Myer to push online sales, but CEO blames expensive freight for slow take-up

Department store giant Myer will push online sales as a key growth factor during the next five years but warns expensive shipping continues to be a problem, chief executive Bernie Brookes has said.

However, one retail expert says the take-up of online retail in Australia has been slower than overseas due to larger department stores, such as Myer, refusing to come online.

Speaking on ABC’s Inside Business, Brookes says the company will pursue revenue growth through online shopping, as eCommerce only contributes a fairly small amount of revenue so far.

“At the moment we’ve got an iPad application, iPhone application and online eCommerce plus a fairly large digital component to our business,” he says.

“But in talking of that, we’re doing only a few million dollars at the moment online… We think going forward this year we can build that to be equivalent of one large department store and let the consumer come along with us.”

He also said the company has increased its online range to over 4,800 products, and that 39% of growth in the last month was in online sales. However, he also said the online model has a “very high cost of entry” and the company will be taking it slow.

“Comparable store sales, new stores, eCommerce facilities, are a very important driver. For us it’s very profitable for the simple reason that you get no cost of fulfilment, you only get the cost of freight. So this can be an enormous opportunity for us going forward, but we’ll move along with the customers.”

“There are many eCommerce retailers that have dug a hole and poured money into it so we’re very conscious of the importance to protect our shareholders funds.”

One of the key challenges, he says, is freight and the “tyranny of distance”, given much of the Australian population is spread out extremely far from urban centres. Cost-cutting, he says, will be essential to overcome the problem.

“I think as you get critical mass the opportunity to fractionalise your cost and reduce the cost of delivery is certainly there. Remember we’re at an immature stage in this business so we don’t plan to reduce the cost yet of acknowledging the product to the customer,” he says.

“We’ll continue to do that until we build critical mass and then be able to reduce that price going forward.”

But Everten Online chief executive Hal Pritchard says freight costs aren’t the reason online retail activity is so slow in Australia – he says it’s because department stores like Myer have been too timid to jump on board.

“I don’t think that’s the case, although freight is expensive here. I think it’s because many bricks and mortar stores have been so slow to go online, and there has been a general lower market awareness among consumers. There haven’t been dependable brands for people to recognise, instead a bunch of smaller players.”

He points to larger department stores in the US, such as JC Penney, which offer online commerce. Some larger companies in Australia such as Westfield are also jumping on board, offering preliminary catalogue and product information.

“Freight is not really an issue, because going online your overheads are going to be less anyway. The problem, however, is balancing customers. Because if he’s planning to steal his own customers by pushing them online, that’s an issue because he still has to run his shops.”

However, Pritchard says he welcomes the competition.

“I think it will be fantastic if he comes online, and I’m more than happy for the competition. The problem for Myer will be if those customers go online instead of going in store, and that’s going to be expensive because he’ll be operating huge bricks and mortar stores at the same time.”

However, retail expert Selma Mehmedovic from the Monash University Centre of Retail Studies says freight is always going to be an issue and department stores moving online will simply have to deal with the higher costs, as Brookes is doing now.

“Freight is definitely an issue, particularly when you think about overseas markets like Britain, where retailers have access to a whole group of different regions and countries that are all in a much smaller geographical space.”

“Retailers will need to find ways to overcome this, and I think it’s up to the retailers to try and find ways to get their products to their customers regardless of distance.”