Online retailers urged to fix logistics problems as Australian eCommerce heads for $27 billion in 2010

Online retail in Australia is on track to become a $36.8 billion industry by 2013 but businesses are still being held back by old problems including a lack of skilled staff and major logistics issues, a new report from PayPal has revealed.

Experts warn that in order to become more successful when moving online, businesses need to adopt new strategies including the implementation of mobile sites and the use of social media, including the ability for customers to review and share products on networks like Facebook.

The PayPal report, which was conducted by Forrester Research and Leading Edge, reveals that despite Australians’ slow approach to eCommerce, online retail is a booming market with turnover expected to reach $36.81 billion per annum by 2013. Turnover for 2010 is expected to reach $26.86 billion.

Travel and groceries remain the largest two online markets, taking up $4.9 billion this year, followed by appliances and home improvement, set to reach $2.6 billion this year. Other major categories include computer tech at $2.5 billion and apparel at $1.4 billion.

But while the online retail market is growing fast, PayPal also warns that dedicated eCommerce stores and multichannel retailers are suffering from some big issues including the high price of postage and content management, resulting in lower inventories than bricks-and-mortar stores.

In fact, 38% of respondents said competition from low-cost online retailers would be the biggest threat to profitability, especially those overseas. A separate 32% claimed a lack of skilled staff will hurt, followed by 25% who claimed the price and performance of marketing would be harmful.

About 20% said logistics and delivery issues would hurt profitability.

Among larger companies, PayPal found that firms face a large channel with recruitment, as they prefer to hire eCommerce professionals “who have the proven ability to manage large budgets, multichannel relationships and/or complicated projects… such experienced professionals are hard to find and keep”.

But the largest problems belong to smaller firms. PayPal says these companies face huge problems with logistics, including dealing with complex tasks such as receiving, warehousing and dispatching.

“Likewise, the smaller the retailer, the less able it is to fund major investments in software or facilities that could help streamline processes like these. For small companies, managing logistics can be a major cause of angst,” the report found.

And this trouble is turning customers away. About 35% of online customers live in rural areas, and 32% said that “access to goods” and “services not available in Australia” would be important drivers for deciding to buy overseas.

But PayPal Australia spokesman Adrian Christie says Australians aren’t buying offshore due to price or shipping costs, but rather the lack of range available domestically.

“What we saw is that Australian consumers who are shopping domestically is that people are shopping for convenience. And that is getting what you want, when you want it. And that comes back to range.”

“This is an inventory problem. American companies have much larger inventories, across a number of different verticals. In Australia, we are behind the Americans in that sense, and we need to start developing better cost management.”

Only 31% of online businesses provide next day delivery, with 22% planning to provide that in the next 12 months. But 47% say they won’t provide that in the next 12 months, with Christie saying logistics is clearly an issue for many retailers.

“There are plenty of issues around logistics. Many courier companies have limits, and that sort of thing. It becomes an issue for smaller companies because they can’t deal with those sort of limits.”

And while online retail is growing, the report also says traditional channels are still enjoying greater access to products, which is providing the offline retail world with more power. Multichannel retailers operating offline said they made most of their sales through offline stores, and over 75% said online channels accounted for 30% or less of sales.

Christie says this is because online stores are unable to manage the cost of ranging and content management even though online retail should hypothetically handle these issues better. He says this is because of the sheer distance issue Australian companies face.

“High cost also accounted for three of the seven explanations of dissatisfaction with Australia Post, three out of four regarding local courier companies, one out of two regarding customers collecting their purchases themselves, and the only explanations given for dissatisfaction with direct downloads and global courier companies,” the report claims.

The report makes two key recommendations for smaller businesses. The first is that new players should disrupt logistics, by working with couriers and even offering partnerships with other online retailers.

“For example, larger retailers that own their own fleets could deliver goods on behalf of other companies. A customer might wait for her next grocery delivery to return clothing that doesn’t fit free of charge.”

“Likewise, shopping centre owners could provide online order pickup bays for their tenants. The goal would be to make it simple and affordable for Australian retailers to provide unprecedented levels of service to their customers, including delivery.”

But the report also states that Australian online retailers are attempting to fix their problems, with 22% intending to introduce next-day delivery in the next 12 months, along with 21% intending to deliver free delivery and 16% that say they will deliver free returns.

The report also claims that domestic online retailers need to trumpet their successes as much as possible in order to gain recognition. “If domestic online retail is to continue to prosper, it needs a continuous supply of talented individuals who have confidence in the sector’s ability to perform in Australia,” it claims.

Meanwhile, a separate retail event has warned businesses to introduce new technology and social aspects into their websites, or dollars will continue to head offshore.

Reactive strategy director Stephen Foxworthy held an event with Facebook sales director Matt Hehman yesterday, during which the pair identified three new trends in online retail.

“We are seeing three key trends in the growth of online retail. The biggest one by far is the growth mobiles, for accessing the internet and buying products. The second is the use of social media, so people referring to friends and family when talking about brands and products.”

“The third is the integration of digital into traditional retailing. So things like interactive store experiences, bringing technology into the traditional retailing environment.”

Both said Australian online businesses need to start introducing ways to bring more customers online, and methods to make it easier for customers to share shopping experiences.

“The main advice we are giving people is that you need to address customers in these three areas. First main area is about confidence, so you need to give consumers the confidence to buy online when they can’t touch the product or can’t see it.”

“So you need to be using things like high quality photos, making sure the retail experience is a high value experience. Use the digital medium is used to communicate the value of your product, and that goes back to the mobile strategy.”

The second aspect, he argues, is communication. Online retailers need to start filling their sites with ways to communicate with friends and family through social networks.

“You need to be offering the possibility to rate and review products, and you need to allow other people to share your products on social networks.”

“The shopping experience is now social, and you need to embed tools like the Facebook “Like” button, so people can share those products and talk about them with their friends. They have huge networks available to them.”

The third and final piece of advice is around convenience, which feeds back into the growth mobiles and smartphones. “You need to allow that people can buy your products anywhere, at any time,” Foxworthy says.

“This is especially important given the dollar is now at parity and people are looking at buying overseas. You need to make the shopping experience convenient for a number of different channels, especially smartphones, if online retail is going to grow.”