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Brief: KOGAN

Copyright Agency Ltd (CAL) licenced copy

MarketingAugust, 2011Page: 28Section: General NewsRegion: National Circulation: 15,000Type: Magazines TradeSize: 3,085.97 sq.cms.Frequency: Monthly

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P eople are spending more than they ever have before. Despite the global financial crisis, despite the negative news stories, people are reaching into their wallets and purses and pulling out more money than they used to. People are earning more, Australia's population is growing, and retail spending is rising.

Exactly how much retail spending is rising is a matter of debate. Ask the Australian Retailers Association about the economic outlook and they'll paint you a picture of doom and gloom. Bricks and mortar stores are indeed doing it tough. Last Christmas retail sales were only 2.1 o/o better than they were in 2009, but department store sales actually fell by 0.5%. When you consider that the cost of everything (the inflation rate) went up by about 3o/o, that's not good news.

In its August 2010 Consumer Spending Confidence report, the Australian Retailers Association found that only one in four respondents (26%) believed the coming 12 months would see better financial times ahead for Australia. The majority ( 61 o/o) were uncertain and believed that there would be good and bad times ahead. One in 10 respondents anticipated bad times ahead for Australia financially. One in five (22%) respondents believed that now was a good time to spend while an equal amount ( 21 o/o) believed it to be a bad time.

At best, it could be argued that the future of retail was uncertain. But that's only half the story.

The amount of money flowing through the economy is watched carefully by the Reserve Bank of Australia and when they want a clear picture of what's really going on, one of the most reliable sources of data is the dollar value of what people are putting on their credit cards. If you look at credit card spending since 2005, the figures are remarkably more upbeat.

In fact, every year, for the last six years, people who walk into shops and pay for things with credit cards have spent 9o/o more than they did the year before. The inflation rate is about 3o/o - so by those figures retail spending, at least on credit cards, is growing at a yearly rate of about 6%.

What's even more interesting is the fact that the value of online purchases has grown at an average of 15% a year in the same period. When you factor in inflation, online spending in Australia is growing at exactly double the rate of traditional retail spending.

In short, and according to the nation's central bank, "the data on domestic spending show rapid growth in online purchases over recent years". But we're not just spending more money in Australia, we're also spending more overseas, and eBay and Amazon account for a huge chunk of those dollars.

Since 2005, the total number of items delivered through the Australia Post network has increased at an average annual rate of around 10 per cent, in contrast to an average annual decline of 1 per cent in the total number of domestic and outbound postage flows. In its February 2011 Statement on Monetary Policy, the Reserve Bank of Australia is unambiguous about what's going on, stating that "there has also been a steady increase over a number of years in the number of Google searches for 'Amazon' and 'eBay US', with the number of such searches increasing significantly in the second half of 2010 as the Australian dollar appreciated against the US dollar."

Ask the futurists and they're also clear on where online sales are heading. Forrester Research predicts Australian online retail sales will more than double from $16.9 billion in 2009 to $33.3 billion in 2015. Senior analyst Steven Noble cited consumer demand, increased supply and better technology as contributing factors.

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"At its core, the development of online retail in Australia requires two factors: increasing consumer demand and retailers that are increasingly able to supply. Australia has both," he said.

"The federal government plans to make gigabit broadband available to 93% of households, up from almost none in December 2009. And even without this investment, Australian consumers have signalled their willingness to shop online.

Pay Pal, who in 20 I 0 processed $92 billion worth of payments- 18% of global e-commerce- certainly wouldn't disagree.

PayPal Australia's Managing Director, Frerk-Malte Feller reckons that getting online isn't just something retailers should get around to eventually, it's something they need to do quick smart or they simply won't be competitive. "Over eight million Australian consumers now use the internet to make purchases and this, coupled with global consumers, makes the online market place a very exciting space to operate in;' he said.

"Operating online is no longer an option for Australian retailers and service providers, but an absolute necessity to gain the momentum they need to stay competitive in today's changing consumer landscape."

The times, if you hadn't already noticed, are a changin'.

WHO ARE THE BIGGEST ONLINE RETAILERS IN AUSTRALIA? So which organisations are leading the charge into the bright new digital landscape? You'd think the household names in the traditional retail

sector like Myer, David Jones and Harvey Norman would be at the fore

front right? Wrong. In fact, of the top 15 most popular shopping websites in Australia,

only one - Apple - has a physical retail presence. The rest are specialist online stores ranging from the massive (eBay and Amazon) to the relatively unheard of, like etsy.com, which sells handmade and vintage items to hipsters and has a higher visitor share than the Apple store.

Surprisingly, the biggest players in the Australian retail sector are all relative newcomers to thee-commerce game. In 2008 Gerry Harvey famously said that selling online was "a complete waste of time" and it's taken until 20 11 for the Harvey Norman group to enter the space with a 'one deal a day' site called 'Harvey Norman Big Buys' (http:// www.harveynormanbigbuys.com.au/) and plans for a fu ll online store

any moment now. David Jones set up an online store in 2000, but closed it when the

dot-com boom crashed. They only came back online late in 20 10 with a web-based version of their stock - although there are plenty of notable absences- you can't buy an iPod or a suit online for example.

Without doubt the most interesting traditional newcomer to the e-commerce world has been Myer. Myer runs a similar online store to David Jones at myer.com.au but it's the Chinese-based myfind.com which has been grabbing attention. The site launched in March 2011 and because it's based in China, customers making purchases avoid

paying GST.

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The site carries only a very limited amount of stock and cynics have accused Myer of using the site to make a point - that if the government doesn't start charging GST on overseas goods and services bought online, then retailers will have no choice but to set up offshore businesses and there will be a decline in GST revenue for the coffers. Others have said Myer's move is a sign of the future - that the smartest way for retailers to compete in Australia will be to stop importing goods from overseas and putting them on shelves, when they could just be shipping products straight from warehouses in China.

Paul Downs, a former CIO of City Beach and now co-founder and director of Hitworks, an e-commerce consultancy, says Myer's move is a sign of things to come and that even though the myfind.com store lacks features, the concept is on the right track.

"Myfind.com is a good idea, really badly executed. It's not an easy site to shop on, it's not optimised to increase the likelihood of someone buying something from a usability point of view," Downs said.

"But the concept of operating outside of Australia and shipping directly in is a great idea. I think it's the future. Not just for Australian retailers, but for all retailers. If it's all made in China, why not just make it, warehouse it somewhere as close as possible to the manufacturing plant to save on transport costs and then dispatch it to the customer from China? Myer doing that clearly makes a lot of sense."

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((Online spending in Australia is growing at exactly double the rate of traditional retail spending.))

Myer general manager of corporate affairs, Jo Lynch said myfind.com was still in a period of testing and refinement so it was too early to make a judgment call on how well the site was doing.

"The site gives us the ability to test new merchandise and explore potential new product and range extensions and will give our customers access to a dynamic range of competitively priced products that are not necessarily available in store or elsewhere online," Lynch said.

In response to the limited range of merchandise on the site, Lync said Myer understood it was important for customers to have a positive experience from the first time they shop, so they were focusing on getting the fulfillment capabilities right before loading up on products.

Despite the criticism, the dollars are definitely rolling in. "We're growing our e-commerce offers through both myer.com.au

and myfind.com and expect our online business to have sales of around $5m this year," she said.

"We expect online to continue to grow and contribute sales equivalent to an average store - around $30m - within the next few years."

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WHAT'S WORKING Even if Myer is upbeat about sales forecasts, the consensus among critics is that the big players are definitely lagging behind in thee-commerce game. If that's the case, what then are the leaders doing so differently?

The answer comes down to four things - marketing, products, pricing and online customer experience.

eBay is in a class of its own of course. The site has been a~ound sin~e 1995 and is so dominant it has few real competitors, at least m Austraha and the US. You can buy almost anything you want on eBay and people make a living retailing in eBay stores. eBay has a 21.86% share of the shopping and classifieds category and their marketing strategy covers e~ery channel. It is a marketplace unto itself. But it's the products and pnces on eBay that give the site such an advantage - the auction model mea~s they have more stuff cheaper than anyone else. There's simply no point m competing with eBay in Australia.

Amazon. com too is proof that when one player is so dominant, competing is almost impossible. Borders and Angus and Robertson went bust in Australia this year because people weren't buying enough books from them- meanwhile Amazon's revenues continue to climb. In the US, where Amazon.com is a publicly listed company, the website, which began as a book store and now stocks virtually anything you can buy in a department store has a larger market capitalisation than Target Corporation, Home Depot, Costco, Barnes and Noble, and Best Buy. The only traditional bricks and mortar retailer they aren't bigger than is Walmart.

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Downs says Amazon's success is due in no small part to its brilliant user experience and its use of detailed user statistics to know what people are interested in buying.

"If I go to Amazon.com they immediately present me with products I'm interested in," he says.

"They've been doing the 'people who bought this also bought' thing for years, but what it means is when I go to the site I'm immediately presented with all these products I'll might like to buy, based on what I've bought before and what similar people to me have bought. Australian retailers just aren't doing that. They might have a login, but they don't do anything with it."

"The other thing Amazon are doing is tying social networks to give you personalised recommendations. It's in beta testing at the moment, but what they're going to do is instead of showing you recommendations based on your personal history, they'll link in with your Facebook account to show you products your friends recently bought. They'll also tie in 'Likes' on Facebook, so if someone buys a book on Amazon and goes on Facebook saying 'this is brilliant', that will be presented to you on Amazon."

Talk to any expert about the future of online retailing and the words 'Facebook' and 'social media' will inevitably pop up sooner or later. The applications of these new communication channels are affecting every aspect of thee-commerce environment, none more so than marketing.

Australian electronics retailer Kogan recently launched above the line ads based on recent real-time social media feedback on its business. The

TV commercials showed real Twitter and Facebook comments superimposed over images of happy customers receiving and using Kogan products. It's not necessarily Cannes Lion-winning advertising, but when combined with the kind of direct-from-China prices Downs is talking about and an online store that is fully optimised around the user experience (see the above graphic), and designed to sell, it's no wonder Kogan is the 15th fastest growing company in Australia (according to the 2010

BRW Fast 100 ranking). While Kogan is making marketing industry headlines for using

Facebook on television, there is another new wave of smaller specialist retailers making a big splash by effectively using Facebook as a contentrich catalogue. Scores of upstart new brands have discovered they can use Facebook ads to target fans of competitors and then use the channel to dribble out special deals and related editorial content to their

new fans. The fashion industry has been a particularly savvy user of the channel.

Inspired by the success of blogs like The Sartorialist and LookBook, fashion retailers like Mr Porter and Princess Polly have built up hundreds of thousands of Facebook fans by consistently uploading interesting new content to their profiles and blogs- keeping front of mind in consumers heads and inviting fans to 'shop the story'.

Mr Porter, for example, will run a feature article on the style of Jim Morrison, explain the 'look' and then lead people through a sales funnel so they can dress like a rock star.

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-1- there's no risk involved because a company only has to go through with the deal if enough people buy it to make it commercially viable. Better still, - - - ;;Jj .. ,.... ·I you only pay the group buying site a commission once you get paid your·

self, so unlike almost any other form of marketing, you're paying purely

The process works, and this advertisement > editorial > sales funnel method is one of the reasons why Facebook has become the biggest seller of online display advertisements in the US - topping $2 billion sales in the 2010/2011 financial year. When targeted correctly and combined with

content that keeps fans returning, Facebook ads work incredibly well. Just ask any one of the scores of group buying websites which have appeared, seemingly out of nowhere, in the last 18 months.

GROUP BUYING If social media was the hero retail marketing trend of 20 I 0, group buying is undoubtedly the biggest thing to happen in 20 II . The concept is simple -you build a website and hire a sales team to convince retailers to give you a ridiculously cheap offer. The offer only goes on sale once a critical mass of people say they'll buy your product, so the retailer doesn't lose out, and

the rock-bottom prices and regularity of the deals means the group buying website is able to attract an audience of people who will check back every day to see what new deals are available. It's not a new concept, but 20 II has been the year the phenomenon really took off, and it shows no sign of slowing.

Matt Glasner, General Manager, Ex peri an Marketing Services explains. "Based on the Experian data, we don't expect to see a peak in group buying right now, it's continuing to explode in popularity. We are seeing new

entrants to the market on a regular basis, with activity on these sites representing additional online activity. Group buying is actually attracting more people to the web and signifies new internet traffic, rather than taking internet time from existing sites.

"The driver behind this is that Australian consumers are looking to extract better value from retailers and we are witnessing a transformation

in consumer behaviour, as people change the way they shop. It represents a fundamental shift in the way that consumers are using the internet to drive value, where they haven't been able to gain value from traditional channels. Retailers are reluctant to move on the threat posed by these sites, but they will need to follow suit if they are to remain competitive against group buying and discount online retail sites, like Catch of the Day.

A look at the Google Trends graph, showing the increase in search volume for market leader Scoopon illustrates the level of interest from the public. In early 20 I 0 - the site was unheard of- a year later and search volume has increased IS fold compared to the average. It is nothing short of a phenomenon.

But does it work?

In a nutshell- yes. As a marketing tool it can put a brand in front of an audience of millions (Scoopon claims more than 500,000 members) and

for performance. Even traditional publishers are getting in on the concept. In June

Vogue ran an online sale with special time-limited deals from its advertis· ers and managed to attract 35,000 unique browsers to its website between

Spm and midnight on a Wednesday evening. Vogue advertisers reported record sales in conjunction with the offer,

although a common criticism of group-buying and 'deal of the day' sites is that people looking for the cheapest possible deal aren't necessarily the ones you want in your store. Still, the exponential growth of the sector speaks for itself and anyone with a Facebook account would struggle to go a day without seeing an ad for a new group buying website pop up in the

feed on the right hand side.

SO WHAT'S NEXT? With the National Broadband Network starting to deliver next-generation internet speeds to Australian homes and technology beginning to make the leap from desktop to the television screen, it's likely the future of retail

ing will be a lot more interactive. Microsoft's 'Kinect' technology for Xbox 360 already allows people

to manipulate computer games without the use of traditional controllers by monitoring the movement and shape of the human body (like Wii, but using your whole body instead of a hand-held device). The same principle can be applied to clothes shopping, allowing people to 'v irtu

ally' try on garments from a store, or their own home. To get on idea of what this would look like, check out Cisco's YouTube video on The Future of Shopping (http:/ /www.youtube.com/watch?v=jDiOFNcaock)

- it is amazing. At the same time, Paul Downs is urging brands not to forget the basics,

like search engine marketing campaigns targeting people actively searching for your products, because at the end of the day, when it comes to shopping online there are a million choices and a decision on who to buy from inevitably comes down to price- there's no point having the cheap

est price if people looking for it they can't find you. "Consumers crave great products at a great price and want an awe

some retail experience, that is true but with the power of internet search, price comparison sites and smartphone bar-code readers such as Red Laser, today's consumer literally has the power at their finger tips to price compare and purchase instantly online or find the nearest retailer located

to where they are located," Downs said. If you ask Myer though, there's no chance they'll be knocking down

the bricks and mortar any time soon. "We recognise that our customers enjoy the theatre and experience

of shopping in our stores as well as the convenience of shopping online,"

Lynch said, arguing that there are some pretty important parts of retail which just can't be replicated online- not in 2011 anyway.

"As a department store, our focus is on a great range of products and brands, great service and offering in-store theatre and events that cannot be experienced on-line - cafes, hair salons, brow bars, make up studios, clothing alterations, weight watchers Clinics, Breast Cancer screening

Clinics- it is a point of difference that will ensure we continue to attract customers into our stores." M

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