What's wrong with Australian retail entrepreneurs?

What's wrong with Australian retail entrepreneurs?

In light of today’s 50 basis point rate cut by the RBA, and recent reports of Amazon’s plans to expand into Australia, I thought it worth taking a closer look at the Australian retail sector... particularly at the immense challenges it faces from overseas competitors.

Surely I’m not alone in having been disappointed time and again by the inefficiency of Australian online retailers (or e-tailers as they are known)? Or by the sheer lack of online presence of many Australian retail brands? For anyone who has purchased a product through Amazon, the world’s largest online retailer, you can’t help but be sorely disappointed by the equivalent local experience. Amazon has been offering an extraordinary range of goods, at reasonable prices, with incredibly fast and efficient shipping, for at least the last decade.

I am often bemused by the expediency of Amazon’s shipment process. It is not unusual, when ordering something from Amazon at the same time as ordering something online in Australia, to see the Amazon package arrive days, if not weeks, before the local package. What the hell is going on when a package arrives quicker from LA than it does from another suburb in Sydney!?

Let’s take a step back for a moment and have a look at Amazon. The company was created by Jeff Bezos in 1994 and went online in 1995, originally as an online book store. It wasn’t long before it diversified into DVDs, CDs, software, video games, electronics, and even food, toys and jewellery. It sold its first book in 1994 and listed on the NASDAQ in 1997. The company’s product availability, warehousing, fulfilment and customer service have been superb for as long as I can recall.

While Amazon surged out of the blocks in the very early days of mainstream Internet access, Aussie retailers have been exceptionally slow to move online and mark their turf in the ever-growing online retail industry.  To this day, the bulk of Aussie retailers’ online platforms (assuming they even have one) are ordinary at best, and not at all competitive with overseas retailers. And with a strong Aussie dollar as a nail in the coffin, retail dollars are heading offshore en masse.

Recent research indicates that the average spend for an online shopper in Australia is $2000 per annum. And Australia now has an online market size of $22.4bn... fairly impressive for a population of our size. And yet, the bulk of this money is spent with international retailers, which, sadly, is completely understandable.

I know of several people who shop online more with US department stores such as Nordstrom, Macy’s and Bloomingdale’s than they do with David Jones or Myer. And how can you blame them!? It’s cheaper to buy online in the US, it’s quicker to receive your goods, their range is superior, and the website user experience is far friendlier.

And it now appears that Amazon is coming to our shores. The company is looking for local warehousing in Australia as part of its huge global distribution network. This may well mean even cheaper goods and faster delivery times, which spells more bad news for local retailers. But it’s hard to feel sorry for them. Where have they been the past 15 years?! Why have our retailers not developed an online presence to compete with foreign retailers? The Internet now accounts for more than 10 per cent of retail sales in Australia, and one imagines that figure will only continue to grow. It’s difficult to believe that local retailers did not anticipate the growth of online retail.

But it’s not just range, cost and fulfilment where retailers like Amazon have our local retailers beat. It’s innovation. Amazon developed the highly successful Kindle, with its Kindle Fire tablet as the top its Kindle range. The company worked out a way to enter the tablet market, and at a much more attractive price point than Apple’s iPad. And with its tablet, one can link seamlessly with Amazon’s enormous catalogue of digital music, video, magazine and book services, and make instant purchases via Amazon’s web-based services. This ability to deliver product immediately and without storage and shipment costs means cheaper products, and hence happier customers.

We simply haven’t seen such innovation in Australian retail. The Rivkin Report has been critical of retail for some time, particularly the department stores Myer and David Jones. Their failure to own their own brands has put them at a competitive disadvantage. It appears they may have finally recognised this to some degree, with Myer buying into Sass & Bide, but they’ve arrived late to the party, it’s as simple as that. And naturally, they just can’t compete on prices with the actual brands themselves. As we mentioned in Rivkin Virtually Live recently, our department stores have almost become changing rooms, whereby customers try things on for size and then go online, more often than not to an overseas retailer, to buy the same item at a reduced price.

Only now is David Jones finally talking about expanding its online presence, but is it a case of too little, too late? Foreign retailers simply know the game better, and with the biggest among them, Amazon, coming to town, many of our retailers will be losing some real sleep. And it’s not just booksellers who will feel the pinch. As I mentioned, Amazon sells almost anything, from toys to jewellery to sporting goods. It is even predicted that Amazon’s negotiated cost prices on electrical goods could see them deliver prices well below that of JB Hi-Fi and Harvey Norman! I’ve mentioned David Jones and Myer, but what of Woolworths and Coles... don’t forget that Amazon sells groceries too.

As an aside from e-tailing, international bricks and mortar retailers also seem to have a clear edge. Anecdotally, it seems that local fashion retailers just can’t match it with their global competitors. I recently stopped by Westfield’s Sydney CBD centre to check it out. Being more than aware of the retail slump, I was interested to see Zara, the immensely successful Spanish clothing and accessories retailer, jam packed full of people, with queues at all of the checkout counters. Browsing through the store, it occurred to me that (at least as far as men’s fashion goes) Australian men’s fashion retailers such as Marcs, Saba and Calibre simply can’t compete with Zara on range or price.

Zara’s efficiency astounds too. The company is renowned for being able to develop a new product and get it to stores within weeks, as opposed to the six month industry standard.  And it launches roughly 10,000 new designs each year! The company’s ability to replicate fashion instantly, and deliver it to consumers in an affordable manner, is incredible. I’m certainly not suggesting that comparing Zara to Marcs, for example, is comparing apples with apples, but I do wonder how local fashion retailers can compete with such economies of scale. Suffice it to say that other retailers at Westfield weren’t dealing with the same crowds in their stores.

So will this change with today’s 50 basis point rate cut by the RBA? Will retail stores see more traffic? Well, naturally we’ll see a lift in consumer spending, and retailers will no doubt be thrilled with today’s move by the RBA. It certainly will give a much needed boost to the retail sector, but will extra disposable dollars simply find their way to foreign retailers? The weakening Aussie dollar from its recent highs of around USD$1.08 may assist somewhat, but with our dollar still trading at around USD$1.03, our purchasing power overseas is still strong. And with the added benefits of an unbeatable range, reliable fulfilment and an excellent website experience, I imagine foreign retailers will see the lion’s share of any increase in consumer spending.

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