Urbis Think Tank
UNRAVELLING ONLINE RETAIL – URBIS REVEALS ALL
In the context of extreme variations in commentary about online retailing in Australia, independent consultant Urbis has recently completed an in-depth research project on the subject. This comprehensive piece of work is based on factual internet and sales data and detailed knowledge of consumer attitudes and behaviour.
Urbis is well known as one of the long established, independent and reputable analysts in the Australian retail market.
Urbis has found the following:
- Online retail currently at $9.4 billion represents 3.9% of retail sales in Australia (2010). This measure is virtually identical to the result recently reported by the Commonwealth Bank using its extensive credit card database.
- Higher estimates of the online spending market which have circulated in Australia are inaccurate.
- Australia is in the low range of online market penetration compared to other developed economies around the world. Comparable countries have online penetration rates in the range 3%-8% of their retail markets.
- Online spending by Australian consumers has been limited to a few product types, especially computers and technology, books and music. Other categories are starting to grow including clothing and footwear and groceries, but still represent a small share of those markets: 5% for clothing and only 1% for food and groceries.
- The leakage to overseas retailers is greatly exaggerated. More than half of all online purchases are made at domestic Australian websites. This will continue to increase in the future as major Australian retailers rapidly grow their online presence.
- Finally there is the overlooked influence of retailer “clawback”. Australian retailers are rapidly rolling out their online strategies, which will implement a multi-channel approach to sales and delivery of product. In many cases online sales will be delivered through physical shops.
- Urbis estimates that over 40% of online sales will ultimately be delivered via shopfronts. This clawback factor reduces the online penetration in 2020 from 12% to a lower 7% impact on physical shopfronts, including shopping centres.
Online purchasing by Australians is forecast to grow at an average 16% annually over the next decade. Market penetration is estimated at $41 billion or almost 12% in 2020.
This new competition will clearly have some impact on the growth of Australian retailers and shopping centres. However that impact will be mitigated by several important factors:
- The underlying retail market grows at around 3% per year in Australia in real terms, and 5% per year in nominal terms. The current $263 billion market will grow by $85 billion in real terms over the next decade.
- Online spending by Australians is forecast to grow by $32 billion over the next decade. The online channel is therefore forecast to capture less than 40% of the growth in overall retail spending.
- The net effect on shopping centres will be lower future rates of growth. However Urbis forecasts show all classes of shopping centres continuing to grow turnover in real terms over the next decade.
- The stronger destinational centres together with food and convenience based centres will perform most strongly, with limited net impact from online competition.
- As Australian retailers ramp up their online strategies and move to the ‘multi-channel’ model, some of the online orders will continue to be delivered through physical shops. Supermarkets are one clear example.
In the interests of promoting a more informed market, Urbis is releasing a summary of our analysis, methodology and conclusions.
Simon Rumbold, Urbis Director in charge of the study said “Online retail is a hot topic, but one that has become clouded by mis-information, guesswork and plain scaremongering. It is time for industry professionals to consider the real facts and to take a far more balanced and rational view of the future. Shopping centres are here to stay.”
Sue Say, Director of Consumer Research at Urbis said “Australian consumers are embracing the online shopping environment but not abandoning shopping centres and retail strips. They are working the two channels to their advantage which is putting pressure on retailers and shopping centre owners but not eroding the fundamental advantages that centre and strips provide consumers.”
Further details from Simon Rumbold, Director at Urbis +61 3 8663 4930 or Aloni Benau, Marketing Manager +61 3 8663 4861 or please refer to our website www.urbis.com.au
A more detailed report will be available in the next edition of Retail Perspectives which will be coming out on Monday 29th August.