This is part of Retail Outlook, a series of articles running over the next four weeks that explore timely topics and trends for the retail industry in 2020. Click here to see more stories in the series. Cautious consumers under increased economic pressure and a system of investments to improve experience are setting the stage for the next wave of rapid e-commerce growth. Uncertainty is not the only certainty for the Australian retail industry in 2020. We also know that e-commerce will contin
continue to outpace overall retail growth. The question is, how fast will it grow under the ongoing subdued economic conditions expected in 2020? If past experience is any indication – in a market that is still so young – the answer is that it could accelerate. In the five years following the Global Financial Crisis (GFC), e-commerce boomed. While total retail growth fell to 3 per cent over the five years, e-commerce grew at 21 per cent – hitting peak growth in 2011 at 30 per cent. Why? Because when you start battening down the financial hatches, you are open to not only consider, but act on changing your shopping behaviours. Cautious consumers do more research prior to purchase and will wait for sales events, favouring retailers with a strong online and social presence. This raises the imperative for traditional retailers to keep pace with disruptors to create compelling multi-channel consumer experiences. In the wake of the GFC, Australians had permanently changed how they shopped and as the purse strings eased, e-commerce growth rates accelerated. Of course, a mass change in consumer behaviour is rarely the result of a single factor. A system of factors were at play at the time, such as lower cost and easier access to high speed and mobile internet, a strong Australian dollar and media attention on the GST-free status of international inbound parcels. These factors made the reward for changing your shopping behaviour in favour of online shopping even more enticing to Australian consumers. The post-GFC consumer, predisposed to seek out opportunities to buy smarter during a time of financial insecurity, rushed online to experiment. Suddenly everyday Australians were shopping online. The savings and convenience available online had surpassed the consumer’s tipping point and offset the perceived risks regarding online shopping at the time. There are some interesting parallels with today’s retail conditions that could be signalling that a new wave of rapid growth in online shopping is on the horizon for Australia. A wanting market Until recently, Australian e-commerce growth had returned to the level experienced before the boom. Yet even at a healthy 13 per cent CAGR, many observers of the industry continue to believe that there is strong potential for online shopping to accelerate once more. Online retail penetration here is far from reaching the levels experienced in other parts of the world. In 2018, online sales penetration reached 10 per cent of Australian retail turnover excluding cafes, restaurants and takeaway food services. Meanwhile, markets like the UK are reaching penetration levels three times higher. The UK is the leading global e-commerce market, and its growth is showing no sign of slowing down – with approximately 31 per cent of non-food retail spending made online in the three months to October 2019 according to IPSOS. Although there are some significant structural differences between Australia and international markets like the UK, such as population density and a public transport culture, examples such as this demonstrate the high latent demand for online shopping. A primed consumer Against the current backdrop of increasing consumer concern regarding the cost of living and the economy, even a small positive change in the perceived value or experience offered online could result in acceleration. There is certainly evidence that e-commerce growth is building momentum. Online spending picked up pace in 2018 growing more than 20 per cent, and commentary regarding growth in 2019 is even more positive. At the heart of this recent uptick is that Australians now have a strong grasp of the global online promotions calendar – increasing the perceived value for savvy online shoppers. For example, the day after the 2019 Black Friday promotional event, Kogan announced that its sales for the day were up over 80 per cent. The retailer was quoted by The Age and The Sydney Morning Herald saying, “Black Friday was massive. It’s clear that more and more Aussies are turning online for their Christmas shopping”. All hands on the experience Similar to the post-GFC e-commerce boom, there is a concurrent system of surrounding factors making online shopping increasingly more attractive to consumers – focused on the consumer’s end-to-end shopping experience. The ubiquity of buy now pay later schemes, the growth of click-and-collect models, the proliferation of marketplaces, and increased access to easier returns and faster delivery choices, are expected to fuel the next wave of online growth. However, perhaps the most positive sign of where e-commerce is headed is the scale of Australia Post’s investments in parcel capacity and capability. These include striking a $1 billion deal with Qantas to purchase three dedicated air freighters and secure priority access to cargo space. The postal corporation is also investing $900 million in parcel automation initiatives and has recently launched a new flat rate parcel product, If It Packs It Posts, that takes the guess work out of the cost of delivery. …And a race Amplifying this further, is a race to build a winning ecosystem connecting all parts of the end-to-end online shopping journey. Amazon Australia just announced the launch of Amazon Hub to the Australian market and a partnership with Zip, Ebay Australia and Afterpay announced a partnership, and we will be watching the recently combined Kmart, Target and Catch Group to see if they can accelerate their multi-channel strategy to create a winning ecosystem. If these conditions do precipitate a second boom in Australian e-commerce it will look quite different to the first. Today 70-80 per cent of Australian households shop online and the Australian dollar is weak. Boom level growth will not come from more people shopping online or offshore, but from people shifting more of their shopping wallet online. As they strive to buy smarter, shoppers could be more receptive to making purchases from product categories that they have rarely bought online in the past. Staple product categories that have been slower to shift online could accelerate such as health and beauty, recreational goods, liquor and groceries. We are already seeing a significant uplift in the growth rates in some of these everyday product categories. Will we soon see everyday Australians buying more of their everyday products online? Jane Cohen, Partner, Global Strategy Group, KPMG Download your free copy of the Australian Retail Outlook 2020 here.