Online sales are the only highlight for Myer

Sales momentum is picking up, but the big issue with online sales is that global competition drives down profit margins. Bernie Brookes has his work cut out.

The star of Bernie Brookes’ underwhelming release today was online sales which appeared to contribute the bulk of the 0.7 per cent increase in comparable-store sales in the first quarter.

The online push underlines the arguments put by Australia Post boss Ahmed Fahour who says 90 per cent of his parcel traffic is generated from domestic accounts.

Fahour has spent $600 million revamping his Sydney and Melbourne parcel centres with the latter opened today.

The $600m investment in the parcel infrastructure will enable Australia Post to handle 1.3 million parcels a day, up from 530,000 a year ago.

Myer’s Brookes attributed some of the online increase to the rollout of some 1400 iPads in his stores which allows customers to use the customised app to order goods not found in the store with full click-and-collect capability.

Brookes said sales momentum picked up as the quarter continued, which is good news heading into the key second quarter.

Brookes confided the retailer makes 75 per cent of its money in the quarter ended January.

The market was unimpressed with the sales results with Credit Suisse’s Grant Saligari describing them as “underwhelming”.

In late morning trade the stock was down 3.7 per cent at $1.83 a share.

The problem with online sales is they come at lower profit margins because the competition is global.

Australia Post has just introduced a service called ShopMate which allows you to buy goods in the US with a US address and then have them posted to your house in Australia.

Gerry Harvey doesn’t like the concept because, of course, it means more competition.

Arguments about avoiding GST fail to include the fact importing the goods from the US also involves heavy postage costs which are good for Fahour’s bottom line but cost the punter more money than it would to shop at the local Myer store.

Internet sales account for 6 per cent of total retail sales in Australia compared with 10 to 12 per cent in Europe and the US.

Fahour tips it will hit 10 per cent in 2020, or $30 billion in sales.

That’s good business for him and a space from which Brookes can only develop to catch the wave.

This article originally appeared in the Australian Business Review.

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