How eBay and Amazon keep revolutionising retail

Going down? eBay and Amazon are creating a new era of price wars, and every retailer must be ready to adapt. By EMILY ROSS.

By Emily Ross

There are people lurking around Australian shops right now, trying on shoes, browsing through books, looking at laptops, holding a fishing line, chatting to sales staff and testing the merchandise. They leave empty-handed after enjoying all that nice sales support in the nice store, go straight home and buy it online, typically for less. The bricks and mortar shopkeeper gets nix. These shoppers are a store owner’s worst nightmare.

Social researcher Neer Korn’s surveys on Australian shopping have highlighted the rise of “shrewd hunters” in Australian shopping over the past decade, a tribe that love cutting out the middleman and that are shifting online in search of a fair deal. And these hunters love the fact that online they can rate the sellers like never before, avoid snooty service and get the brands they love at bargain prices.

Standing at the St Kilda Post Office parcel centre this week, a stylish woman was collecting a huge box, a new designer lamp from Germany she had bought through eBay. “I saw these at Space Furniture (a major designer furniture retailer with stores in Australia and Asia),” she said. “They were double the price and they said I would have to wait 12 weeks for delivery.” She bought her lamp online through eBay.com and it was delivered safely within seven days.

The manager of Space Furniture’s Melbourne store, Kristine Saulitis, admits that this does happen. “As a business we try to make sure there is a reason why we have a showroom. There are costs involved. Online there is no showroom, no warranty,” she says. “People have to make their own choice.”

Welcome to the age of online retailing, where shoppers on eBay alone can click on to 100 million items in 50,000 categories, where shoppers can use a search engine to hunt down the best price.

The web is taking price wars to a whole new level. Love it or loathe it, the eBay price has become the standard against which everyone has to compete.

Retailers are asking themselves, why open a traditional store when I can sell online with eBay’s shopping system and tap into the world’s biggest marketplace? Traditional retailers must ask themselves; ‘how in hell do I compete? Charge entry fee for browsers with internet access at home or work?’

Take a classic polo shirt bought at a wood-panelled, preppy Ralph Lauren boutique in prime retail real estate in Australia, which could sell for $99. On eBay.com, a lot consisting of five classic Ralph Lauren polos express delivered by airmail from Pennsylvania costs $155 – that is $31 per shirt. (Full refund is offered, seller has 99% positive feedback.) A little Pennsylvanian retailer is competing directly with the Oroton Group, one of Australia’s biggest fashion groups whose brands include Ralph Lauren and Oroton, that had turnover of $62.5 million for the first half of the 2007 financial year.

eBay has created a level playing field. Retailer David can now take on Goliath the retailer. Forget the garage sale image. An estimated 39% of eBay sales for the second quarter of this financial year are for new, buy-it-now items.

In Australia, more than 17,500 people use eBay as their only source of income, and 55,200 use eBay as a primary or secondary source of income. Traders are hawking their sheets, laptops, mobile phones, car parts, shoes, lingerie, bicycle parts, books, music, fashion, cosmetics, plasma televisions, even cars, pianos and treadmills and every other conceivable product.

Dame Edna Everage (aka Barry Humphries) auctioned her husband’s prostate for charity on eBay, raising $7000 for charity this month. On eBay Australia, a piece of women’s fashion sells every 10 seconds, a toy sells every 17 seconds, a DVD every 23 seconds and a car every 10.5 minutes.

Without broadband, secure internet transactions and services such as PayPal, bricks and mortar retailers did not need to worry about eBay and other web retailers reaching a critical mass.

However, it is not just internet nerds shopping online these days. In June 2007, eBay.com.au recorded 5.6 million unique visitors; that is quite a trading platform. Just like Chadstone or Chatswood Chase, eBay.com.au is a shopping destination. My 72-year-old father told me this week he wants to go to eBay.com.au to buy some fly fishing gear: “Can you take me there?” he asked.

Soon retailers will have another class of online competitor as web entrepreneurs help social networkers make money from their profiles on sites like Facebook and MySpace. Online companies like Buy.com and Lemonade.com have recently introduced services allowing internet users to create kiosks on their social networking home pages, allowing users to sell everything from their old couches to $300 shoes. The online retailers pay commissions of 5–15% of the sale price of the product. Lemonade.com keeps 20% of that commission and gives the rest to the user.

Of online retailing, one of Australia’s most successful eBay sellers Phil Leahy says: “Ignore it at your peril.” Leahy had turnover of more than $2.7 million for 2006-07 through his eBay-based business Entertainment House. At the Professional eBay Sellers Alliance (PESA) conferences this month in Sydney and Melbourne, a group of Australia’s most successful eBay sellers convened for workshops, presentations and networking.

The sessions included sellers’ tips on how to achieve million dollar turnover, understanding buyer behaviour, new ways to partner with other sites and panels featuring top sellers from around the world. It’s all about shipping faster, cutting prices, presenting products in more effective ways and optimising search engines to boost business.

One hot topic was eBay’s site overhaul, the biggest in its 12-year history. Another hot discussion point was the rise and rise of Amazon as one of the world’s most formidable online retailers. More third parties are selling through the Amazon platform (at Amazon’s discretion) and Amazon is pioneering technology that allows shoppers to scan barcodes through their phones and make price comparisons, finding the best new and used price through Amazon.com.

From Leahy’s perspective, Amazon’s retail expansion is not a threat, it’s all part of the revolution he has been riding since he started his business in 2002. His job is to build partnerships, work on new trading platforms, keep improving his customer experience and find unique inventory to sell (at better mark-ups). A professional eBay seller in 2007 cannot just list items and hope for the best.

The web allows price comparison like never before. Websites such as Froogle, and local sites such as GetPrice.com.au (www.Getprice.com.au) and Shopbot will help shoppers hunt for any diamonds, laptops, perfume and whatever else they want to buy and locate the best price. Shopping has always been about price comparison.

Emma Brockbank, general manager at designer homewares retailer RG Madden, agrees that more customers are making global price comparisons, however she believes RG Madden will remain competitive through its carefully edited stock, convenience, service and its whole upmarket retail experience. (There’s always someone there to help pick out a wedding present when the customer is clueless.) RG Madden is a 20-year-old business, its stores are not in high traffic areas, yet, says Brockbank, “the sales are there. People hunt us down.”

All that said, the company is planning an online store to support its current email and phone shopping services, but there are no plans to rethink prices, at least not in the short term. “We have a loyal following,” she says.

FAST FACTS

• Online shopping has reached a critical mass in Australia. According to Nielsen//NetRatings, six million Australians shop online.
• eBay.com.au is the dominant local marketplace with more than 5.6 million unique visitors shopping on eBay Australia in June 2007.
• Globally, eBay is facing stiff competition from Amazon.com as it expands its online trading and leads the world in technological innovation.
• The web is a genuine shopping destination, no longer an untested retail environment.
• A local retailer must compete on price with sellers around the world.
• New technology is coming that allows shoppers to scan items with their mobile phone and make price comparisons through the internet. “Shop, buy and search with your mobile phone,” says Amazon.
• The online battle is being fought around price, customer service and delivery.
• Bad feedback kills. Web 2.0 is creating a new level of consumer-led product knowledge, shopper feedback and new ways to sell online. There is no space for disappointing service, dodgy products or slack delivery.