China the new competitor in Australia's online sales

As Australia's major retailers increase their online sales channels, pouring millions into their websites, they could face new competition from China's booming e-commerce industry.

China's online retail market is now the world's second-largest after the US, with an estimated $210 billion in revenue last year, according to consultancy firm McKinsey & Company.

The push comes from websites such as alibaba.com, which links manufacturers and suppliers in China to customers around the world, delivering food, clothing, machinery and software, mostly in bulk.

While analysts say new competition in the international space adds pressure to local retailers, the challenges for the industry remain the same: trying to match lower international prices, with weaker distribution networks.

Jason Pallant, a research fellow at Monash University's Australian Centre for Retail Studies, said local retailers were struggling to meet the high expectations of shoppers, who are adapting to low prices and often free delivery. "We used to have a really isolated market, but now there are a lot more retailers who are willing and focusing on shipping and selling to Australia, and a lot more competition," he said. "The expectation on domestic retailers is not only to meet [low prices and fast delivery time] but to beat them."

He said China could dominate the low-cost end of the market, given its ability to reduce costs by shipping products directly from the factory floor. "[China] is known for really low-price products, and certainly some segments of shoppers put low cost first. While there is a segment of shoppers that will find that really appealing, I don't think it's all of them."

Online retail sales in Australia slowed to 15 per cent growth in March, according to NAB's monthly online retail survey. This compared with 27 per cent growth in January.

But NAB chief economist Alan Oster said the slowdown in online sales reflected the general softness in the retail sector. "People are scared and they are still paying off debt," he said.

According to NAB, about 75 per cent of online purchases in Australia were from domestic retailers - down from 80 per cent in 2010.

"The international share has been growing, but it's still relatively small," Mr Oster said.

Mr Pallant said Australian retailers could benefit from sharing distribution networks. "That's the way we're going to have to move forward, given the challenges we have."