What it says on the tin
A recent report from Commonwealth Bank states that the online retail trade reached $9.5b in 2010; 56% of which went to overseas sites. Their estimates tell a story of a rapidly increasing trend: the growth in the year to May 2011 was 126% in volume and 90% in value.
What rarely gets a mention when discussing the implications of this for Australian retailers is that the challenge they face consists of two separate issues – online versus offline and onshore versus offshore – and that in Australia, the focus has been on the former, and least important, of these.
The decade up to 2005 was kind to Australian retailers, and this may go to explain why online retail in itself has been seen as a threat to their existing businesses rather than an opportunity to expand it. In the early days, while overseas retailers – perhaps as a result of operating in markets where innovation is a prerequisite for survival – got busy evolving their businesses, optimising them for a new retail reality, satisfied Australian retailers were in denial and fought against online retail in general.
We found ourselves competing in a global market at the same time as the rest of the world, but where other retailers saw Australian customers, we only saw American competitors. They were proactive, we became reactive.
And we still are.
There is a lack of confidence among Australian retailers, and nowhere is this more evident than in their eagerness to engage in discounting and price-wars like there is no tomorrow. Lowering prices has become the default solution to every problem, and brands are severely damaged in the process. We will never be as cheap as our overseas competitors, but efforts so far have been based on the assumption that if we cannot compete on price, we cannot compete at all; one disastrous consequence of which was the campaign against GST exemption on imported goods.
To succeed online we must aim to increase the perceived value of our products. By leveraging the opportunities offered by technology, we must proactively address other aspects of retail, such as service, quality and shopping experience. The belief that price is the sole driver of online retail has kept us from addressing the most obvious shortcoming of Australian retailers, which is innovation.
As Australian retailers discuss GST and the strong dollar, overseas retailers are introducing innovative solutions to problems:
· To improve online service, Best Buy (US) developed Twelpforce. Via Twitter, customers can ask a large network of voluntary staff members – most of which are off-duty – about anything tech-related, and get instant replies.
· Online UK clothing retailer Banana Flame launched an augmented reality feature which lets customers try on clothes using their web camera, before asking the opinion of friends via social media.
· Peer reviews and ratings allow people to trust products and retailers. The latest and bravest company to leverage the power of word-of-mouth is Dominos Pizza (yes, the US version). After first responding to negative feedback by making better pizzas, they now encourage customer feedback on Twitter, before broadcasting it live on billboards in Times Square!
These are just a few recent examples of how the online shopping experience has been enhanced. Internet has created an ever expanding pie, and if Australian retailers want a piece of it, they must evolve past merely offering some products up for sale on an internet site from the mid-nineties. Internet must start being viewed as complementing, rather than competing with, bricks-and-mortar stores, and value must be increased through innovation, not decreased by cutting prices.