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By 1920, all shops will be finished

Andrew Gorecki

April 9, 2015

Such was the warning from the so-called experts back in 1910 when the retail world was being transformed by mail order.

The online juggernaut has created a case of déjà vu. Again, we are hearing warnings that online retail will replace bricks and mortar.

The reality is that bricks and mortar shops are here to stay, just as they were back in 1920. But online retail, the new incarnation of mail order, is not going away either. There is a place in the market for multiple sales channels.

The statistics for online retail are by no means overwhelming but they are pointing to slow but steady growth. According to the latest NAB online retail sales index, online spending jumped 1.7 per cent in February, up 8.7 per cent from the year before. Growth was strongest for electronic games and toys, albeit from a low base. Groceries and homewares also made strong gains.

According to NAB, Australians spent $16.7 billion on online retail in the 12 months to February 2015, equivalent to 6.9 per cent of spending at traditional bricks and mortar stores, excluding cafes, restaurants and takeaway food. Growth for online retail was 3.7 per cent higher than traditional retail than a year ago.

An American Express survey in March found that Australians spend an average of 20 per cent of their disposable income online.

The numbers tell us that retailers will have to adjust and develop a permanent omni-channel presence. Whether the purchasing experience starts in the store, or online, or through a catalogue, consumers now have a plethora of choices as they go from screen to store and from store to screen, often using mobile devices in transit. Retailers now have to provide this integrated experience.

What is interesting is the way mobile devices will soon be driving much of this growth. Data in the US shows that one in three orders for an online sale are now coming from a mobile device, up 23 per cent from the year before. The data shows mobile’s contribution to total sales has skyrocketed by 175 per cent over the last two years and was likely to overtake the computer as a sales engine.

The most plausible explanation for this trend is the increase in screen size – tablets and phones such as the iPhone 6 Plus make mobile online purchases more practical.

Mobiles are also seeing consumers take to social fuelled retail “discovery”. For example, Facebook accounted for less than 5 per cent of traffic to ecommerce sites on desktop. But on mobile phones, that number jumped to 7 per cent.

Still, it is important to put all this in context.

Data from Paypal tells us that mobile commerce is settling in its niche and is unlikely to take over the retail world. For all the hype, mobile commerce is miniscule as a percentage of global online spend. The data shows smartphone purchases drive only nine per cent of online spend and purchases made on tablets account for only five per cent of online spend. Compare that to laptops, desktops and notebooks, which cumulatively are used for 85 percent of online spend.

So at this stage, it would appear that mobile devices are used for the discovery of the product but the actual transaction itself at this stage is done either online or over the counter.

Nonetheless, the prevalence of smartphones in Australia suggests that this could change in the next few years. According to the Australian Communications and Media Authority (ACMA), over 12 million people owned a smartphone at May 2014, an increase of eight per cent since May 2013. ACMA data shows that 8.9 million Australians with a smartphone downloaded a mobile app in the six months to May 2013, with 4.3 million downloading a banking and finance app and 2.9 million downloading a shopping app.

With more people using tablets and larger screens on smartphones, particularly after the iPhone 6, for surfing the web, watching video and playing games, we can expect mobile commerce to increase. Larger screens definitely make it easier.

Research by Paypal and Ipsos, which investigated the mobile shopping habits of more than 17,500 consumers in 22 countries including Australia, suggests that mobile commerce is growing at nearly three times the rate of total online commerce. From 2013-2016, compound annual growth rate for mobile commerce globally is projected at 42 per cent versus 13 per cent for overall ecommerce.

The research also revealed that 33 per cent of Australian online shoppers surveyed reported having purchased something via smartphone in the past 12 months and 23 per cent reported making a purchase via tablet.

But what’s important here is that mobile shoppers are not yet a big part of the established market. Most of this increase was driven by younger consumers. A global average of 59 per cent of smartphone shoppers are between 18-34 years old compared with 44 per cent of total online shoppers.

One thing for sure, the near universal availability of mobile pocket computers (‘smartphones’) will be more challenging than the desktop-based Internet. Smartphones represent the point of convergence between bricks and mortar stores and websites. Consumers can use their smartphones in three ways: price discovery, product comparison and ultimately, purchase.

Potentially, it could turn shops in some retail formats into giant ‘catalogues’. If retailers fail to support such buying models, their customers might well use their phones to compare prices, check reviews and then potentially buy the product from competitors. The challenge of online shopping (which has consumed the last decade) will be a walk in the park compared with this.

And in a few years’ time, using a mobile device to shop might end up being about as novel as a credit card so retailers may have to go beyond a phone payment and offer added value with loyalty programs, discounts, coupons or applications that make shopping easier.

The relentlessly innovative Ikea for example offers an augmented reality application for Apple’s iPhone that allows users to select a piece of furniture from its catalogue and use the phone’s camera to place it anywhere inside the room around them, and then change its size to fit the perspective. Skincare Shiseido has an augmented reality mirror that takes an image of a shopper’s face and then shows them what the latest cosmetics products will look like when it’s put on.

Many retailers will struggle expanding their online operations of websites and supply-chain capabilities into the mobile space because it’s a different business.

With mobiles and e-commerce, they will have to focus on finely targeted individual sales instead of mass sales. This will require flawless supply-chain logistics and inventory management. Unlike their bricks-and-mortar counterparts, retailers in mobile commerce cannot run out of stock. And unlike overseas competitors, they will have to charge GST, at least at this stage.

Some won’t manage to make the transition.

This is by no means forecasting the end of bricks and mortar retail. There will always be a place for that. Clicks and bricks will co-exist. But mobile online will change the customer experience. And retailers should be prepared for that by quickly transforming their enterprises into omni-channel businesses.

So like ‘horseless carriages’ became cars, watch out for ‘smartphones’ becoming a powerful, portable, connected and easy to use shopping platform. Customers will use this to their advantage in anyway they can, and retailers must seamlessly plug into this brave new world.

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About the author

Whether it is retail, technology, current events or entrepreneurship – Andrew Gorecki brings an unconventional approach to the subject matter. He provides a compelling alternative narrative, challenging mainstream views, and is sought out by industry insiders for his strategic advice and insights. Andrew co-founded the retail software company Retail Directions in 1994, and was a non-executive director of Reece Ltd and its subsidiary companies between 2008 and 2017. His latest book, Gearing Up for Success covers the critically important secrets of success that our schools choose not to teach.

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