In the second of a two-part series, Euromonitor International analyst Bettina Kurnik identifies the appeal of offshore e-tailers over their Australian counterparts, and reviews the way forward for local apparel specialist retailers.

Australia may be a late bloomer when it comes to internet retail but the current appetite for online apparel shopping has been described as "voracious", with Asos international director Jon Kamaluddin dubbing the country the "dark horse" of the e-commerce race.

At present, the market for online retail is still comparatively immature when viewed in light of the penetration and average transaction spend in the UK and the US, but the potential for growth in both is turning heads domestically and internationally.

Global e-tailers have been quick to take advantage of the hunger for e-commerce in the Australian market, releasing localised versions of their international offerings. Popular UK-based online apparel retailer Asos is the most significant new player on the Australian cyber scene.

According to Asos, Australia has demonstrated some of the strongest sales and customer growth rates to become the company's second largest market outside Britain in 2011, with a sales value of more than AUD80m a year.

The company launched a dedicated Australian website at the end of September. The site is remarkably similar to the UK original, differing largely through currency and sizing details, a local returns centre and minor adjustments in terms of seasonality and key local events like the Spring Racing Carnival.

User feedback has indicated that Australian customers do not want Asos to lose what makes it special in the UK, according to Kamaluddin, who recently appeared as a keynote speaker at the Online Retailer Conference and E-commerce Expo in Sydney.

Hesitant developments on the home front
Many domestic retailers seem to be reluctant to jump on the bandwagon despite encouragement from the Australian Retailers Association (ARA).

Local hesitancy may be explained to some extent by department store David Jones' failedforay into the world of internet retailing. David Jones was in fact one of the pioneers of online shopping in Australia. However, the business closed its first online store in 2003, citing high costs and poor returns to the tune of a AUD28m loss over three years.

Local internet retail in Australia has previously been characterised by this reluctance, particularly for apparel.

Conventional wisdom lent itself to the belief that there was no market for clothing and footwear online, and web launches were conducted purely in a defensive manner to prevent both "cannibalising" sales from traditional retail formats and the loss of market share to competitive pure-play e-tailers, rather than being viewed as a means by which retailers could encourage multi-faceted engagement with consumers.

Leading the way however late in the game
Department stores Myer and David Jones, mass merchandisers Target and Big W, and retail operator Premier Investments all made the move online during the 2010/2011 financial year. Premier Investments owns apparel retailers such as sleepwear specialist Peter Alexander and high street fashion chains Jay Jays, Just Jeans, Dotti, Portmans and Jacqui E.

Notable domestic online platforms are currently offered by the Billabong Group, Pacific Brands and eBay Australia.

Billabong International Ltd acquired the controlling interest in online surf fashion e-tailer in December 2009, with the revenue contribution of this and other online banners reaching approximately 3% of group sales in the 2010/2011 financial year, and predicted to rise to 7% for the current year. SurfStitch took the honour of winning the Best Pure-Play Online Retailer at the 2011 Online Retail Industry Awards.

Following a difficult year in 2010/2011 due to reduced consumer spending, higher cotton prices and its delisting at major mass merchandiser Kmart, leading wholesaler Pacific Brands launched an online store for its flagship Bonds brand in November 2011. The Bonds website will accompany existing online retail platforms for Sheridan, Volley and Mossimo, but is set to turn heads due to the brand's iconic national status.

Has the horse bolted?
In the current fever pitch regarding online retail, many observers have been left wondering if it is a case of too little, too late for domestic retailers.

However, the ARA is leading the push for local businesses to launch an online store or upgrade their current internet and mobile presence to facilitate product, location and opening hour searches. Local retailers must adapt to multi-channel retailing even if only to demonstrate their willingness to engage in dialogue with consumers in their chosen format.

The potential for online innovation within a bricks-and-mortar retail environment should also be realised. Westfield shopping centres, for instance, launched Facebook Check In Deals in August 2011, allowing shoppers to "check in" at Westfield centres for deals at apparel and accessories retailers such as Cotton On and Angus & Coote.

For the most part, a virtual presence should be seen as a complement to and not a replacement for the in-store experience. Online retail can successfully function as a brand-building tool, promoting a stronger brand identity in this era of new media.

Retailers, for their part, are pushing for a balance between web, wholesale and retail distribution channel prices, urging e-tailers not to undercut stockists by selling at a lower everyday price online or by discounting mid-season.

The spectre of the Low Value Threshold GST exemption is distracting from the main issue when it comes to domestic versus offshore competition. Australian retailers should focus instead on the benefits they can offer over offshore pure-play e-tailers, namely a local presence, often through a nationwide network of outlets, which can offer in-store returns and a follow-up face-to-face customer service experience.

Addressing the lack of necessary infrastructure
Internet retail is only as effective as its delivery and returns systems and Australia Post is, according to all company press releases, getting on board with e-commerce.

The national postal service introduced a new-look concept store in Brisbane in late November 2011. There are plans to roll out the format in central metropolitan locations nationwide. Each post office will feature a 24/7 zone with parcel lockers for around-the-clock pick-ups, a self-service terminal for parcel postage and an ATM.

Many local e-tailers and consumers are, however, infuriated with Australia Post's current level of service, with hit-and-miss contracted home delivery services and the irrational tendency to subsequently channel parcels from local, open-six-days-a-week post offices to central pick-up points that only operate during weekday 09.00-17.00 business hours.

A world wide web of opportunity
Australia may have lagged behind the rest of the Western world in terms of incorporating online technology as an element of the retail shopping experience, but with a rising number of local shoppers turning to e-commerce and m-commerce to research and purchase goods and services, the future is rosy for internet retail, particularly for apparel sales.

Convenience, lower prices and the availability of a wider range of stock have driven online sales in 2010/2011. However, further enhancements to web interface, increased penetration of high-speed broadband and internet-capable mobile phones, relatively high cost structures, such as rental costs and labour for bricks-and-mortar retailers, and speculation about the arrival of market giants like Amazon to Australian shores will drive online retail.

Click here to read  the first article in this series, which discusses the boom in online retailing in Australia - and the reasons behind the inactivity that previously characterised the channel.