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Why are retailers crying foul of online sales?

January 8, 2011
online retail business

With the recent outbreak of apparent foot and mouth disease from Harvey Norman’s Gerry Harvey, online retail has hit the headlines and controversy regarding whether it is OK or not to allow online retailers sell their products without tax.

But as online retail grows as a local and international choice, what other reasons could retailers have for being so upset about the envisaged unfair take over?

online retail business

Photo: Clark Street Mercantile

Beyond offering lower overheads to businesses and therefore the potential to expand into further territories without major amounts of additional costs, online shopping removes a key component of the Harvey Norman mix- the immersion experience. When you have a customer in front of you face to face surrounded by potential products they hadn’t thought of previously, you have a better chance of add on selling and upselling their purchase.

That’s why companies like them spend thousands of dollars on training their own staff, and encourage the same level of investment from their stockists through in-store merchandisers. However on the internet, most people conduct their own research, form their own opinions and buy exactly what they want.

Online retail gives us the ability to make an informed choice. One that is very much on our own terms.

By removing the human touch and in-store experience, you are much less likely to buy extras or buy a more expensive product because the trained sales person’s influence just isn’t there. Think of it this way- it’s a lot harder to tell a salesperson to nick off than close a banner.

Some retail companies in Australia make placing marketing and advertising in their stores an exercise equivalent to someone in traction doing the limbo without pain killers.

Companies that make goods for retail jump through enormous hoops with large retailers to ensure their branding is placed in store, including paying for floor space for gondolas and standees. Many of which must also cross advertise the log of the store they are in and fit minimal to downright draconian branding guidelines.

Yet in an internet environment this form of control by the retailer cannot be exercised and the additional profit from charging the stockists for floor space cannot be made or the branding be placed in store at their stockists cost.

This restriction has kept the prices high. Consequently, its made online retail far more attractive.

Online retail gives flexibility for business and customer alike

Through the flexibility of the internet, people can actually start their own businesses without worrying as much about the pressure of price point setting by large chains. Due to the volume of stock they order and subsequently move throughout large chains, big retailers have enjoyed a distinct advantage at store level.

This is how the larger companies were able to launch price wars against perceived smaller competitors and in some cases, drive them completely out of business through being unable to compete.

Whilst the likes of Myers may cry foul of the antics of Target and Pumpkin Patch regarding clothing prices, the reality is a company the size and breadth of Myers still maintains a profit under such conditions through margins on all their products. A smaller, independent children’s clothing retailer won’t be so fortunate.

Share prices are an important part of the mix. If companies in retail perform poorly in quarters, so too do their share prices.

Take the stimulus package for example. The $900 giveaway by the Rudd government was not just about getting people to spend money, it was about stabilising the sectors people spent that money in by promoting encouraging people to spend, which in turn is reflected in a company’s share price. With downturn figures or a lack of confidence in local retail, share prices suffer and again this creates more lost profit and opportunities.

Is it really online retail’s fault it’s popular?

So is it fair to argue importing goods via online retail is a bad idea and should be curtailed? Beyond feeling the motives of the Retail Coalition are a little less altruistic than their “protect Aussie jobs” protests suggest, I believe it wiser to look at what the consequences could be should things become more competitive.

Ignoring the fact that only 3-4% of sales annually come from online, it also needs to be said that online retail is not just about importing. In fact, overseas purchasing accounts for roughly a third to 50% of retail sales according to the Australian Retail Association.

Bearing that in mind, you could argue that online retail is actually providing more Australian jobs than overseas ones, considering someone here still has to do the work of running the online store. Through provision of online businesses and stores, we are seeing more and more people in Australia trying to get to their ultimate goal of running their own business.

We gain access to things we haven’t been able to obtain locally much easier and many people who shop online in this country choose this option not as a mainstay of their shopping mix but as a way of obtaining those hard to get items. So if businesses are unwilling, unable or uninterested in carrying lines of products people want in this country, is it really our fault if we order them?

Can we realistically place tariff on online retail without creating red tape between locally produced and locally run online companies versus those that are locally run yet import? Are any of these retailers really in a position to take on another taxation margin? Why can’t our retail giants set up their own online stores and compete against online competitors just as they have done on retail level previously?

Bricks and mortar and online retail can co-exist

I would argue too that there are very few people who are interested in forgoing retail shopping entirely for online options, and that it is merely another way to purchase, not one which will supersede and remove the needs for the current ones.

Shopping remains a social activity with friends and family- just go to any Westfield when it is raining. So how would online retail change that? I don’t know about anyone else, but I am still going to want to try on my clothes before I buy them, still browse bookshops and make purchases on a whim and get my big ticket items after doing a mix of Google research and in-store examination.

The myopic idea of blaming online retail for the slump in Christmas sales and profits by the likes of Harvey Norman, Myer and members of the Retail Coalition tend to ignore the rise of ethical shopping, the movement towards reuse and recycle, and the simple movement away from the traditional gift giving or ways to purchase or the lingering impact of a GFC.

Know thy customer and you’ll continue to sell

The way the Australian consumer is shopping, what their priorities are in terms of value equations and indeed the reasons why they purchase some products in this apparent age of consumer enlightenment have all influenced our spending patterns.

We don’t necessarily want to pay 300-800% mark-ups on products anymore or buy things “just because”.  Australians have known about eBay, Amazon and various other forms of online retail since the late 90’s, if it was going to kick the bum out of retail, I’d wager it would have done so by now.

So why do I think the Retail Coalition are so upset at online retail sales at this point?

The government announced in December the Productivity Commission’s inquiry into the retail sector which will review the current policies on online retail sales in Australia and the tax exemptions and fees applicable. This is a perfect opportunity to ensure a monopoly through maintaining a position of consumer access the potential future competitor may not be allowed to enjoy.

It would certainly explain the focus leading up to the inquiry, and why Gerry Harvey has personally walked away from the situation citing unfair attacks on his person. I guess the same person who described the online retail as a “fad” may also be ignorant to just how much it would realistically impact the retail sector, and just how much social media and the internet provides a platform for objections to his plans.

We need to maintain a balance between job protection and market security as well as competition most definitely, however just as the Australian Retail Association and Council of Small Businesses have their doubts about the impact of online retail or motivations of The Retail Coalition, so do I.

 

As way of declaration, it is important to note I run my business through internet needs and wouldn’t enjoy the success I do without it. I also worked for an online dating service for 7 and a half years and have a current Australian owned and operated online wine retailer as a mainstay customer. I have also worked on behalf of stockists to many of the big retail chains to ensure their products make it to the shop floor as well working with local Australian creative outfits and businesses to increase their presence through the use of online. The opinions expressed in this blog are my own and are in no way the reflection of my client base.

 

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