INTERNET RETAILING: Get Online Or Get Left Behind! Internet Shopping Has Been Hailed As the “Next Big Thing” in Retailing for More Than a Decade
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Retail Examiner NOVEMBER | 2009 INTERNET RETAILING: GET ONLINE OR GET LEfT BEhINd! Internet shopping has been hailed as the “next big thing” in retailing for more than a decade. However, the reality doesn’t seem to have matched up to the vision. The Internet has not spelt the end of high street shopping, as warned by some of its more rabid proponents, and, although it has certainly influenced the way we shop, it has had very little impact on some retail sectors. Internet retailers in New Zealand will reach sales of $1 billion within 5 years – however, they will have to go head-to-head with the biggest and best online retailers in the world to attract the Kiwi shopping dollar. Will we rise to the challenge? Then and Now Internationally, Amazon is the world’s In 1995, few New Zealanders had Internet largest online retailer, selling a huge access. Most Internet users were male, range of books, music, DVDs and other and were either academics or working products. Amazon had sales of $19 billion USD in the IT industry.1 A lot has changed! in 2008. This is more than one thousand times higher than its sales in 1996, of just $16 million! The Internet is now a major force in our lives. Modern online shopping requires broadband- In New Zealand, plenty of businesses have level speeds to be attractive for customers, launched online shopping websites since and the latest figures suggest that around half the 1990s, but there have been just as many of all homes have broadband. The number failures as successes. Flying Pig tried to be of households with broadband will keep New Zealand’s answer to Amazon, but never increasing, and speeds are getting faster all took off, and lasted just two years. Ferrit was the time. a site where consumers could compare prices and features of products from a number of Progressive Enterprises (owner of retailers, and then make a purchase. Despite Woolworths, Foodtown and Countdown) has heavy advertising, Ferrit lost millions of dollars, probably offered online shopping longer than and the plug was pulled at the start of 2009. any other major New Zealand retailer. Online grocery shopping was launched eleven Amazon itself made such big losses in its early years ago in November 1998, and is now a years that it still hasn’t recouped them fully! profitable part of Progressive’s business.2 The business has been profitable since 2003, but has still made a net loss over its lifetime. Trade Me began in 1999. Ten years on, it is so popular with New Zealanders that This year, The Warehouse has re-launched it barely needs a description. It was sold online shopping facilities, starting with a to Australian media company Fairfax limited product range of around 5,000 SKUs. Holdings in 2006 for $750 million, and is the giant in our online shopping scene. We have spoken to several major retailers (with collective sales in the hundreds of millions of dollars) who have recently launched online shopping, or are planning to in the next year. 1 See “Survey – Average World Wide Web User is a Well-Off These retailers think that now is the time Bloke”, The Dominion, 18 December 1995 2 “Online Grocery Shopping Turns 10”, Infotech Weekly, 3 to get involved with online shopping, and they expect strong growth. November 2008 RCG Ltd PO Box 137 313, Parnell, Auckland, New Zealand P: +649 303 1501 | F: +649 303 1506 E: [email protected] | www.rcg.co.nz For back issues of the Retail Examiner, please contact Brie Campbell on 09 303 1501 The average New Zealander, then, spends at least $100 a year through Trade Me. Within RCG, everybody seems to have a Trade Me story - selling a $10 item for $130, or buying a second-hand Porsche! Trade Me has grown massively in the last few years, and Where do New Zealanders Shop Online? generated EBITDA of almost $80 million in the past year, nearly half that of The Warehouse Group, our biggest Trade Me is the most popular online shopping site in listed retailer! New Zealand. Trade Me isn’t a retailer itself, but a vast amount of goods are sold or resold on it, and it’s far too big to ignore when reviewing Internet shopping. It completely dwarfs any of New Zealand’s online retailers in terms of Internet traffic (how many people visit it, and how many pages they open on the site), as shown in the following table: Online ticket sales make up a very substantial part of Internet Traffic: Trade Me vs. Other Online Shopping Air New Zealand’s business. We expect that Air New SitesInternet Traffic: Trade Me vs. Other Online Shopping SitesZealand online ticket sales make up well over 30% of Website % of Trade Me Traffic total ticket sales, and perhaps more than half of domestic ticket sales. The “Grabaseat” website, aimed at price- "Top 100" Sites sensitive customers, seems to be very successful, and Trade Me 100.00% allows Air New Zealand’s main website to target more Amazon.com 12.82% affluent customers. Air New Zealand 12.01% 1-Day 7.88% Dick Smith 3.25% Other Online Shopping Sites Amazon.com is the second-most visited online shopping The Warehouse 2.71% website in New Zealand, and the 25th-most visited Noel Leeming 1.37% website overall. We expect that New Zealanders spend Ascent Computers 1.18% tens of millions of dollars through Amazon each year. Torpedo 7 0.90% Progressive* 0.67% Amazon doesn’t make any particular efforts to attract Ezibuy 0.67% New Zealand customers – it doesn’t have a NZ website, Bond and Bond 0.61% or even an Australian one. New Zealanders have to Mr Vintage 0.31% work out the exchange rates, but are still attracted by the huge range and often-competitive prices. Barkers 0.12% Source: www.alexa.com, RCG * Combined traffic for the Woolworths and Foodtown online shopping sites Trade Me brings a massive population of buyers and sellers together, and as such, it’s the largest auction facility we’ve ever seen in New Zealand. A significant number of sales are “consumer-to-consumer”, i.e. from one private individual to another. However, there are The Warehouse recently re-launched Internet hundreds of retailers that sell goods through Trade Me. shopping on its website, after briefly experimenting with it in the late 1990s. The company predicts that In 2005, $300 to $400 million of goods were traded annual sales will reach $35 - $50 million within three through Trade Me auctions,3 and the figure has increased or four years.4 This figure is only 2-3% of sales, and significantly since then. A large number of vehicles sales in our view, The Warehouse will be able to do better. are “facilitated”, if not directly made, through Trade Me. 3 “Telecom Takes On Trade Me”, New Zealand Herald, 7 October 2005 4 “Warehouse’s high hopes for online store”, BusinessDay, 26th June 2009 “There is significant anticipation in the market… Internet shopping in New Zealand will rock, rip and burn” - Major retailer (sales above $100 million) RETAIL CONSULTING AND PLANNING ARCHITECTURE, INTERIORS, PROPERTY Some products used to be sold as physical goods, but can now be downloaded instead. Examples would be computer games and software, and music. Globally, digital music sales now make up 20% of all worldwide New Zealand’s second-largest supermarket company music sales.5 Products such as music and software may has actually been selling groceries online for eleven have gone digital, but they still form part of the retail sector. years, and has grown the business to the stage where it is profitable. We estimate that the online business makes How Big Is Online Retailing Overseas? up just 1% of Progressive’s sales. However, online sales will grow faster, year-on-year, than physical supermarket Overseas, there has been a fair bit of confusion about sales. online sales. Various organisations have claimed that online retailing now makes up 10%, or even more, of the retail sector in countries like the UK or US. However, they’re often comparing data incorrectly. They include, for example, online travel sales, or customer-to-customer sales through Trade Me or similar sites. As such, for this Torpedo7 runs three very successful websites. The Retail Examiner issue, we have chosen to rely on official Torpedo7 website sells bike gear and other outdoor data only. products, while the 1-Day and 1-Day Tee websites offer a limited selection of products for sale each day, with the selection changing every 24 hours. This model is similar to popular overseas websites (e.g. Woot.com). Every few months 1-Day sells mystery items – labelled as “Bags of Crap” – which have pulled in as much as $350,000 of sales in 24 hours. Online Shopping vs. Online Retailing Having discussed general “online shopping”, Fortunately, there is official data on the online retail let’s get specific and consider online sector for some countries. retailing. But what is retailing, exactly? • In South Korea, online sales make up 6.4% of all retail sales (and around 8.8% of “core” retail For the most part, retailers are businesses that sell sales, which exclude vehicle and petrol sales).6 goods to (mainly) private consumers. In New Zealand, some services are counted as part of the retail sector. • In Germany, online sales make up 4% of all retail sales.7 This includes food and beverage – cafes, restaurants, bars, and takeaways. It also includes services like • In the US, online sales make up 3.5% of all retail sales.8 hairdressers, drycleaners or DVD rental stores.