Online spending soared in the year to May, Commonwealth Bank of Australia says, with group buying sites and people aged 29 and under underpinning growth in the fledgling sector, as Premier Retail boss Mark McInnes calls for action on the tax-free threshold for online purchases.
CommBank says the popularity of online purchases among people aged 29 and younger, plus numbers showing more than half of the card-users bought online just once in the year does not bode well for domestic retail stores, particular small ones.
This is because online sales will likely rise as trust and familiarity in the sector increases, the Australian dollar is tipped to remain high and baby-boomers are expected to remain in savings mode for retirement.
CommBank says domestic retailers are “generally under-prepared for online retail, and we expect domestic companies to continue to cede share to international retailers.”
It adds that smaller retailers, who are less able to discount or advertise widely, will continue to find it difficult to compete with larger stores.
Other groups likely to struggle, it says, are international brand retailers, retailers with poor technology investment and more-exposed categories like small consumer electronics, apparel (especially international brands and youth), cosmetics and sporting goods.
Less impacted brands will be vertically integrated brands such as Woolworths selling its home branded products, discount department stores, home improvement and Australian retailers with more advanced online offers.
According to its analysis of more than one million CBA cardholders who are buying online, spending at pure online retailers soared by 126% in volume terms over the 12 months to May 2011, and 90% in value terms. The study showed $4.2 billion was spent a year on purchases from foreign online retailers, of $9.5 billion altogether.
“Online spending is just a small component of total retail sales but it is certainly growing at a staggering rate,” CommSec economist Savanth Sebastian says, estimating its share of goods and services was likely just below the Reserve Bank’s estimates of 4-6% market share.
“Clearly these growth rates are a far cry from the low single digit growth results being achieved among domestic store retailers,” CommSec economist Savanth Sebastian says.
According to the bank, the largest category of online spending was department stores, at 32%, followed by group buying sites with 16%.
But it is growth of group buying sites that has raised eyebrows – at 557% over the 12 months, versus 75% for department stores.
CommBank says Generations Y (21-29 years) and Z (20 and younger) demonstrated the most aggressive growth in online retail spending, with fashion, cosmetics and beauty, and gifts and cards dominating their purchases.
The report comes as David Jones chief executive Paul Zahra flagged an end to the long-running discounting at the upmarket department store, telling the Australian Financial Review: “Discounting is still part of the retail calendar but it’s a balanced approach and I think we have lost that balance over time.”
Elsewhere, David Jones’ former chief, Mark McInnes, has called on the Government to take on the tax-free threshold for online purchases valued at up to $1,000, saying lost charges account for up to 20% in some cases when GST and duty are combined.
“It’s almost ludicrous that the Government would allow a $1,000 threshold for imports for direct purchasing from overseas companies,” McInnes told Business Spectator.
“It’s ludicrous for three reasons. Companies can now sell directly into Australia without investing in staff, without investing in rents and without investing in capital, and they can just take advantage of the country.”
“That’s not the case in other countries, in the UK and other developed markets, it’s like £30 or $US80.”
“The Government is directly creating a situation where importing merchandise can be done at a lower cost than local retailers can do it and therefore they are going to have to shut up shop and lose jobs.”
McInnes, now head of Premier Retail, added that any retailer that doesn’t address the issues of product cost price inflation, enterprise bargaining agreement increases, landlord rents, debt levels, and new competitors are likely to have a “very difficult 12 to 36 months”.
Premier Investments, the owner of brands including Jacqui E, Just Jeans, Portmans and Jay Jays, announced this week it would close 50 stores in its Just Group retail division, expand its online business and focus on Smiggle and Peter Alexander brands.
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