[LINK] Net retailing

[stephen at melbpc.org.au]

(Local) Retailers have way to go to get their online act together

BY BLAIR SPEEDY THE AUSTRALIAN JANUARY 04, 2014 

THE two biggest reasons shoppers cite for buying online are first, price, 
and second, the convenience of the web as opposed to the drive to the mall 
and, in the cities at least, battling the crowds.

For a number of reasons, including labour and rent costs, retailers find it 
hard to compete with China-based warehouse operations.

"We ain't world-competitive, and we ain't got a chance of being world-
competitive," Myer boss Bernie Brookes said during the federal election 
campaign last year as he called for an end to penalty rates that meant shop 
staff were paid as much as $62 an hour on public holidays.

Brookes is right and it could be said it's this, and not so much the GST 
holiday that buyers have on international goods being shipped here (and 
that local merchants have campaigned so stridently against) that is the 
competitive issue.

And that is why it's so important to get the convenience part right and why 
Myer's week-long internet debacle is so much more damaging than the $1m it 
will lose in sales.

Brookes has been bullish in his forecasts for internet growth, and with 
overall sales having fallen by more than 3 per cent over the past five 
years, he's right to be focusing on one of the few areas of the business 
that are moving forward.

But in highlighting how little the company expects its website breakdown to 
cost in lost sales, he's highlighted just how far Myer has to go.

Myer's online sales more than tripled last year but still accounted for 
less than 1 per cent of the company's $3.1 billion in annual sales.

Brookes says they can get to 10 per cent of sales within five years. 
Assuming zero growth in overall sales, that's going to require online to 
record compound annual growth of about 60 per cent.

That might seem a relatively low hurdle given the current explosive rate of 
growth, but given that NAB's latest Online Retail Sales Index showed that 
internet spending with domestic retailers was growing at an annualised rate 
of just 9.6 per cent in October, it is likely that Myer will find that the 
online market is just as susceptible to the phenomenon of diminishing 
returns as any other.

And they're not making things any easier for themselves with a website that 
is, not to put too fine a point on it, clunky.

No matter what you're looking for, there's a series of scrolling menus at 
the side of the page allowing you to refine your search by brand, size and 
colour -- each of them with hundreds of options.

To be fair, David Jones' offering isn't exactly top-notch either, with a 
series of ill-defined categories that encompass more than 2000 items, from 
belts to trucker caps, which you're welcome to browse across 108 pages.

That didn't stop DJs recording a tenfold increase in online sales last 
financial year. But again, we can only assume this was off a very low base.

Teething problems are to be expected of course, but given how far 
Australian retailers lag their British and US counterparts -- something 
Brookes frequently uses to illustrate the size of the online retail 
opportunity in Australia -- there is no shortage of successful models to 
emulate. No new ideas are required, and there's an abundance of experienced 
folks who have already cut their teeth in foreign markets.

However, a quick perusal of Facebook pages for leading international 
retailers with a major online presence, such as department store John Lewis 
in Britain or Macy's in the US, shows that they too can get things wrong -- 
sale items out of stock or items not arriving in time for Christmas.

And of course, no website is immune from traffic-related slowdowns.

Maybe, like the shoppers demanding their merchandise for free in 
compensation for not getting to them in time for Christmas, we're expecting 
too much.

But when Myer devotes half of its AGM to its campaign to have the GST-free 
threshold on purchases from foreign websites greatly reduced -- a move that 
will directly hit customers -- it needs to make sure its website has plenty 
of carrot to balance out the stick they want the government to use to keep 
shoppers onshore.

A much-quoted report prepared for the National Retail Association by Ernst 
& Young estimates that the GST forgone on internet shopping was $608m last 
financial year and will grow to $806m this financial year.

However, according to NAB, which uses transaction data to measure purchase 
value rather than Customs declarations -- which are prone to under-
reporting -- just 0.2 per cent of online sales are for purchases over 
$1000, and cutting the tax-free threshold to $25 would raise just $309m in 
additional tax revenue.

That shoppers may be paying less in additional tax than the retailers 
expect will not remove the perception that the merchants are seeking 
government protection from cheaper and better competitors offshore.

The federal government is yet to reach agreement with the states -- who 
receive all GST revenues and so are very keen for the threshold to be 
lowered -- on how the system can be reworked, but is expected to make a 
decision in coming months.

And when it does, the retailers who led the campaign -- Myer, Harvey Norman 
and Just Jeans parent Premier -- can expect a backlash from online 
shoppers.

But it probably won't stop Myer hitting its 10 per cent sales target.

There's already plenty of other things that could do that.

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