When online shoppers want it all

Online retail sales growth continues to outpace traditional bricks and mortar retail sales according to the June 2012 update of the NAB Online Retail Sales Index. But that doesn’t seem to concern some leaders of Australia’s traditional bricks and mortar stores who fully expect to win the online sales war in the next few years, despite late market entry.

NAB estimates that Australians spent $11.5 billion online in the year to June 2012, an increase of more than 19 per cent. This equates to over 5 per cent of total retail sales in the year to May 2012. In comparison, traditional retail grew by less than 3 per cent in the year to May 2012.

So, is there a misplaced confidence amongst big brand stores that lean heavily on their physical shopfronts?

Taking a look at leading online retailers in Australia through 2012, there are three clear groups: group buying sites such as Scoopon, Cudo, Stardeals (Groupon) and Catch of the Day, pure online retailers like DealsDirect, Kogan and Booktopia, and the bricks and mortar stores including Myer, Big W, Good Guys, Harvey Norman and JB Hi-Fi.

While there has been plenty of attention on the pure online players, particularly the group buying sites that were all the rage in 2011 and are still plying good trade, bricks and mortar stores have begun to embrace online and are delivering some strong results.

Many such companies don’t disclose sales by channel, but for those that do – the past year has seen impressive growth, though often off a low base. Smart Company has trawled through various annual reports to find that Domino’s pizza now takes over half of its $544 million of revenue through online and mobile channels. JB Hi-Fi has increased online sales by 77 per cent to $51 million; still just 1.6 per cent of total sales, but an encouraging growth trajectory. Big W has seen 76 per cent growth in online sales and OfficeWorks is estimated to do $150 million in revenue online, roughly 10 per cent of total sales.

The dynamic of bricks and mortar stores entering the online sales market late yet eventually taking leadership positions is one that has already played out in the US. The latest list of the top US online retailers shows Amazon.com as the market leader, but the vast majority of the top 20 are bricks and mortar stores, typically department stores and retailers of electronics and office supplies.

Further support to the bricks and mortar model comes from the latest Telstra research on omni-channel shoppers, people who buy from online and physical stores. The research found that 89 per cent of online shoppers in specific sectors also buy goods in physical stores and a third of these buy from the same store both online and offline.

The behaviour of omni-shoppers – researching online, trying goods in physical stores and buying from whichever channel is most convenient at the time – is a rising trend. Providing the bricks and mortar stores offer competitive prices and a great experience in their online and offline channels, they have the chance to replicate the market-leading status of their American peers.

The big caveat to the opportunity facing Myer, David Jones and others is execution and timing. In the US, Sears, Macy’s, Wal-Mart and Best Buy have spent years refining their online and offline sales channels, developing a great omni-channel experience and learning from the numerous online start-ups. In addition, the catalogue culture in the US offered these department stores an understanding of direct channels well before the internet came along.

Australian retailers have little catalogue heritage to fall back on and are in their infancy with regards to online shopping, but they have the ability to look at their US and other peers to replicate the elements that have proven successful.

So who will eventually win the online shopper? Bricks and mortar stores definitely have the assets to become the overall leaders in time. These assets could be used to create an experience for the jeans shopper, for example, that could involve:

1. Using an online or mobile application that helps them take their measurements and suggests five types of jeans that will suit their body type;
2. Heading in-store to try on demonstration pairs of these jeans, to choose the ideal fit, and the store representative updates the client’s online profile;
3. Sitting on an in-store lounge with an in-built tablet to explore a larger range of designs available off-site for that style;
4. Sending an image of their desired bespoke jeans to their phone for them to ponder over;
5. Purchasing the jeans via the store’s online e-commerce (free shipping and return) portal the next day after sleeping on the decision.

In the end, the question of whether the bricks and mortars will eventually gain primacy is really up to their ability to execute and provide consumers a similar type of satisfying omni-channel shopping experience.

John Moss is chief strategy officer at MYOB