At last someone with access to the finer details of how much we spend online has undertaken the massive task of churning through the detail.
There has been an abundance of fear and plenty of posturing about the extent to which consumers have embraced online retail. Yesterday, with the rich resources of its credit and debit card information, the Commonwealth Bank’s Global Markets Research analysts have produced the most accurate account of this industry to date.
From this information source, it is reasonable for them to extrapolate both the size and the shape of the online retail industry.
Based on this information, the analysts, headed by Andrew McLennan, have deduced we spent $9.5 billion online last year – which equates to 3.8 per cent of total retail spending and 5.2 per cent of discretionary spending.
If consumer spending patterns were static, these numbers would be troubling but not life-threatening to the established bricks-and-mortar shop owners.
However, they are not. The real cause for concern among traditional retailers is that this analysis shows growth in online is growing – up 126 per cent last year in volume and 90 per cent in value over a year.
There are some particularly interesting aspects from this research – who is buying, what they are buying and how they are buying.
It probably won’t come as any surprise that online retail purchasing is dominated by the younger generation – those aged 30 or less have embraced online more than older people.
This presents the first threat. As these younger consumers age and increase their spending power, it will further intrude on the market share of traditional retailers.
Another bit of detail revealed by the research is that in most product categories, many of us have bought online only once in the year. If just those shoppers buy twice, growth in online retail would be huge.
Another fascinating aspect is where online shopping is growing. The big volume rise is coming from online-only retailers, rather than from the online alternatives from traditional retail brands.
The statistics say our online buying is being directed to what are described as ”online only” retailers, such as eBay and Amazon. They account for about a third of the spend but that is growing at the ”modest” pace of 75 per cent a year.
Group-buying websites are smaller in terms of overall volume – they account for only 16 per cent. But they are growing at a staggering rate of 557 per cent. (These group-buying sites include Catch of the Day, Groupon and Cudo.)
But what are we buying on the internet? In terms of product group the fashion is, well, fashion – it’s the third-biggest category but growing at the eye-popping rate of 230 per cent a year in volume.
(It’s also worth noting that online volume growth exceeds value growth – and this can be explained by price discounting and some shift in the mix of what we are buying.)
The online categories that are underperforming include liquor, sporting and outdoor, electrical and health/pharmaceutical.
About half our internet spending goes to local websites, but the split varies between categories. We are using offshore sites to buy sporting and outdoor, cosmetics and beauty products, books, media and fashion, but we’re buying local when it comes to liquor, gifts, cards and florists.
Almost all liquor is acquired on local sites while at the other end of the spectrum 90 per cent of sporting and outdoor goods are being sourced offshore. But offshore retail is growing faster.
One curious aspect of the results is that men are marginally more inclined to buy over the internet – but this information could be skewed by the fact that this aspect of the research is based on the primary card holder, while the overall spending statistics include the secondary card user.
The bad news for Australian bricks-and-mortar retailers is that they are not capturing the same share of the internet market as their online-only competitors.
This is precisely why this new retail distribution avenue is a threat. Some of this can be attributed to the fact that we pay retail bills online – but not all.
Of more concern to traditional retailers should be the fact that online penetration in Australia is behind many other developed countries such as Britain and the US.
Even more concerning is the fact that we are adopting smartphones at a rate ahead of most other countries. In the future most online commerce will be conducted through this channel.
The use of smartphones and the demographics of online shoppers suggests Australia is pregnant with potential for online retailing.
It should be a wake-up call for retailers that have done too little to develop an online strategy – and there are many that fall into this category.
The good news is that the non-discretionary end of the market – such as supermarkets – have remained fairly immune to the online threat.
Wesfarmers, which owns the Coles, Kmart, Target and Bunnings brands, produced a result yesterday that showed little threat from online competitors. Instead it demonstrated that consumers were taking advantage of the price-deflated products these brands had on offer.
The market was not pleased with the overall result due to the fact that Coles’s sales numbers were a bit weaker than expected, but it would have cemented the view that grocery suppliers were in a safer place than those in the more upmarket discretionary sector.
Source – The Sydney Morning Herald