite large set up and distribution costs, as well as free returns. And some of the bigger online players are not making money either. In fact, according to NAB’s most recent Online Retail Sales Index, Australia’s online slice of total retail spending stands at just 6.5%, with a vast majority of this expenditure spread among domestic online retailers and approximately 26% being lost offshore.
There is no doubt that online is a fantastic research tool, with Google figures citing over 80% of consumers researching, prior to shopping in the store. However, online conversion rates remain extremely low, at typically less than 4%.
So just why can’t online retailers get Australian consumers across the line? In our RDG Insights research, we know Australian consumers still enjoy the physical store network, preferring a more personal, tactile experience. And it is also very hard to differentiate your offer online, which is why online tends to be all about price and product.
However, most importantly, Australia is a nation of browsers, and whether we are doing it online, or physically holding something, browsing has become a serious pastime in its own right.
According to the Australian Catalogue Association, 66% of Australians aged 14 years and over read catalogues in an average four week period, with 65% still expressing a preference for receiving catalogues by letterbox (versus 17% via email only). Retailers are learning that Australians still love, and prefer, physical interaction and experiences. We just don’t feel comfortable and secure enough about sending our credit card details into cyberspace, preferring instead physically to touch and shop for goods.
All in all, we have had ‘online’ for many, many years. It was just a collection of different channels that did not involve a computer. We might be spending longer having a super time browsing, but the commercial reality is if around 4% are shopping online, that means 96% are not. So, before we open or invest in an online business, let’s take a breath and smell the roses because physical store spaces are still number one.
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Brian Walker is managing director of Australasia’s leading retail consultancy Retail Doctor Group.