Sizing up DJs' online solution

A comparison with overseas retailers shows just how far David Jones is lagging in the online sector – and in that light, its deal with IBM looks like a first and last-ditch effort to get it right.

While the traditional retail sector continues to struggle, online retail sales are setting a blistering pace – growing at more than ten times the speed of the traditional bricks-and-mortar stores. According to the National Australia Bank's inaugural Online Retail Sales Index, annual online retail sales tipped over $10 billion for the first time in 2011.

While online sales account for just 5 per cent of total retail spending, changing consumer preferences and spending habits are set to disrupt the traditional retail equation forever. And if our high street icons don’t measure up, more and more of this spend will shift offshore. The world has changed and customers are now bolder, more sophisticated, and hungrier for the best deal than ever before.

At last, the announcement from David Jones of plans for a multi-million dollar spend with IBM indicates the high street giant has finally woken up to this shift (Rugging up for a bleak DJs winter, March 21). Yet one has to wonder if, ten years after the fact, they'll see they have left their run too late. While it’s admirable David Jones is setting its sights on lifting online sales to 10 per cent of total earnings (over time), from less than 1 per cent today, it’s going to take a real turnaround to make this happen.

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Indeed, when you look at comparable international department stores, online sales account for 16.7 per cent of UK giant John Lewis’ total sales, with high-end US apparel retailer Neiman Marcus’ online sales at 16.3 per cent and the similarly upscale Nordstrom's at 9.1 per cent of total spend. So it’s strategically sound that David Jones now wants to focus online and take a bigger piece of the online action. Because, let’s face it, it’s only going to increase.

Meanwhile, Commonwealth Bank of Australia estimates that online retail spending slashed 1.3 per cent off the growth rate of bricks-and-mortar retailers in 2011, with a similar impact of 1.1 per cent predicted for 2012. Based on the analysis of transaction data from its card customers, Commonwealth estimated that online shopping as a percentage of total retail spending will rise from 5.1 per cent last year to 9.1 per cent by 2018. There will be more spent by those shopping online, as well as increasing proportions of the population taking up online shopping.

While 50 per cent of its customers are transacting online this year, the bank says that proportion will rise to 65 per cent next year and 75 per cent the following year.

So clearly, it’s now or never for David Jones. But let’s not forget, leading international retailers had foresight and now have mature e-commerce platforms and seamlessly integrated sales channels. Over the years they have made significant investments in their technology and global supply changes and delivered on the customer value proposition.

David Jones is, in effect, starting from scratch. In fact, it's starting from a point where it currently sells perfume online for up to 75 per cent more than comparable international online department stores. Its online product inventory is a fraction of its international cohorts and needs to expand by tenfold. Like I said, it’s going to be some turnaround.

And isn’t it wholly lamentable that they’re only just getting around to it now. The board members who have been dragging their feet on this for years should be held to account. What were they thinking? Did they truly believe their customers wouldn't want to purchase items online for a fraction of the price that they could buy them for in a DJs store? And what data were they using to back up this premise? Even their most loyal David Jones customers are big spenders elsewhere online.

I think a big question that has to be asked is why they dug their heels in so deeply for so long against the online tide. My feeling is that they just didn’t get it. In this light, the multi-million dollar spend with IBM is probably their first and last-ditch effort to get it right. Will it be enough to see David Jones ever measure up to the likes of John Lewis?

Indeed, the world is a completely different place now than it was a decade ago when John Lewis first established its foothold online. In order to catch up, the solution David Jones now delivers must offer an integrated multi-channel experience that allows information, price comparisons and peer reviews. And the group needs to recognise increased mobility is having an enormous impact on customer behaviour both online and within physical stores.

Furthermore, with the spectre of Amazon coming to Australian shores, DJs fledgling online operation will face the most imposing competition. The retailer would do well to stand by its promise that it costs no more to shop at David Jones – even in a globally connected world.

Simon van Wyk is the founder of digital agency HotHouse.

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