Australian shoppers spent A$14bn online in the year to June

Australian shoppers spent A$14bn online in the year to June

Australia is increasingly becoming a nation of online shoppers, as the strength of the Australian dollar, combined with the ease of purchasing and lower prices being offered internationally, sees consumers flock to their computers, phones and tablets.

According to FiftyOne, a company that helps US retailers sell their wares overseas, Australia is its second largest market, after Canada, with 20% of sales coming from the country.

And according to the Commonwealth Bank, Australian shoppers spent A$14bn online in the year to June. While accounting for only 5.4% of the country's retail bill, this is more than the combined annual revenues of Australia's five largest retailers - JB HiFi, Harvey Norman, Myer's, David Jones, and Super Retail Group, according to Bloomberg data.

International savings
The idea of 'Made in Australia' holds cachet for many, and on the whole, people seem invested in the idea of supporting local businesses. But the discounts to be had from international sites are driving sales abroad.

Sean Sands, the director of the Australian Centre for Retail Studies, told just-style he recently purchased a "new pair of Nike running shoes from EastBay in the US, the shoes were $99, and the postage ($25), and the five-day wait for them to arrive far outweighed the $180 price tag at a local store".

Also, retailers like UK-based Asos are pushing growth in countries like Australia as sales outside the EU offer better margins. Any product it ships outside the EU is exempt from VAT, so on these items the retailer is 20% better off.

"We invest that in free delivery and you're seeing it on the retail margin line," Asos CEO Nick Robertson told just-style in May last year.

Slow to get online
Another issue has been the speed wth which Australian retailers have embraced online retailing.

Sands believes that until recently, online retail "has not been, nor had to be, a priority for local retailers; they have had the relative luxury of a buoyant economy, strong consumer spending, and limited competition from off-shore retail".

Indeed, in interviews with just-style in 2011, Myer CEO Bernie Brookes and Target managing director Launa Inman admitted Australian retailers had not been fast enough to get online.

"As much as it's fair to be a little bit critical of retailers who are playing catch-up now, it was really the increase in the value of the Australian dollar that drove it faster," after Australian consumers began shopping on international sites, said Brookes. "That exponential growth happened quickly and caught quite a few retailers by surprise."

Yet, a strong local online presence might not have prevented Australian consumers from looking abroad. With the ability to compare prices online, the decision is less how close the retailer is to the consumer, but more who can offer the best price.

Scale and cost
Sean argues the challenge Australian retailers face in offering similar prices to their international competitors is purely down to scale, and this threat is only exacerbated by the bricks-and-mortar incursion of international retailers like Zara, Topshop and Gap in recent years.

"Our largest fashion retailers, like Country Road and Myer, struggle to compete on price given the low order volumes they place in China and other manufacturing hubs," says Sands.

"Even a store like Target may only order 4,000 of any given product, compared to Zara who may order hundreds of thousands of an equivalent product. The efficiencies in costs obtained through scale alone is more then enough to place significant pressures on local fashion retailers competing in a global marketplace.

"Everyone at our office shops at Asos now, and even if we aren't shopping online, Zara stores in Melbourne and Sydney are priced much better than local counterparts, purely on cost of manufacture, I would suggest."

Price harmonisation
Price harmonisation will be a key issue for Australian retailers if they want to keep their heads above water.

Speaking at the company's AGM in November, David Jones' chairman Robert Savage said: "In a world where customers have increased price transparency through technology, it is important that we ensure our pricing is comparable to global prices.

"We are making good progress working with suppliers to achieve global cost price harmonisation and have had success in delivering retail price reductions over the past six months across hundreds of SKUs in categories such as fashion, beauty, accessories, shoes, homewares and electronics."

However, he was keen to emphasise that this would not come at the cost of its own gross margin.

As consumer confidence continues to fall, price is going to become increasingly important. And if retailers can't offer the same or better price for a product, this stream may become a flood.