November 16, 2010: PayPal has released a useful series of research reports on Australian online trading which point to a rapidly expanding category in which local retailers are playing a dominant role.
The rate of growth in 2010 has been particularly high, driven by the launch of new online stores, a surging Australian dollar, and continued increases in the proportion of Australians who shop online.
PayPal’s eCommerce Secure Insight Report is in fact three separate pieces of research surveying online retailers (Forrester); online shoppers (Leading Edge); and looking at security issues around online shopping for both consumers and retailers.
Forrester’s study, based on a survey of over 100 Australian online retailers, yielded four key findings:
- Australian online retail, including domestic retail, is booming. While imports are important, most online retail purchases are local. Overall, Australian online retail – including auctions, imports, and travel – will reach $36.81 billion per annum in 2013, up from an estimated $27 billion this year. The largest segments in 2013, says Forrester, will be the same as today: Groceries (incl liquor) and Travel. (Forrester separates ‘Consumer Electronics‘ and ‘Computer Related’ into separate categories. Combined, the two are almost as large as Groceries.)
- Australian online retailers face many challenges. Four of the biggest issues are responding to low-priced competitors; recruiting and retaining appropriately skilled staff; managing logistics (particularly delivery); and controlling the relative cost and effectiveness of marketing.
- For multichannel retailers, one challenge is their reliance on traditional channels. Businesses that sell through their physical stores as well as online channels still rely on the former channel for most of their sales (and most anticipate this balance to continue). As a result, they tend to favour those channels, providing them with better access to product and protecting them against disruption whenever possible when venturing online.
- Delivery is one challenge that many retailers are willing to invest in defeating. Dissatisfaction with current delivery methods runs deep, with the high cost of delivery being the most common complaint. Nonetheless, Australian online retailers will increasingly provide costly services, like free delivery and returns, in the year ahead.
Locals to dominate
According to the Leading Edge consumer survey component, the main driver to overseas shopping is wider choice and selection of goods, rather than price, ‘proving Australian retailers really can compete with their international counterparts if they get their strategy right’.
Domestic retail is holding its own online. The share of Australian online consumption that consists of imports varies across categories, as well as between auctions and fixed-price retail. It can also rise and fall in the short term in line with the fortunes of the Australian dollar. However, despite this variation, the medium- term trend is for roughly four-fifths of all Australian online expenditures to be placed with local web sites. Nearly a quarter of Australian adults surveyed only shop online with domestic websites.
But while domestic eCommerce is growing fast, Australian retailers cannot ignore the number of Australians shopping overseas. PayPal fgures show a 74 per cent increase in the amount of money sent overseas in the last year alone.
The number of overseas shoppers using PayPal is also increasing; at the beginning of 2008, approximately 465,822 customers made an overseas transaction and in September 2010, 1.2 million Australians bought online from overseas retailers.
PayPal figures demonstrate a 12-fold increase in mobile payments in the last year alone, up from $2.7 million in 2009 to $35 million in 2010. While category growth is forecast to be relatively steady over the next three years at around 10 percent, advances in payment innovations such as micropayments and mobile payments will help to further propel growth in certain sectors such as online video games and news, as publishers learn how to effectively monetise their content.
Leading Edge claims ‘it’s not the strength of the Aussie dollar that was the main driver for consumer shopping overseas, it is the range of goods on offer overseas that is really driving local shoppers to buy offshore.
‘Retailers need to realise that they are not solely competing with their international counterparts on price, presenting a call to action to expand their online offerings and capture the share of the market that is going overseas. ‘
While issues of convenience and ease were nominated by consumers for shopping online locally, there were a different set of drivers for shopping overseas. Almost one-third of all those shopping from overseas websites state that ‘Access to Goods’ and ‘Services Not Available in Australia’ (32 percent) is an important driver to overseas purchases.
‘This is a somewhat surprising finding for those who considered price to be the key overseas driver and a call to action for Australian retailers to increase the selection of goods that they offer online.’
‘Less expensive goods and services’ was nominated by 19 percent as their primary motivator for purchasing overseas while ‘Greater Choice’ overseas was a third key driver to international websites.
The executive summary to the report concluded: ‘As clichéd as it may sound, the online world is a huge global shopping mall. The merchants that get noticed are those whose online stores deliver a best-practice end to end customer experience.
‘Product range is not sufficient; it must be paired with an easy to navigate site, a great checkout experience, a clear returns policy, accessible customer support, and a good packaging and handling solution.’