In the first of a two-part series, Euromonitor International analyst Bettina Kurnik discusses the boom in online retailing in Australia - and the reasons behind the inactivity that previously characterised the channel.

While bricks-and-mortar apparel retailers and department stores report problems getting consumers to part with their hard-earned cash, Australian consumers are embracing online apparel shopping in their droves, flocking to domestic and international shopping sites alike for that special blend of shop-around-the-clock convenience, price and availability that only internet retail can offer.

Internet retailing hits full stride after tentative first steps
Australian consumers have been relatively slow to catch on to the online shopping trend, with many observers noting the lag behind overseas trends, in particular those emanating from more established digital retail markets such as the UK, the US, Germany and France.

Euromonitor International figures reveal, for example, that in 2008 some 3% of apparel purchases in Australia were made over the internet, in comparison with 5-6% for the aforementioned international markets. In 2011, this figure had risen to 5% for Australia and as high as 9% for the UK and 8% for France.

The recent adoption of e-commerce, m-commerce and even f-commerce platforms by Australian shoppers indicates the overwhelming consumer demand for retail solutions adapted to changing consumer preferences.

Why now? Offshore e-tailers have been of interest to tech-savvy Australian consumers for a number of years due to appreciation of the Australian dollar and the relatively lower prices available on clothing and footwear abroad. The Low Value Threshold (LVT) for exemption from the Goods and Services Tax (GST) and duty on imports under AUD1,000 provides further incentive for Australian shoppers to look beyond their own borders.

Online apparel retailing is experiencing its current growth due to increasing confidence in internet transactions, the development of new retail platforms, enhanced user interface to assist the search and order process and two little words that resonate sweetly: "free" and "shipping".

The connection between household penetration and online spend
Familiarity with online payment systems and access to fast and reliable internet speeds are two very real considerations behind the practical appeal of internet retail.

From internet banking to purchasing goods and services online, Australian consumers have come to accept that there are just some things that are not necessarily easier in-store.

According to the Australian Communications and Media Authority (ACMA), 88% of household internet users had engaged in one or more e-commerce activity in the six months prior to November 2009. More recent statistics from PayPal place this figure at 97%.

Of the ACMA survey respondents, 69% indicated that they had purchased goods or services online, with 31% having purchased clothing or footwear.

Figures from the Australian Bureau of Statistics (ABS) reveal that household internet penetration jumped from 16% in 1998 to 72% in 2009, placing Australia 12th out of the 27 OECD countries featured in the ABS Household Use of Information Technology release and ninth for household broadband penetration. The proportion of Australian homes with access to broadband internet rose steeply from 16% in 2005 to 62% in 2009.

New retail platforms assist "impulse" buying
New online retail formats include m-commerce and group sales/daily deals to target "buy it now" purchases and f-commerce to facilitate a maintained dialogue with consumers.

With smartphone penetration at 37%, a figure that places Australia as second in the world behind Singapore according to a major study by Google, mobile phones hold significant growth potential for internet commerce.

PayPal Australia reveals it processed mobile transactions to the value of AUD42m in 2010, with this figure forecast to quadruple in 2011 as m-commerce becomes increasingly mainstream for merchants and consumers.

The trend towards targeting clothing and footwear sales is now evident among local online daily deals and auction sites, with Catch Of The Day and GraysOnline now offering apparel brands through sale-based websites and virtual direct factory outlets.

With fashion representing the largest sales category and growing at 24% year-on-year, online auction site eBay.com.au launched its Fashion Gallery in October 2011.

Accompanying a handful of key international brands, the eBay initiative features 28 local fashion labels that are seeking to complement sales from their own transactional websites and retail outlets by tapping into eBay's shopper network.

The e-tailer recently gained extensive coverage of its venture by launching a spoof campaign promising to stay "one step ahead of the Joneses" and lampooning the small print of department store David Jones' price-matching campaign.

The changing face of the Australian online consumer
No longer solely the domain of male techies in the 25-35 age bracket, a number of online retailers report their typical clientele to be women of a similar age with incomes of over AUD70,000 per annum.

Over a third of female ACMA survey respondents had purchased clothing/shoes in the six months prior, in comparison to 27% of males.

Geography also emerged as a significant sales driver, with 40% of non-metropolitan consumers having purchased clothing or shoes online in the six months prior, compared with 26% of metropolitan consumers. Given the sheer physical size of the country, Australian consumers are keen to virtually overcome its vast distances.

In-store consumer behaviour has also undergone marked changes, to the extent that some retailers have considered charging fitting room fees to discourage online shoppers from using their premises as a showroom.

Footwear specialist retailers have been particularly affected by "Windows shoppers" who try with the intention to buy from an offshore e-tailer. Running shoes are particularly prone to this behaviour, with sporting enthusiasts often favouring and then purchasing a certain brand or make of shoe from a globally recognised manufacturer.

Submissions to the recent Economic Structure and Performance of the Australian Retail Industry enquiry highlight that it is often less than half the price to order a pair of sports shoes from the US, including the bank fee for a foreign currency transaction and air freight.

Vibram FiveFingers barefoot running shoes provide a pertinent example due to their non-conventional sizing, scant domestic after-sales service and international pricing at approximately AUD100 less than in Australian stores.

Pitching to this changing profile
With convenience, lower costs and greater availability cited as the key reasons for shifting to online apparel shopping, it is necessary for retailers to adapt to the changing profile of consumers who are time-poor and value-conscious, but also overwhelmingly tech-savvy and willing to research and buy online.

The Australian Centre for Retail Studies estimates that 40% of clothing shoppers conducted a multi-channel search before making an in-store purchase in 2011. This figure is an interesting indication of the potential versatility of the internet proposition to cater for both studied and impulse purchasing behaviour.

Click here to read the second article in this series, which identifies the appeal of offshore e-tailers over their Australian counterparts, and reviews the way forward for local apparel specialist retailers.