Domestic retailers getting a bigger slice of the online pie, new CBA figures reveal

Domestic retailers may be fighting back. New figures from the Commonwealth Bank show total online retail spending remains strong, but domestic retailers are getting a bigger slice of the pie – growth is up 40% compared to international retail at just 17%.

The figures show an increasing amount of competition coming from bricks-and-mortar retailers, which have invested millions in their multichannel strategies.

CommSec chief economist Craig James says the figures show purely online players don’t have the advantage they once did.

“After a year of explosive growth in 2011, the pure play online retail sales growth is converging with total online sales growth.”

“This may be an early sign that the international trend of traditional ‘bricks and mortar’ retailers dominating the online channel is playing out in Australia.”

And with the debate over online GST still raging, the CBA points out imposing GST on purchases above $100 would hit 57% of online transactions, against the current 4%.

“While GST is only one factor in Australia’s higher retail prices, imposing GST on a larger proportion of transactions would help even up an otherwise unfair playing field.”

The analysis is based on two million transactions taking place on the Commonwealth Bank’s own credit and debit network.

They show continued strong growth among online retail, which is up 30% in the year to July 2012 at a total of $14 billion. That represents 5.4% of total online sales, with clothing now the fastest growing category.

Traditional retail trade is growing at just over 3% a year.

And while the statistics mostly confirm what the business community already knows, James says there are some key points to be taken – including that strong growth in online is continuing, with 25% of CBA customers having purchased online in the past 12 months.

And those same people have lifted their transaction amount by 22% on average, resulting in an increase in online transaction volumes of 52%.

The figures also show domestic retail is catching up, taking 60% of sales, from 55% last year, “suggesting that Australian consumers are increasingly able to satisfy their online consumption needs from local retailers”.

And while sales growth may be continuing, the introduction of new online customers isn’t, the CBA says, with the market now reaching a saturation point.

“We estimate that almost 50% of online spending growth is now coming from existing customers shopping more frequently online. This compares to about 33% last year.”

The statistics also reveal key demographics, with the majority of purchases made by those under 45 years of age. However, the growth in transaction frequency was similar across all age groups.

Overall, James says the figures are a warning for pure play online retailers that they cannot rely on being online as a point of difference.

But he also says these bricks and mortar retailers moving online, such as Myer and David Jones, “have to work hard to deliver a credible online offer in the short term”.

“The online retail channel remains a significant issue for Australia’s retailers, but the latest trends suggest the local industry is finally adapting. This should be comforting for the many retailers who now have online as a strategic goal.”

“The conservative nature of Aussie consumers and the ongoing shift to online spend will continue to hurt traditional retailers,” he says.

“Domestic store retailers will need to continue discounting in the current climate in order to entice customers.”