Most online sales 'made on domestic sites'

Updated

An in-depth study of online shopping trends in Australia has thrown into disarray common perceptions about consumer spending.

The NAB Online Retail Sales Index found that online sales accounted for only 4.9 per cent of retail spending last year.

Moreover, it found that almost three quarters of online sales in 2011 were made with domestic retailers and the remaining 27 per cent with overseas-based retailers.

Although the growth rate for international sales online (40 per cent) was higher than that for domestic online sales (25 per cent), NAB head of consumer sectors David Thorn says it is important to keep the figures in context.

"Importantly the index shows that over 95 per cent of retail sales are still made in bricks-and mortar-stores, so whilst online sales are growing strongly, they make up only a small part of total retail sales," Mr Thorn said.

And NAB chief economist Alan Oster says the index challenges the perception that overseas web retailers are causing a slump in the domestic retail sector.

"If you asked people in the street and read the newspapers you'd probably guess it was the other way around," Mr Oster said.

The index found the majority of online sales were made in the following areas: online auctions; department stores; fashion; cosmetics and variety stores.

Groceries, liquor and specialised food made up the smallest portion of online sales.

It also found that people aged in their 40s and 30s made the most purchases online, though under-30s have shown the strongest growth in the past two years.

Buying locally

Dr Gary Mortimer from the Queensland University of Technology, who specialises in retail operations and consumer behaviour, says while online shopping is growing, overall it is still not a major force in Australian retail.

Dr Mortimer says to some extent, retailers have blamed the adoption of online shopping for the tough times they are currently experiencing.

But he says these findings challenge that argument.

"It is a hard argument to support when the actual proportion of purchases made online represent under 5 per cent of total retail sales in Australia," he said.

Consumers are certainly turning to online mediums to track and trace lower prices, but they are more often comparing domestic retailers and purchasing locally. Dr Gary Mortimer

"Consumers are certainly turning to online mediums to track and trace lower prices, but they are more often comparing domestic retailers and purchasing locally.

"This is particularly evident for home electronics and entertainment products, where shoppers will still want to deal with experienced sales people and have the ability to return faulty goods for a refund, exchange or warranty repair."

He says the challenges that retailers face today are more often operational, like "poor supply chain management, site selection, inaccurate target marketing and offers".

"Retailers need to be more responsive to changes in consumers segments and be more aware of new and emergent markets," Dr Mortimer said.

"The strongest online growth demographically was found to be in the under 30s group. So retailers, particularly selling products aimed at this target, should be looking at strategies to capture this growing market now."

Decision time

Last week, Woolworths chief executive Grant O'Brien launched a scathing attack of Australian retailers, saying they were "terrified of the online monster lurking under their beds".

The NAB's Mr Thorn says retailers have a decision to make: "Whether to introduce online as a compliment to their existing business model or continue to reinvigorate their physical store presence in the quest to generate sales".

Overall, the index valued online sales in Australia at $10.5 billion for 2011, up from 29 per cent on the year before.

In contrast, sales in "traditional" retail outlets rose just 2.5 per cent last year.

The NAB's data, gathered in association with analytics firm Quantium, was based on up to 2 million non-cash transactions per day, scaled up to replicate the broad economy.

Topics: business-economics-and-finance, economic-trends, retail, australia

First posted