It’s not controversial to say that e-commerce has had a transformative effect on the retail industry in the last two decades, whether it’s the astronomical growth of marketplace platforms like Amazon or eBay, or the thousands of successful pureplay businesses that have flooded the space in recent years.
Australia Post, one of the biggest local beneficiaries of the e-commerce boom, pegs the growth of online retail at more than ten per cent in the last 23 months, breaching the $20 billion-dollar annual sales mark in 2016.
That’s three times the pace of national retail spending, which is increasing at a subdued 3.5 per cent on Australian Bureau of Statistics figures and is forecasted to slow down in the coming months.
That said, the Gerry Harveys of this world are quick to remind anyone who will listen that online retail only represents around 11 per cent of total retail sales (excluding food).
That figure is slated to skyrocket to 19 per cent by 2023, after Amazon cements its position in the local market, according to UBS analyst Ben Gilbert.
Established brands are paying attention. Premier Investments, Myer, Super Retail Group, Specialty Fashion Group and Billabong International, just to name a few, are all pouring millions into online and omnichannel over the next 12 months, after many found the channel was one of the few bright spots they could tout to investors during the recent full-year reporting season.
This means online retail is about to get a lot more competitive, and unfortunately for pureplay brands, it seems that there are still some lingering biases working against them.
No bricks? Less clicks
KPMG research from earlier this year found that only 36 per cent of Australian and New Zealand customers made their most recent online purchase with a pureplay retailer, compared to 45 per cent in North America and 70 per cent in Asia.
However, 43 per cent of customers made their last online purchase from a multi-channel retailer with a bricks-and-mortar presence.
It’s a sign that either Australia’s pureplay space isn’t well-serviced enough, there’s still a lack of brand penetration in the online space, or that shoppers are still struggling to trust online-only businesses – likely a mix of all three.
For Catch Group, which recently revealed turnover of $306 million in FY17, it’s a multimillion-dollar question.
Catch CEO Nati Harpaz has recently invested several million dollars into a long-term TV advertising campaign designed to breach the crucial household name barrier by embedding Catch’s brand proposition into the list of retail businesses most Australians are familiar with.
According to Harpaz, that brand value is ultimately something that is built up over time, with the latest campaign serving as an important step in Catch’s journey, but bricks-and-mortar retailers do maintain an advantage.
“Customers trust a brand that they know, that they’ve interacted with and have had a good experience, and that memory is relatively short,” he says.
“Bricks-and-mortar retailers obviously have an advantage given their physical presence…but that doesn’t mean online retailers can’t do the same through enhanced service and customer experience.”
Building online (only) brands
Catch isn’t the first online retailer to buy TV space – Deals Direct experimented in the space in 2007-8 under now National Online Retailers Association (NORA) chief Paul Greenberg – but it is one of the only local players with the scale to justify marketing on the small screen.
Other companies, such as online fashion player Showpo, are still dealing with many of the legitimacy concerns that once upon a time ran in news segments about e-commerce.
“We have customers saying, ‘Is this store legitimate?’, worried that they’ll get their credit card stolen. That’s a top-level trust [issue], then there’s the next-level down, which is, ‘How do I get returns?’, ‘Will this fit me?’,” Showpo CMO Mark Baarste tells IRW.
Baarste believes that the stakes are higher for pureplay businesses to get it right and provide a consistent offer, particularly in the fast-paced world of fashion.
But he said Showpo’s focus on getting all the little things right will play to its favour as bricks-and-mortar retailers become more visible online, from heavy investment in dedicated customer service staff to encouraging shoppers to leave reviews on third-party websites to legitimise positive feedback by separating it from the brand.
Big ticket, big ask
For those selling bigger items, in both size and price point, the equation is complicated. Bulky goods retailers have long derided the online opportunity, citing the preference of consumers to touch-and-feel big purchases, as well as the hassle of shipping around fridges and desks in Australia.
Temple & Webster, the largest online furniture retailer in Australia, has bet on an outlet store in Melbourne to help address shopper concerns about understanding what they’re paying for, while adopting an open and honest approach to delivery expectations.
CMO Sven Lindell tells IRW that the trust equation has “fundamentally changed” in the last five years, as shoppers get more comfortable with online, underpinning growth in furniture and homewares as shoppers become increasingly comfortable with splashing out over the computer.
But he agrees that the stakes are higher online, saying that word-of-mouth is the ultimate brand-building technique online, and that this could easily be burned.
“What’s important is that expectations are set around the level of service [for bulky delivery]…so is someone going to receive a flat-pack, or will it be fully assembled? How long will it take?” he says.
“The last mile experience is something that we’re going to be spending some time on over the next few years and that will win us some business – we need to make sure that the last interaction with the customer is bang-on.”
It’s easier said than done for the likes of Temple & Webster and Brosa, which plays in the higher-end of the market as an online designer furniture retailer, as third-party logistics providers dropping the ball ends up falling on the retailers themselves.
Brosa CEO and co-founder Ivan Lim is less convinced that there is a trust issue at play with Aussie shoppers and that companies like Amazon have normalised the online acquisition of goods and services in western markets, making home furnishings a logical extension.
He tells IRW that the ‘tech company’ philosophy that newer online brands like Brosa have built into their businesses will enable success amid investment from established brands.
“We’re looking to build technology to give customers an amazing digital experience, whether that’s through being able to track delivery trucks all the way into your home, being able to engage with a stylist online, or having your own style profile,” he says.
Lim, much like Koala Mattresses, has opted to build his own software that integrates directly with third-party logistics providers, giving Brosa much more control over the end-to-end shopping experience.
Brosa also has a bricks-and-mortar studio, which Lim says alleviates the concerns of a certain segment of shoppers that need a more than just a website to shop from. However, he believes that ultimately using the flexibility of ecommerce to provide a more fashionable and compelling offer is the best way to drive visibility, and ultimately trust.
Lim is not the only one who has recognised the flexibility of pureplay retailers as an advantage. JB Hi-Fi CEO Richard Murray has long lamented the ability of smaller private players to develop new techniques free from the bounds of making capital expenditure publicly available and justifying it to shareholders.
Big fish, little fish
When it comes to visibility, an increasing concern among many retailers, trust undoubtedly plays a crucial role, but in the ocean that is the internet, so does discoverability.
According to Speedmaster CEO Jason Kencevski, when online retailers get it wrong, the consumer question is: ‘Do these people even exist?’, so pureplays ultimately receive less chances to convince shoppers than other retailers with physical stores.
He believes that the success of ecommerce is a double-edged sword – as larger brands have gained traction and ultimately established trust, they have made it more difficult for others to gain traction online.
“Ecommerce has definitely come along way, but I feel that there’s been a big shift in the last three to four years. Because online is more trustworthy, it’s been very difficult for non-brand names to get traction.”
His answer? Marketplaces. Kencevski believes the search engines of the online retail space, such as Ebay and before long Amazon, are the best opportunity smaller online traders have to get their products featured next to larger companies, effectively throwing much of the trust equation on marketplaces themselves.
But Amazon, widely recognised as a double-edged sword of its own, is understood to carry as many risks as opportunity for the sector, an X-factor that will surely disrupt the trust and visibility equation for both bricks-and-mortar and pureplay brands alike in the coming years.
Nati Harpaz is the chairman of Octomedia, Inside Retail’s parent company.