Online retail spending to hit $12 billion in 2010

Online retail spending is expected to grow by 8.5% to $12 billion during 2010, a new Frost & Sullivan report reveals, but the author says hopes of an explosion in eCommerce in Australia are off the mark.

The statement comes after online payment group PayPal released figures last week revealing 40% of all online spending in Australia is being spent on overseas sites, particularly in the United States.

The F&S report reveals spending will grow by 8.5% this year, followed by 9.5% to $13.1 billion in 2011, 10% to $14.5 billion in 2012 and 10.5% to $16 billion in 2013. The biggest jump will come in 2014, when spending will hit $17.7 billion.

Report author Phil Harpur says the growth rates are strong, given they are above GDP and physical retailing which is stuck at about 3%, but he also says the industry’s hopes of a boom are overly enthusiastic. While more spending will occur locally and less payments will be sent overseas, Harpur says exponential growth won’t occur until the larger players start moving online.

“Probably the key reason for this is the lack of a presence of the large retail chains, like the department stores such as Myer and David Jones. This is much different than in the US, where you have shops like Wal-Mart and whatever else in the top 10 online retailers.”

“Over here, we have barely any of our top retail chains in the top 10 online category. We are a smaller market, there is a lack of a shopping order culture, and our delivery system isn’t up to scratch. But the bigger retail chain issue is definitely a large contributing factor.”

Australian online spending is certainly lagging behind the US. The average online spend here is set to reach $US472 this year, compared to $US491 in the US and a larger $US622 in Britain.

“There are going to be a lot of online players in the long-term, but the revenue they will generate is less than in developed markets. There are companies that won’t be able to stay around for the long-term, but I think that’s a secondary issue compared to the overall distinct difference between Australia and other developed online retail markets.”

Harpur says the continuous claims that online retailing is heading for a “boom” with explosive growth are off the mark.

“I think that’s been overplayed a bit,” he says.

“I don’t see it happening. The point I would make is that we are no longer in an “early adopter” phase of online retail as it’s been around for the past 10 years or so, or over 10 years.”

“It’s like saying that a new mobile offering is going to change the market at this point. We aren’t behind in terms of being used to online retailing, we’re just not spending as much. I don’t think anything at this point will create exponential growth in the industry, unless these larger chains start coming on board. Then we’ll see higher growth.”

And with that growth, consolidation will follow. Harpur says the larger chains will be looking to acquire smaller, independent online retailers once they start offering some of their catalogue online, but it’ll be harder to compete the longer they wait.

“I think you’ll see consolidation in the market once that happens, and in categories like DVD and CD sales. You’ve got quite a few smaller players in that area in Australia, and once the larger chains come online it’ll be harder for them to compete when margins are so tight.”