Not surprisingly, the rise of smartphone apps is wreaking havoc on the business models of retailers in the United States. With mobile phone penetration sitting at 125 per cent in Australia - which is higher than the US - and smartphone penetration rising to 50 per cent in just four years, it is only a matter of time before it has the same impact here, warns global telecommunications consultant Paul Budde at BuddeComm. Budde sees Australian retailers as slow adaptors of the internet and mobile apps as the technologies to provide a powerful weapon to consumers to compare prices. ''It increases competition and puts pressure on prices, there is no doubt about that,'' he says. In Australia, Woolworths supermarkets were the first major retailer to launch an app, last August. Since then it has had more than 1.644 million downloads, according to the group's corporate affairs manager Clare Buchanan. Its Big W discount department store chain has gone a step further with its mobile app, which was launched in November last year, with a key feature to scan a product in any competitor store and get the comparable price at Big W. However, it is unable to get the competitor price when a product is scanned in Big W because competitors such as Kmart and Target are yet to fully embrace the internet, which makes it difficult to access the data with any integrity. But if the US and Amazon are any guide, it won't be long before it hits Australian shores and when it does, price competition will become more intense, according to retail experts. ''It's a demonstration of confidence in price. Again, further upgrades are planned for the Big W app in the not-too-distant future,'' Buchanan says.

UBS retail analyst in the United States Robert Carroll sees smartphone apps as a game-changer for the retail industry. Carroll believes these apps will be the catalyst that brings the structural upheaval in retail to a head. ''It's not just online purchasing they are now dealing with, it's the penetration of smartphones where you can instantly price compare across many retailers by scanning the barcode of a product with a barcode scanner app from Amazon while you are in a store. This has created an unstable environment and that's territory that traditional retailers are unfamiliar with,'' he says. A 185-page white paper from the National Retail Federation, the world's largest retail trade association, took it a step further. In its paper Mobile Retailing Blueprint, the federation suggested that mobile was now widely considered ''the fourth retail channel''. It said: ''Mobile phones are changing the way retailers, suppliers, and consumers both communicate and do business. Our phones are always with us - and always on, connecting retailers to current and potential customers, regardless of location or time of day … There is no doubt that mobile technology for retail is no longer a trend, but a necessary way of doing business.'' But the changes have come at a cost to traditional retailers. Staff cuts, store closures and price wars have become the battle cry across the US and more lately Europe and Australia as more and more retailers have been exposed by the price transparency that the internet and mobile apps have given consumers. In the case of Europe, this is expected to accelerate over the next few years following a decision by the European Commission in January to create a ''digital single market'' and break down the barriers to cross-border e-commerce. The European Commission has set a target to double the internet and mobile commerce's share of retail sales from 3.4 per cent to 6.8 per cent by 2015. It estimated that when the proportion of retail sales from the internet and mobile commerce reaches 15 per cent, consumers will save more than €200 billion ($A256 billion), or 1.7 per cent of GDP, from cheaper prices. It is a compelling case that was not lost on the Gillard government when billionaire retailers including Gerry Harvey waged a campaign to try to convince the government to level the playing field and impose GST on internet sales.

Internet purchases from overseas valued at less than $1000 escape GST and customs duty in Australia. Retailers argue that Australia has one of the highest customs rates, with Canada's threshold $C50, New Zealand $NZ400 and Britain £20. The Productivity Commission in Australia investigated GST and internet sales and found strong grounds for the GST threshold to be reduced, but only when it was cost-effective to do so. Lowering the threshold to $100 would raise about $500 million in revenue, but would cost $1.2 billion to administer. As online and mobile commerce sales increase - in the US, online sales represents 9 per cent of total retail sales and in Australia it represents less than 4 per cent - a debate is raging in traditional retailing about whether to fully embrace the new technology in the business model or continue to shun it or offer limited services for as long as possible. For US department store giant Macy's, its boss, Terry Lundgren, sees a big future for bricks and mortar but is hedging his bets by spending a fortune developing a multi-channel sales model to ensure online competitors don't steal too much market share. Nevertheless, Amazon's sales in the past year were $US48 billion, compared with $US26 billion for Macy's. In its latest quarterly results, Amazon beat expectations with net sales up 34 per cent. But it's not all about price. High-end luxury goods stores such as Saks Fifth Avenue, Bendel and Nordstrom are thriving with the rise of the internet and mobile. For them luxury is about scarcity and so discounting is not an issue. It is about customer service and giving customers what they want, when they want. The internet and mobile apps help them do that better.

Saks Fifth Avenue chairman and chief executive Stephen Sadove describes the changes taking place in retail as ''exciting'', but he believes the internet and mobiles will lead to the death of some bricks-and-mortar retailers. For Saks, it provides an opportunity to get better relationships with customers and make better use of inventory because it can be varied across channels, specifically in store and online. In the past year, internet sales at Saks have increased 30 per cent. ''It is all about how you take social media and merge it into commerce. The winners will be able to operate in the omni-channel world,'' Sadove says. ''Over the past several years we have seen the internet and mobile retail exploding and it has now hit critical mass. With mobile, your home becomes your closet, particularly with the tablets.'' For the world's biggest retailer, Walmart, after taking a hit to its sales and share price, it decided a defensive stand against the internet was not working and instead decided to embrace it. To this end it purchased search technology firm Kosmix 12 months ago in what the big-box retailer described as a move to expand into ''social and mobile commerce''. The grand plan was to absorb Kosmix into its new Silicon Valley-based @WalmartLabs group, which is building ''technologies and businesses around social and mobile commerce that will support Walmart's global multi-channel strategy''. By November it had launched two apps, an iPhone and an iPad app, which include shopping lists with integrated access to manufacturers' coupons and support for QR code scanning. ''Today, mobile allows us to have a similar personal relationship with our customers that Sam Walton had with his customers 50 years ago when he opened the first Walmart store,'' says Gibu Thomas, Walmart's senior vice-president of mobile and digital. ''We can greet each of our customers by name, guide them through our stores, and give them product recommendations and real-time savings - all from their mobile devices.''

Last month, Walmart ramped it up with the purchase of Social Calendar, an app on Facebook that allows you to get birthday and holiday reminders by email and SMS, and to post personalised photo cards and other virtual greetings on friends' Facebook Walls on their birthdays. It has also launched a gift-finding app called Shopycat, which enables users to turn the likes and interests of friends into intelligent gift recommendations. Instead of pointing to just Walmart products, it incorporates items from other retailers such as bookstore group Barnes & Noble, RedEnvelope and ThinkGeek. Even internet companies are realising the power of mobile retail. Online auction site eBay's chief executive, John Donahoe, recently told investors the online auction site had ''a strong start of the year'' but needed to do more with mobile devices in order to compete with rivals such as Amazon and Google. ''We are enabling commerce in this new retail environment, supporting and partnering with sellers of all sizes and giving consumers worldwide the ability to shop any time, anywhere, for whatever they want,'' he said in a company press release. eBay's future depends in large part on how well it enables consumers to buy and sell on their mobile devices, according to analysts. In the case of Amazon, after emerging from nowhere 15 years ago as an online book seller, it has transformed into the biggest online retailer in the world. Its December 10 promotional stunt not only reinforced the message that online retailers can outdo traditional retailers on price, it gave its push into mobile a big leap forward. In the process it beefed up its database on product prices. ''The ability to check prices on your mobile phone when you're in a physical retail store is changing the way people shop,'' says Sam Hall, director of Amazon Mobile. ''We scour online and in-store advertisements from other retailers, every day, year-round. Now, we are enabling customers to use the Price Check app to share in-store prices while they search for the best deals. This is a powerful opportunity for customers to get involved and ensures Amazon customers get the best possible prices,'' he says. UBS analyst Robert Carroll says the disruptive nature of online and mobile is sorting out the winners from the losers. It is well under way in the US and it is just starting in Australia. As mobile apps start to take off in Australia, Darwin's survival of the fittest will take hold. Until retailers understand there is a shift taking place in consumer behaviour between online retail and mobile, and the traditional higher priced retailers, their companies will continue to suffer.

Mr Budde sums it up best: ''I recently bought a Pioneer amplifier and when I phoned the shop I was told it cost $1600. When I got there it was knocked down to $1300. My son was with me and he jumped online and found a shop in Hong Kong selling the same Pioneer amplifier for $750. I told the shop and they said they could do it for $800. That's a huge difference and retail has to deal with this,'' he says. Loading It is no longer just about creating efficiencies and price matching. It is also about product range, product quality and more innovation to get people back into the shops. The huge success of supermarket group Costco and Zara in Australia, as well as Bunnings hardware chain and Sportsgirl, proves there is still room for innovative bricks-and-mortar retailers. What there isn't room for is mediocrity and defensiveness.