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Distribution wins return sales online

Simon Evans (via AFR) | July 16, 2013
Online retailers are building glittering websites as they attempt to claw away a higher share of the $225 billion spent by Australian consumers in the retail sector each year.

Distribution wins return sales online
John Winner 's Winning Group fortunately had a distribution and supply network before it began online sales. Photo: Nic Walker

Heavy investments in glittering websites with dazzling branding and attractive price discounts are being made by a flood of online retailers, as they attempt to steal a bigger share of the $225 billion spent by Australian consumers in the retail sector each year.

But the headlong rush for new customers through keen pricing, an advertising and marketing blitz and new technology has some eerie similarities with the dotcom boom of 1999, which had popped so spectacularly by 2001.

"Everyone's drinking the Kool-Aid a bit too liberally, but you've also got to think about retention," said Paul Greenberg, a co-founder of the DealsDirect Group in 2004 and one of the pioneers of Australia's online retailing industry. "The battleground has shifted to the supply chain," he says.

The large distances between Australia's capital cities means the online game is being won and lost in how well the supply chain is working, and whether customers return for more.

Costs - a large portion of which stems from expensive IT systems and warehousing, and the actual deliveries of goods to people's homes once they've been ordered online - are stubbornly high, and the new revenues coming in may not be increasing as fast as they need to.

A raft of online businesses are aggressively backing their strategy, none more so than fashion group The Iconic, a figurehead for the new breed. Investors ploughed a further $28 million into the business late last week.

Online retail sales still only represent about 6 per cent of the total amount being spent in the retail sector across Australia, and while that number is growing, it's a race against time for the new online players to try and accelerate revenues ahead of costs and prove they have a sustainable business model.

However, the excesses of those heady days 14 years ago aren't being repeated to quite the same extent because of a new financial conservatism at play since the global financial crisis in 2008. There's simply less risky capital around.

FICKLE CUSTOMERS PROVE PROBLEMATIC
But there are still substantial sums of money being burnt as new retailers try to elbow out traditional bricks and mortar players. However, keeping increasingly fickle customers is proving problematic, with one mis-step enough to cause a rapid exit into the arms of a new competitor.

Greenberg says while there is an enormous rush on to win new customers it is "getting the end mile right" that is absolutely crucial in retaining those new customers.

Greenberg is now chief executive of the newly formed National Online Retailers Association. But he made his name as a co-founder of the DealsDirect Group, which in 2011 attracted a high-profile investor in billionaire James Packer via the Ellerston Capital funds management arm, owned by the Packer family's Consolidated Press Holdings.

 

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