Paul Skeldon outlines our research into the Australian retail market
Viewed purely as a place on the map, the Australian market is vast, broadly equivalent to the size of the European Single Market. However, while the population of Europe exceeds 743m, Australia has a population of just a little more than 24m. Most of these people are based in urban centres, but Australia also has a large, geographically dispersed rural and semi-rural population that increasingly wants to enjoy the convenience of ecommerce and, if not next-day, at least fast delivery.
This unique facet of the Australian market is just one of those we cover within our research. As with our previous work in the UK and Europe, we have been assessing retailers via their Footprint, or size, and through six Performance Dimensions, or aspects of retail craft: Strategy & Innovation, The Customer, Operations & Logistics, Merchandising, Brand Engagement, and Mobile & Cross-channel.
We’ve looked at how retailers both big and small perform in the Australian market. In conducting our research, we’ve considered websites that receive 444,000 web page views per annum and others that receive as many as 560m web page views over the same time period. While some of the sites we’ve looked at attract 17,000 visits a year, that figure rises to 32m for larger retailers. At one end of the scale, we looked at retailers that are specialist pureplays with no stores. We also looked at trans-continental players that have more than 1,000 stores. The companies we looked at generate revenues that range from a relatively modest $1.5m right up to tens of billions of Australian Dollars.
Read on for some of our initial insights.
“Australia has a geographically dispersed rural and semi-rural population that wants to enjoy the convenience of ecommerce”
Strategy & Innovation
Retail globally is driven by innovation and the Australian market is no different. Mobile and omnichannel are at the forefront of technology development, driven as they are everywhere else, by customer expectations. Echoing highly advanced markets such as the UK and US, artificial intelligence (AI) and virtual reality (VR) are attracting strong interest. However, active deployment lags behind other markets. Ikea [IRDX RIKE] in the UK and US is starting to offer AR through its iOS app, which may yet reach the retailer’s online presence in Australia, but not until well into 2018.
Technology is also playing a role in Operations & Logistics – which is for pan-continental Australian retailers a huge challenge, with stores often literally thousands of miles apart – and here retailers are having to be clever with their use of technology, in order to manage inventory and delivery.
While, in so many senses, the Australian market is no different from those of Europe and the UK, cultural differences driven by its geographic location do mark it out. The daigou phenomenon, has led to new types of retailers responding to a uniquely Australian ‘consumer’ – one who shops locally for an overseas market.
Daigou literally translates from Chinese as “buying on behalf of” and refers to a network of shopping agents who buy things for residents on mainland China that are unavailable or hard to find there. Essentially, it is a channel of commerce between mainland Chinese buyers and overseas professional shoppers, sometimes referred to as the “grey market”.
The relative proximity to China of Australia and a growing love of Australian goods in mainland China is seeing daigou spring up across Australia. Being a remote shopping phenomenon, daigou lends itself to online retailing and is helping to shape how technology is used, with many daigou agents operating on the mobile messaging platform WeChat. Many retailers are embracing this development – and also embracing the Chinese social network Weibo to draw in more customers.
Our research in this Dimension will cover strategic practice, including an expert-designated selection of metrics that catalogue a retailer’s embrace of technological or organisational best practice.
Customers drive online retail, regardless of their geographical location. In Australia customers are, on the whole, technologically savvy, glued to smartphones and brought up using the internet. Consequently, most shoppers are well aware of what is potentially possible – and this drives how retailers respond.
While Chinese nationals are using the web to get personal shoppers to buy and ship Australian goods to them, the bulk of Australian shoppers are being driven to use online and mobile retailers for the same reasons as all other shoppers: convenience.
Australian customers are driven to use particular retailers’ online services for much the same reasons as everyone else too: delightful customer experience, speed and, of course, price. But as with most developed ecommerce markets, retailers in Australia need to focus not just on the race to the bottom with price, but also to compete in terms of availability, speed of delivery and cost of delivery. Often, the cheapest goods are not the best buy when the customer wants the goods immediately. The Top250 performance analysis, to be released in May 2018, will include dozens of metrics that evaluate customer service and, more broadly, multichannel customer experience
“The bulk of Australian shoppers are being driven to use online and mobile retailers for the sake of convenience”
Operations & Logistics
Despite having customers potentially being spread over a vast area, Australian retailers face similar demands to businesses all over the world. Increasingly exacting customers in urban areas expect next-day delivery to be on offer, while even those thousands of miles from distribution centres are demanding two-day delivery from one end of the country to the other.
Of course, this is nothing new to Australian retailers and most are already adept at traditional retail logistics. The largely equal number of the Top250’s physical stores per state capita, suggests that these retailers already operate rigorous, far-flung logistics networks. Many of them aren’t huge retailers, but at the same time supply stores separated by thousands of kilometres with relatively few customers. These legacy operations, however, must increasingly adapt to the new challenge of ecommerce fulfilment, with smaller orders and all the difficulty of last-mile delivery.
Marketplaces have a lower than expected presence in Australia – most notably marked by the absence until recently of Amazon [IRDX RAMZ] from the continent. However, those that do operate account for some 4% of the Top250’s retailers and carry a disproportionate amount of traffic.
This is driven by consumers wanting the convenience of marketplace shopping, but also by retail brands using marketplaces to aid with logistics management – something we have previously noted in our Europe Top500 research as retail brands look to marketplaces to drive cross-border expansion, especially in terms of handling deliveries and returns.
Our research in this Dimension will cover delivery, returns and collection services. We track the price and timescale of each retailer’s standard fulfilment and returns options, and additionally measure the use of more convenient options, such as next day delivery, nominated-time delivery, and same-day click and collect.
As all retailers know, it’s not enough to make an item available for sale. Customers have to know where they can buy an item, how much it will cost and, most importantly, why they should want to buy an item.
The latest developments in retail only put more of an onus on the art of merchandising – and here we’re not talking just about pushing products at customers. The simultaneous rise of both brands and marketplaces can be seen as a pincer movement against traditional businesses. From brands there’s the promise of consistency and the reassurance of buying at source. From marketplaces, there’s huge competition on price.
Retailers in Australia have long known this competition was arriving, but the recent launch of a fully fledged, Australia-specific Amazon site has made the threat explicit. So what are Australian retailers to do? One answer is to understand and even anticipate what customers want.
In this context, modern merchandising isn’t just about pushing out messages, but targeting messages and campaigns as part of the overall customer experience. That’s tough to do, but success here is a measure of sophistication and preparedness for the future.
Our research in this Dimension will cover each retailer’s use of site search and navigation to aid the customer to find relevant results rapidly. We also measure the typical number of images used on product display pages, as well as accompanying descriptions and reviews.
One in four retailers in the Top250 is a brand – defined as a company where the label is on the product, such as Nike [IRDX RNKE], but excluding supermarkets or other vendors with generic store-brand products.
Brands have global appeal and a significant proportion of consumers in Australia appear to want to shop directly from the brand. These brands gain authenticity with a consistent, global standard and their popularity in Australia echoes market trends elsewhere in the world. However, the very ubiquity of brands leaves room for other kinds of retailers, such as specialists and local stores, to differentiate themselves via, for example, exemplary customer service. Low-cost, high-quality fashion retailers Zara [IRDX RZAR], H&M [IRDX RHAM] and Uniqlo [IRDX RUNQ] are all new international brands that have recently proved popular in the traditionally overpriced Australian market.
Our research in this Dimension will cover the channels retailers use to communicate with their customers and how quickly they will respond to a query.
“Brands have global appeal and a significant proportion of consumers want to shop directly from the brand”
Mobile & Cross-channel
Australia is one of the leading adopters of smartphones, with 88% of adults owning one, and is marked by being a market driven by older users buying them. According to Deloitte, laptops and desktops are the still the main online shopping tool, but sales through mobile rose by 25% in 2017. Tablet use is higher than in Europe, again reflecting that an older demographic is embracing ‘mobile’ and using tablets as a laptop replacement. Younger age groups are more likely to use mobile devices over tablets. Women are significantly more likely than men to use their mobile phones to make online purchases, 22% versus 14%.
Technologies such as fingerprint recognition, especially when combined with mobile payment, are also driving growth in mobile commerce across the continent.
Our research in this Dimension will covers retailers’ mobile web aptitude – in terms of responsiveness and a mobile-first (or otherwise) web design. We will also track which retailers use mobile apps and the features those apps have. Finally, we’ll look at how retailers are supporting omnichannel customers with ordering, fulfilment and loyalty programmes across channels.
“In Australia, a huge proportion of mobile sales come from tablets, something culturally at odds with other markets.”
The Australian online retail market is an interesting combination of western and eastern trends, which marks it out as unique. While Asian shoppers are having an impact on the way online shopping is shaping up, many of the drivers for etail [IRDX VETS] are firmly rooted in the European and north American markets, where retailers are grappling with the same technological influx, the same international brands and marketplaces, and, most importantly, a consumer base with similar expectations and demands. That said, there is much that European retailers can learn from Australians about how to handle geographically dispersed inventory and customers.
This legacy of impressive logistics performance among traditional retailers may give them an advantage over Amazon that wasn’t shared in other countries where Amazon has carved out an enormous market share, such as the UK and Germany.
On the mobile front, Australia has a significant smartphone and tablet penetration and, with older users driving the growth of mobile commerce, sees a huge proportion of mobile sales coming from tablets. This is something culturally at odds with almost all other markets.
These facts outline just how different-yet-the-same the online retail market is in Australia and mark it out as one of the next big areas of etail expansion. Our research will help retailers to understand how this process will be likely to play out in the years ahead and, through objective analysis, highlight the companies employing best practice.
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