Australian retailers must embrace online or risk going the way of the newspaper: Gottliebsen

Last night’s big jump on Wall Street underlines the fact that there are enormous sums on the sidelines not wanting to miss the market bottom and the American belief that well-managed companies can overcome slow growth and generate strong profits. The changes looming in the online world will deliver big increases in productivity. How companies adapt to the online world will play a major part in this process.

And, so, companies that generate larger, sustainable profits in tough times will usually be those that exploit major changes in their customer base or in demand for their products or services. Sometimes exploiting that change will require a takeover.

Leaving aside the miners; banks and those connected with the retail industry have been enormous drivers of Australian profitability. Retailer-connected companies are facing the possibility of significant rise in online retailing and how their management adapts will play a big role in their future growth.

Australia has been a world leader in the establishment of shopping malls. The skills Westfield developed in Australia, it has taken around the world. Similarly, Lend Lease has taken its Australian shopping centre knowledge into the UK and Europe.

At the same time the major Australian retailer, Coles (including Myer), has had more than a decade of problems, while Woolworths has been enjoying the profits that have come from having a competitor that lost its way.

These can be dangerous forces in a time of change, and they have contributed to Australia falling behind the rest of the world in online retailing. To date, small retailers who attempted to fill the online space have found it very difficult to match the buying power of the Australian retail giants.

But you can sense that the game is changing.

It will take time, but Australian retailers are in danger of going the same way as our newspapers, who should have dominated the online classified in employment and property but lost the game because they tried to protect their print revenues. And, so, we saw groups like Seek dominate employment classifieds almost obliterating the Fairfax online sites.

But back to retailing. According to research commissioned by eBbay, online retail spend in Australia is expected to reach $32.8 billion in 2012 – a 40% rise on 2009. (Online retail tipped to grow by 40%, July 7.)

Now obviously eBay is biased, but my anecdotal evidence indicates that we are seeing a significant shift. According to eBay about 40% of Australia’s online purchases are from countries like the US and the UK. In other words Australians are by-passing the poorly performing online retailers and going offshore in just the same way the employment classifieds went to Seek.

Remember when we said that people would have to go to retailers to try on clothes? Technology is now developed so that you can see yourself on-screen in a particular dress or suit which can then be supplied in the right size. In other words, the internet will be improving the cumbersome task of trying on garments in a booth. And in many cases the online experience will be better than picking up the goods in the stores when there is no assistant to explain the features of a particular product.

Interestingly Australia Post is rapidly expanding its servicing of this market and believes that this will be an enormous growth area both in Australia and in sourcing goods overseas. Westfield is now making a much more concerted effort in online retailing but the Westfield task is not made easy because if they were really successful it would affect their enormous investment in property.

The lesson from the newspapers is to take the shackles off your online department, even though it may affect the parent business. If you don’t, then others will fill the space – and in this case it will be overseas suppliers.

It is true that Australians buy different goods to those overseas, but while that may apply to purchases made in offline stores, Australians are clearly finding that they can source the goods overseas that satisfy their needs and often at prices bear no relationship to the prices being charged in Australia.

A decade ago we forecast a strong online retail presence and it didn’t happen. I think this time it will. And Stephen Conroy’s national broadband network, which now looks almost certain to be rolled out, will drive online retailing very rapidly because it will enable much better display of goods and services.

This article first appeared on Business Spectator.