-
2 About this Industry2 Industry Definition
2 Main Activities
2 Similar Industries
3 Additional Resources
4 Industry at a Glance
5 Industry Performance5 Executive Summary
5 Key External Drivers
6 Current Performance
9 Industry Outlook
11 Industry Life Cycle
13 Products & Markets13 Supply Chain
13 Products & Services
15 Demand Determinants
16 Major Markets
17 International Trade
19 Business Locations
21 Competitive Landscape21 Market Share Concentration
21 Key Success Factors
21 Cost Structure Benchmarks
23 Basis of Competition
23 Barriers to Entry
24 Industry Globalisation
25 Major Companies25 Wesfarmers Limited
26 Woolworths Ltd
28 Operating Conditions28 Capital Intensity
29 Technology & Systems
29 Revenue Volatility
30 Regulation & Policy
30 Industry Assistance
32 Key Statistics32 Industry Data
32 Annual Change
32 Key Ratios
33 Jargon & Glossary
IBISWorld Industry Report X0004Online Shopping in
AustraliaJanuary 2014 Lauren Magner
Net appeal: Technological innovations and increased consumer
confidence boost demand
www.ibisworld.com.au | (03) 9655 3881 | [email protected]
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Retailers in this industry operate websites that enable
consumers to purchase a broad array of products, such as apparel,
computers, recorded music, electronic goods, general merchandise
and groceries. Industry participants are either pure-play
online
retailers or bricks-and-mortar stores that have an online
presence. The industry does not include the sale of goods or
services by agents that do not take ownership of the goods and
services, or the sale of goods by individuals.
The primary activities of this industry are
Clothing, footwear and personal-accessory retailing
Electronic goods and appliance retailing
Cosmetics, fragrances and toiletries retailing
Food and liquor retailing
Book, newspaper and magazine retailing
Computer and software retailing
Textile goods and housewares retailing
Toy and game retailing
CD and DVD retailing
Online auction operation
Industry Definition
Main Activities
Similar Industries
The major products and services in this industry are
Clothing, footwear and personal accessories
Computers, software and electronic goods
Cosmetics, fragrances and toiletries
Groceries and liquor
Homewares and domestic appliances
Printed material, music and movies
Recreational goods
About this Industry
G4123 Liquor Retailing in AustraliaOperators in this industry
retail liquor.
G4260 Department Stores in AustraliaBusinesses in this industry
operate physical department stores.
G4251 Clothing Retailing in AustraliaPlayers in this industry
sell apparel via traditional bricks-and-mortar stores.
G4242 Video Game and Recorded Music Retailing in
AustraliaBusinesses in this industry retail recorded music and
video games.
G4243 Toy and Game Retailing in AustraliaCompanies in this
industry retail toys and games.
G4244 Newspaper and Book Retailing in AustraliaBusinesses in
this industry operate newspaper, book or stationery stores.
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About this Industry
G4111 Supermarkets and Grocery Stores in AustraliaFirms in this
industry operate supermarket and grocery stores.
G4222 Computer and Software Retailing in AustraliaOperators in
this industry sell computer and software merchandise via retail
stores.
G4221a Domestic Appliance Retailing in AustraliaOperators in
this industry sell domestic appliances such as fridges, washing
machines, toasters and kettles.
G4213 Houseware Retailing in AustraliaBusinesses in this
industry sell domestic housewares.
Similar Industriescontinued
For additional information on this industry
www.abs.gov.au Australian Bureau of Statistics
www.acma.gov.au Australian Communications and Media
Authority
www.insideretailing.com.au Inside Retail
www.pc.gov.au Productivity Commission
Additional Resources
IBISWorld writes over 500 Australian industry reports, which are
updated up to four times a year. To see all reports, go to
www.ibisworld.com.au
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Market ShareWesfarmers Limited 9.9%Woolworths Ltd 8.7%
Key External DriversInternet connectionsReal household
discretionary incomeConsumer sentiment indexDemand from department
storesMedian age of the population
Key Statistics Snapshot
Industry at a GlanceOnline Shopping in 2013-14
Revenue
$12.4bnProfit
$481.7mWages
$2.5bnBusinesses
38,594
Annual Growth 14-19
9.9%Annual Growth 09-14
24.1%
Industry Structure Life Cycle Stage GrowthRevenue Volatility
High
Capital Intensity Medium
Industry Assistance Low
Concentration Level Low
Regulation Level Medium
Technology Change Medium
Barriers to Entry Low
Industry Globalisation Medium
Competition Level High
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON
PAGE 32
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Internet connections
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40
2006 08 10 12 14 16 18Year
Revenue Employment
Revenue vs. employment growth
Revenue
33.2%NSW
2.3%TAS
23.6%VIC
2.1%ACT
1.2%NT
19.3%QLD
11.5%WA
6.8%SA
SOURCE: WWW.IBISWORLD.COM.AU
p. 25
p. 5
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Key External Drivers Internet connectionsThe number of internet
connections is of particular relevance to the industry. With
increased internet penetration, particularly in regional areas, the
number of consumers able make transactions online will increase,
boosting revenue for industry participants. Increased consumer
confidence with shopping online is also expected to affect the
frequency and amount of goods purchased. In 2013-14, the number of
internet connections in Australia is expected to increase, creating
an opportunity for online retailers to further increase sales.
Real household discretionary incomeTrends in real household
discretionary income influence the demand for industry merchandise.
A rise in discretionary income enables consumers to spend more and
hence demand a broader range of goods. On the other hand, a fall in
discretionary income will result in consumers scaling back
spending, which poses a threat to industry revenue. In 2013-14,
real household discretionary income is expected to fall.
Consumer sentiment indexFluctuations in consumer sentiment
have
Executive Summary
Online retailing has changed the face of the Australian retail
sector, representing a paradigm shift in the way consumers make
transactions. While the industry is in its infancy, both
technologically and financially, it has grown dramatically over the
past five years to become part of the mainstream consumer shopping
experience. The rise of the industry has been aided by the rapid
growth in internet and broadband penetration, combined with an
acceptance of electronic commerce as a viable and safe alternative
to traditional bricks-and-mortar retailing.
The industry has benefited from consumers seeking choice and
value, particularly as discretionary spending and overall consumer
sentiment have declined. The online space offers unprecedented
choice, as there are no geographical boundaries and prices are
highly competitive. Industry revenue is expected to grow by an
annualised 24.1% over the five years through 2013-14 to $12.4
billion. In 2013-14, the industry is forecast to increase by
11.3%.
Industry profitability has remained at a stable level, despite a
strong increase in total revenue. The start-up and maintenance
costs for major online websites has kept profit margins low, as
have the high levels of competition within
the industry. However, for small operators, the cost of setting
up a website can be minimal. As a result, there has been a
significant influx of new entrants into the industry over the past
five years, with enterprise numbers growing at an annualised
16.3%.
Revenue growth is expected to temper over the next five years as
online retail becomes increasingly normalised. In the five years
through 2018-19, industry revenue is forecast to increase by 9.9%
annualised to total $19.8 billion. Regional areas will be able to
access faster and more-secure internet connections through the
rollout of the National Broadband Network. This will substantially
increase the industrys potential consumer base. The growth of
online retailing through smartphones and tablets will provide
further opportunities for operators to enhance products and
services and reach a wider, technologically savvy audience. An
increasing number of bricks-and-mortar retailers will migrate
online to complement traditional offerings. Industry revenue will
also be boosted as older Australians become increasingly computer
literate. Furthermore, the ongoing recovery of the global economy
will bode well for the retail sector in general.
Industry PerformanceExecutive Summary | Key External Drivers |
Current Performance Industry Outlook | Life Cycle Stage
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Industry Performance
Current Performance
Over the past five years, online shopping has been the lone
shining star in an otherwise dim retail sector, growing strongly
despite a weak global economy, low consumer sentiment and subdued
discretionary spending. The dramatic growth of the internet as a
channel for commerce, faster internet speeds and higher internet
penetration rates laid the foundations for Australias next big
growth industry. These trends have coincided with the strong
proliferation of online stores offering a range of products
and services at competitive prices. Improvements to the security
and reliability of online retailers have changed perceptions of the
internet as a credible medium for shopping. Many of Australias
largest retailers are belatedly entering the online fray,
reinforcing the role of the internet in todays retail landscape.
Over the five years through 2013-14, industry revenue is expected
to increase by an annualised 24.1% to total $12.4 billion. In
2013-14, revenue is estimated to increase by 11.3%.
Key External Driverscontinued
a notable effect on demand for merchandise at the retail level.
During periods of low economic growth, consumer sentiment regarding
the state of the overall economy declines, leading consumers to
limit their expenditure. This affects demand for products sold by
online retailers. Consumer sentiment is anticipated to increase in
2013-14.
Demand from department storesOnline retailers face competition
from department stores, which stock a large range of products from
clothing to electronic goods. The advantage that department stores
have over online operators is that consumers are able to physically
inspect products, receive face-to-face customer service and acquire
products instantly. Department store
revenue is forecast to increase marginally in 2013-14,
intensifying competition for industry players.
Median age of the populationDue to the nature of the industry,
the age distribution of the population plays a significant role in
demand. Data suggests that younger people are more likely to
purchase products online. Trends in population age distribution
also affect the type of merchandise demanded by various age groups.
Over the next five years, the average age of online shoppers is
expected to increase to more closely reflect the average age of
Australian residents. This is due to online shopping becoming
increasingly normalised and established. The median age of the
population is forecast to increase in 2013-14.
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Internet connections
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Industry Performance
Geographical trends While international retailers have been
perceived as a threat to Australias Online Shopping industry,
domestic retailers account for about 73.0% of online spending.
According to the NAB Online Retail Sales Index, for the year
through January 2013, domestic online retailing grew by 28.0%,
while international sales grew by 25.0%. Hence, the domestic
segment is not only growing faster, but also accounts for the
majority of Australian online retailing.
Online spending has also been spurred on by geographic trends.
The commodities boom in Western Australia has led to a dramatic
increase in online sales by consumers in this state, particularly
from regional areas.
Steady sales growth Until recently, it was unclear how big the
Australian online retail market actually was. Some estimates placed
it at over $30.0 billion. However, data is beginning to reveal a
different picture. Although Australians spend billions of dollars
purchasing products online, through platforms such as eBay, most
individual sellers are not commercial entities and, therefore, are
not classified as retailers. Likewise, many estimates include the
sale of airfares, concert tickets, accommodation and beauty and
entertainment services. When these sales are removed to
provide a clear comparison with traditional bricks-and-mortar
stores, the domestic online retail value of goods is but a fraction
(about 4.6%) of total retail consumer goods.
Sales growth is expected to be supported by growing consumer
confidence in online retail, a large marketplace offering a variety
of value options and further growth in internet use across the
population. Initially, specialist retailers dominated online
retailing, but e-commerce platforms are quickly becoming common for
multichannel delivery.
Employment, enterprises and profitability
Over the five years through 2013-14, enterprise numbers are
expected to surge at an annualised 16.3%, with a large number of
new online start-ups and pre-existing retailers selling online for
the first time. Despite the strong rise in enterprise numbers, the
online offerings of traditional bricks-and-mortar retailers still
lag behind their international counterparts. This lag has provided
new retailers with opportunities in the domestic market, but has
also resulted in a dramatic increase in consumers choosing overseas
online operators with wider product ranges and more-advanced and
engaging e-commerce platforms.
Employment over the period is also expected to swell, fuelled by
the entry of new enterprises. While the industry is
not as labour intensive as the rest of the Retail Trade
division, staff are required to process consumer orders, carry out
customer service, perform warehouse functions and maintain and
upgrade web content.
Average industry profit has remained stable over the past five
years, despite the surge in demand for goods online. Industry
profitability has been kept low by strong competition, both
domestically and internationally, and high development costs,
especially for large retailers. At the bottom end of the market, a
range of internet service providers offer template e-commerce
platforms for as low as $20 per month, enabling even the smallest
of stores to migrate online.
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Industry Performance
Purchasing decisions A key advantage offered by online retailers
is the unparalleled ability to search, compare and evaluate options
from a variety of providers. While price is important, it is not
the sole determinant for consumers. Consumers are increasingly
influenced by trust, reputation, warranties and add-on services.
Furthermore, the level of customer service offered by shopping
websites is a key issue for the industry. Consumers are demanding
greater
transparency with regard to delivery charges and enhanced
information about products, with most retailers willing to cater to
these requests.
Other online spending The industry includes the sale of goods
online by companies that take ownership of these goods. Therefore,
the operation of auction sites such as eBay and group-buying sites
such as Scoopon are not included. Nevertheless, these websites are
extremely popular with Australian consumers and compete with
traditional retailers and service providers. Group buying whereby
websites offer online coupons for various daily deals and
limited-time products is a retail model that is new to Australia.
These websites use the power of group (or bulk) buying to negotiate
significant discounts with
retailers and receive a commission for the number of coupons
sold to customers through the website. Cudo, Scoopon and Spreets
are major players in this rapidly developing segment of online
retailing.
For over a decade, eBay has been the foremost auction website
for Australian consumers, with the American parent company
occupying the same market-leading position on a global scale. Until
recently, most eBay sales were for second-hand goods. However, the
majority of transactions taking place on eBay today are for new
items, with classified-style listings joining auctions.
Evolving technology Online shopping can only be undertaken via
devices connected to the internet, meaning digital technology is an
essential aspect of the industry. Apples release of the iPad in
early 2010 marked the first major technological shift since the
release of the touch-screen smartphone.
Together with the rapidly increasing number of smartphones in
Australia, consumers are now able to easily access the internet
anywhere and anytime. This is another positive development for
online retailers, whose value is primarily based on
convenience.
Consumers are increasingly influenced by trust, reputation,
warranties and add-on services
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Industry Performance
The Online Shopping industry is forecast to continue growing
strongly over the next five years. Demand for online goods and
services will be driven by continued growth in computer literacy,
internet speeds and security, and the number of consumers seeking
greater convenience. Online retailers will place greater focus on
website layout, efficiency, security and reliability. Industry
performance will be driven by movements in real household
discretionary income, the average age of the population and the
consumer sentiment index. Industry revenue will also depend on how
successfully domestic online retailers can compete with their
international counterparts. In the five years through 2018-19,
industry
revenue is forecast to grow by an annualised 9.9% to $19.8
billion.
Increasing competition
Over the next five years, there will be continued growth in the
number of operators entering the industry. Industry employment will
increase, but efficiency and technology improvements will mean that
revenue and store numbers are expected to increase at a faster
rate. As traditional retailers increasingly see online retail as an
opportunity, rather than a threat, more will open their own online
stores, further driving industry growth. These online stores will
not replace bricks-and-mortar stores, but rather supplement them,
providing consumers with greater flexibility and convenience.
A rise in enterprise numbers will increase the range of products
and services for consumers, and heighten competition in an already
cluttered
environment. Faced with price-based competition, operators will
ensure that associated costs to consumers, such as delivery fees,
are minimal, thereby further constraining their product margins.
Online retailers will engage in search engine optimisation
strategies to ensure that their web pages are listed as high as
possible on internet searches. Operators are also likely to focus
on the needs of consumers by reviewing and expanding after-sales
services.
The Australian dollar is expected to fall over the next five
years, which will increase operators competitiveness with foreign
online retailers. As retailers become more efficient at managing
costs and become well-established in the industry, profitability is
expected to increase.
Improved internet connections
Over the next five years, the industry will benefit from the
rollout of the National Broadband Network (NBN). Under the NBN,
Australians will have greater access to faster and more-reliable
internet connections. Top-quality online retailers require large
volumes of data for pictures, graphics and videos. Retailers will
be able to build more-functional and
interactive websites, and more consumers will be able to access
them, due to improved internet connections. This, along with growth
in mobile data devices, will lead to increased demand for industry
products, a rise in the number of online retailers and more
consumers choosing online operators over traditional
bricks-and-mortar stores.
Industry Outlook
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Industry revenue
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Industry Performance
Growth potential Technological change will continue to be
central to the industry. Mobile devices are one of the largest
potential growth areas for online shopping. Smartphones and tablet
computers are already changing the way individuals shop. An
increased prevalence of these devices will lead to a greater number
of consumers accessing online stores via mobile phones. Shopping
via mobile phones is set to boost impulse buying and provide
consumers with greater search capabilities.
Shopping via mobile text messages, a system used in the United
States, has the potential to infiltrate the Australian market. The
system enables consumers to send the barcode of items they wish to
purchase, eliminating the need to visit stores or go online. Text
orders are then charged to the consumers nominated credit card.
Consumers are required to establish an account, specify a
delivery
address and provide credit card details before they can begin to
place orders. While this process has the ability to be replicated
across the Australian market, implementation is only likely to
proceed after significant consumer demand for the technology. Other
technology that is currently being developed includes the use of
geolocating social media, to offer special limited deals to nearby
consumers, which allow customers to purchase online while in the
store.
Another potential growth area for the industry is the
establishment of online shopping malls. Integrating online shopping
with social networking, the malls offer consumers access to
numerous retailers. Consumers are able to read reviews from
shoppers and have access to discount coupons and promotional deals.
In 2011, Westfield, the worlds largest shopping centre operator,
opened an online shopping mall.
Expansion of customer base
Each year, a higher percentage of the Australian adult
population will have grown up using the internet. Further
improvements to the user-friendliness and prevalence of technology,
along with an increased awareness among older Australians of the
benefits of shopping online, will drive the expansion of the
potential consumer base.Industry growth will begin to abate
over the next five years. Once the majority of Australians are
actively shopping online, growth opportunities will be found in
increasing the average spend per customer, rather than luring new
customers to the medium.
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Industry PerformanceThe rise in store numbers is characteristic
of an industry in the growth phase of its life cycleThe range of
products and services on offer is expandingAdvances in technology
have improved website functionalityIndustry value added is expected
to grow at a faster rate than the overall economy
Life Cycle Stage
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20
15
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% G
row
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sha
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f eco
nom
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% Growth in number of establishments
-10 -5 0 5 10 15 20
DeclineShrinking economicimportance
Quality GrowthHigh growth in economic importance; weaker
companies close down; developed technology and markets
MaturityCompany consolidation;level of economic importance
stable
Quantity GrowthMany new companies; minor growth in economic
importance; substantial technology change
Key Features of a Growth Industry
Revenue grows faster than the economyMany new companies enter
the marketRapid technology & process changeGrowing customer
acceptance of productRapid introduction of products &
brands
Supermarkets and Grocery Stores
Liquor Retailing
Houseware Retailing
Courier Pick-up and Delivery Services
Domestic Appliance Retailing
Online Shopping
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Industry Performance
Industry Life Cycle The Online Shopping industry is in the
growth stage of its life cycle. Over the 10 years through 2018-19,
industry value added is expected to increase by an annualised
15.7%, compared with real GDP growth of 2.5% annualised over the
same period. This suggests that the industry is growing at a
significantly faster rate than the Australian economy.
Strong consumer demand and an increase in the number of goods
available online have characterised the growth phase of the
industry. The relatively untapped potential of online retailing has
encouraged a large number of new entrants, with the number of
online stores increasing by an annualised 16.7% over the past five
years. Contributing to growth in store numbers has been an increase
in the number of traditional retailers who have developed
multichannel retailing strategies by setting up online operations
to complement their existing sales.
Technology used by operators has driven the growth life cycle
for the industry. In terms of technology, the industry has
undergone a period of continuous change over the past five years.
Developments in website and software functionality have improved
searching and payment processes, and made it easier for consumers
to navigate online stores. In addition, technology advancements
have improved security systems, ensuring safe transaction
processing and providing consumers with peace of mind.
The market for goods purchased online has changed considerably
over the past five years. Increasingly, online shopping is an
everyday activity undertaken by people of all ages, income levels
and locations. In years gone by, the computer skills, information
and willingness needed to shop online were confined to a smaller
segment of the community.
This industry is Growing
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Products & Services The range of products and services
available for purchase from online retailers has grown robustly
over the past decade. Driven by strong consumer demand and the
entry of new players, the industry offers an expanding range of
goods and services that rivals the range offered in traditional
bricks-and-mortar stores.
Clothing, footwear and personal accessoriesClothing, footwear
and personal accessories, such as jewellery and handbags, account
for 20.6% of industry revenue. The jewellery and fashion
accessories product segment has grown
steadily, as Australian consumers focus on the little luxuries.
These goods are perfectly suited to online retail as they are often
lightweight and easy to ship.
Online sales of clothing has stemmed from consumers comparing
online prices in search of a discount or bargain. The apparel
sub-segment has grown steadily for online retailers. However, many
Australians are heading to foreign sites to pick up the latest
fashions. The clothing sub-segment highlights the differences
between Australian online retailers and the rest of the world.
Sites like the UK-based Topshop offer a much larger range than many
Australian sites.
KEY BUYING INDUSTRIES
Z9901 Consumers in Australia Australian consumers represent the
major market for online retailers.
KEY SELLING INDUSTRIES
C Manufacturing Manufacturers produce a wide variety of consumer
goods, which are either sold to wholesalers or direct to online
retailers.
F Wholesale Trade Wholesalers supply a range of merchandise
including food, wine, clothing, computers, sporting equipment and
cosmetics, all of which may be purchased via the internet.
I5102 Courier Pick-up and Delivery Services in Australia Online
retailers use pick-up and delivery services to transport goods to
customers.
J5911 Internet Service Providers in Australia Operators in this
industry supply internet services to businesses, a vital component
for online retailers.
Products & MarketsSupply Chain | Products & Services |
Demand Determinants Major Markets | International Trade | Business
Locations
Supply Chain
Products and services segmentation (2013-14)
Total $12.4bn
20.6%Clothing, footwear and personal accessories
11.7%Recreational goods
18.3%Homewares and domestic appliances
6.5%Cosmetics, fragrances and toiletries
1.2%Other goods
16.4%Computers, software and electronic goods
13.1%Groceries and liquor
12.2%Printed material, music and movies
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Products & Markets
Products & Servicescontinued
This segment is expected to grow steadily as consumers become
more accustomed to shopping online. In order to draw in consumers,
operators are increasingly offering simple return policies for
clothing and footwear, which is further enhancing consumer
confidence in online shopping. Australian online retailer, The
Iconic, offers free delivery and free returns. This is setting a
new benchmark for online retailers.
Homewares and domestic appliancesHomewares and domestic
appliances account for 18.3% of revenue. Although online demand for
these products was initially slow, the segment has taken off,
particularly with the emergence of retailers such as Appliances
Online and Kitchenware Direct. Due to the size of some of the items
sold in this segment, the ability to order online and have these
items delivered and installed has provided consumers with greater
convenience. The increasing trend towards consumers renovating
their homes has further contributed to growth in this segment.
Computers, software and electronic goodsThis product segment
accounts for 16.4% of industry revenue and includes computer
hardware, software, mobile apps and electronic goods such as TVs
and DVD players. This segment has grown as a share of revenue over
the past five years for a number of reasons. Advances in product
design and technology have fuelled demand for computer-related
goods. Several years ago, this product segment was dominated by the
sale of computer equipment to the tech-savvy younger age groups.
However, this has changed substantially as more retailers get on
board, and older age groups become more familiar with technology
and comfortable shopping online. Retailers such as JB Hi-Fi have
contributed to the expansion of this segment by offering free
shipping via their websites. Another significant player in this
market is Kogan, which sells
home-labelled electronics.Demand for TVs, DVD players and
other electronic goods has been strong over the past five years,
as new models are released frequently. Many households in Australia
have more than one TV, therefore leading to repeat purchases. A
large number of consumers are choosing to purchase these products
online due to the growing reputation of many online retailers in
this segment.
Software and apps are also included in this segment. There has
been significant growth in the sale of apps for smartphones and
tablets as the number of consumers owning these devices increases.
Software purchases are generally for game consoles, handheld gaming
devices and PCs, and antivirus software.
Groceries and liquorGroceries and liquor account for an
estimated 13.1% of goods sold by the industry and have grown as a
share of revenue over the past five years as consumer demand
strengthens. An increase in the number of women returning to the
workforce, busy work-home lifestyles and time constraints have led
consumers to adopt alternative means of grocery shopping. This
segment also includes the sale of wine and vitamin supplements. The
sale of wine through sites like Grays Online and Catchoftheday has
proven both popular with consumers seeking a bargain and suppliers
looking to clear excess stock. The sale of dietary supplements has
boomed as older Australians look to boost vitamin intake and
Australians seek new ways to lose weight. The vitamin and
supplement market is highly fragmented, with dozens of websites
offering discounted vitamins.
Printed material, music and moviesPublished media accounts for
12.2% of revenue and includes books, magazines, music, ringtones
and videos. This product segment has grown solidly over the past
five years, with consumers in younger age groups accounting for a
significant proportion of sales. Apple has become a major operator
in the segment through its
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Products & Markets
DemandDeterminants
Demand for goods purchased online is influenced by a range of
factors such as price, discretionary spending, reputation, consumer
sentiment, product range and the availability of substitutes from
other retail channels. Following the global financial crisis,
consumers became more value-conscious and bargain hunting became
increasingly prevalent. Demand for online goods grew significantly
as consumers compared prices and products across different
websites. Although weak consumer sentiment and reduced
discretionary spending have affected traditional retailers, online
stores have benefited from this change in consumer behaviour.
Convenience and price have been the largest factors driving
consumer demand for goods purchased online. The ability to purchase
goods without the restrictions of traditional stores (e.g. trading
hours and shopping queues) has empowered consumers with a new sense
of freedom. Following initial fears regarding the safety of
ordering goods online, the medium has been well received by
consumers owing to an increase in efficiency, reliability,
turnaround time and resolution of refunds. Growth in the range of
products and services on offer by retailers has also boosted demand
over the past five years.
Products & Servicescontinued
iTunes store. Demand has been driven by the popularity of these
goods at key selling periods such as Christmas.
IBISWorld expects this segment to decline as a share of total
online sales over the next five years, while other product segments
grow. Consumer demand for published media will increase, but the
way Australians purchase and interact with content is expected to
change. Music streaming websites are becoming more prevalent in
Australia. The video and broadcasting industries have been
developing and rolling out video-streaming sites such as ABC iView,
iTunes movies and Telstras T-Hub. As Australians switch to renting,
rather than purchasing, online content, this segments revenue will
decline.
Recreational goodsToys, games, sporting equipment and hobby
items account for 11.7% of industry sales. This segment has grown
strongly over the past five years as consumers become more
confident with purchasing these goods online. For consumers who
lead busy lives, the convenience of purchasing these products
online and having them delivered, has facilitated demand within
this segment.
Cosmetics, fragrances and toiletriesCosmetics, fragrances and
toiletries are a small product segment for the industry, but it has
been growing steadily. This segment is well suited to online sales
of standardised products. For example, a bottle of Chanel No. 5
from one store is identical to a bottle of Chanel No. 5 from
another. Furthermore, consumers tend to have a favourite product or
brand, making repeat purchases of the same product. One downside
for the segment is that this also applies to international sites,
which increases competition for operators. Online sales of
cosmetics represent just 6.5% of all cosmetics sales in Australia.
As such, there is substantial room for online retailers to increase
their market share in this segment.
Other goodsOther products include furniture, flowers, hardware,
plants, building materials, office equipment, stationery,
automotive parts, aviation parts and art. The sale of flowers is
the oldest sub-segment, with consumers able to log on to florist
websites to order flowers for many years. Because of its maturity,
this sub-segment is growing slower than other goods in the
segment.
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Products & Markets
Major Markets The major market for online retailers is
households. Households can be broken down into segments based on
age groups. The level of online shopping is influenced by a range
of factors, including internet literacy, convenience, price,
confidence, experience with online shopping and security concerns.
As such, age groups that have the greatest exposure to online
activity for work and leisure are most likely to shop online.
People aged 15 to 24 yearsConsumers aged 15 to 24 years account
for 17.0% of the market. This market segment is highly responsive
to marketing on social media sites and these consumers will often
look for bargains online. The majority of purchases made by these
individuals are on fashion items, such as clothing, footwear and
personal accessories. As such, this age group represents the
largest market for online apparel retailers and has grown as a
share of revenue over the past five years. However, while this
market has effectively grown up with computers and the internet,
they generally lack the financial resources to account for a
significant share of sales.
People aged 25 to 34 yearsAs the largest market to the industry,
this age group accounts for 23.4% of revenue, with about 80.0% of
people aged 25 to 34 years using the internet to shop online.
Consumers in this age group have significant exposure to the
internet and are regarded as highly tech savvy. The use of
mobile devices to make online purchases is highly prevalent in
this market segment. Exposure to advertising through social media
websites will encourage sales from these consumers. Despite overall
lower discretionary incomes compared with older age groups, the
volume of goods sold to this market offsets the generally lower
purchase prices. This markets contribution to revenue has increased
over the past five years.
People aged 35 to 44 yearsThis age group represents 22.8% of the
industry. Convenience is a leading reason for this age group to
shop online. Consumers in this age bracket tend to have less time
available for shopping at physical stores due to work and family
commitments. Professionals in this age group will typically have
well-established careers and will therefore have higher
discretionary income than other market segments. As a result of
higher discretionary income, average spend per person is also
higher. Despite this, this markets share of revenue has contracted
over the past five years, as this age group has scaled back
discretionary expenditure in response to uncertain economic
conditions.
People aged 45 to 54 yearsAccounting for 19.1% of industry
sales, people aged 45 to 54 years will generally have a high
average discretionary income. However, concerns over internet
security restrict the number of purchases made online by this age
group.
DemandDeterminantscontinued
Online stores compete with traditional bricks-and-mortar
retailers such as department stores and specialised retailers. In
addition, consumers may also choose to purchase goods from foreign
operators that offer competitive prices and wider product ranges,
representing a leakage of revenue for the industry. This is
particularly prevalent when the value of the Australian dollar is
high, because
international products will be relatively cheaper to domestic
consumers.
Demand for industry products is also affected by seasonal
trends. Research indicates that the largest percentage of online
sales occurs from late October to late December each year. This
suggests that a growing number of consumers are shopping online in
the lead up to Christmas to avoid queues at major shopping
centres.
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Products & Markets
International Trade The level of international trade in the
industry is low because imports and exports of online goods are
accounted for at the manufacturing level. While not included in the
industry, a large proportion of products sold by retailers are
sourced from overseas companies. Domestic online retailers are
affected by growing demand for goods sold by foreign websites.
The GST exemption for purchases under $1,000 from overseas
websites is perceived to place domestic online stores at a
disadvantage to their international counterparts. The Federal
Government commissioned an enquiry into the costs, benefits and
effects of the current arrangement. One concern is that the
tax-free status of the majority of online
purchases imported into Australia is assisting offshore
retailers. While the high value of the Australian dollar has made a
big difference to the price competitiveness of online retailers
overseas, the 10% tax exemption has further underlined the price
advantages that can be gained overseas via the internet. A decision
on whether the GST threshold will be lowered will be announced in
March 2014.
With the Australian dollar reaching record levels during the
past five-year period, it is expected that this set of conditions
will not remain indefinitely. A fall in the value of the currency
during the next five years will increase the competitiveness of
domestic retailers against their foreign counterparts
Major Marketscontinued
Individuals in this market segment are generally more concerned
with convenience than price when it comes to online shopping. The
majority of purchases are on homewares and domestic appliances,
indicating a trend in this age group to update their homes. Over
the past five years, this age groups contribution to revenue has
fallen due to reduced discretionary expenditure.
People aged 55 years and overOver the age of 55 years, the
propensity to shop online falls, with sales made to
this age group representing 17.7% of revenue. The level of
internet literacy and fears over quality and fraud act as barriers
to many older Australians shopping online. However, this market has
the potential to grow as Australias population continues to age.
Many consumers in this group will use the internet to purchase food
and liquor, due to increased convenience. Australias ageing
population has resulted in an expansion this markets share of
revenue over the past five years.
Major market segmentation (2013-14)
Total $12.4bn
23.4%People aged 25 to 34 years
22.8%People aged 35 to 44 years
19.1%People aged 45 to 54 years
17.7%People aged 55 years and over
17.0%People aged 15 to 24 years
SOURCE: WWW.IBISWORLD.COM.AU
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Products & Markets
International Tradecontinued
seeking to sell to Australians. This will also create improved
circumstances for Australian online retailers to export to overseas
customers. Major Australian retailers have lagged Europe and
North
America in terms of embracing online retail, and it is expected
that the volume of online retail exports from Australia will
increase as major retailers become more involved.
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WWW.IBISWORLD.COM.AU Online Shopping in Australia January 2014
19
Products & Markets
SOURCE: WWW.IBISWORLD.COM.AU
TAS2.3
WA11.5
QLD19.3
VIC23.6
NSW33.2
NT1.2
SA6.8
ACT2.1
Revenue (%)
Cold Zone (
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Products & Markets
Business Locations Unlike other retail industries, the
geographic spread of this industry is not linked to the location of
operators but rather the location of consumers who purchase goods
online. As a result, IBISWorld estimates the geographic
segmentation for the industry is based on population distribution
and linked to the proportion of households with internet access. It
is estimated that those states with a greater share of total
population have a greater share of consumers with internet access
who are actively involved in online shopping. Hence, demand for
online shopping is led by New South Wales, which has the largest
national population base, followed by Victoria and Queensland.
Demand for online shopping in rural areas has, in some instances,
been hindered by a lack of sufficient internet infrastructure.
Despite accounting for a smaller share of revenue, the
Australian Capital Territory has the highest average per capita
spend, at an estimated $676.50. This reflects the higher average
incomes in this state.
This is followed by the Northern Territory and Western Australia
with per capita expenditure of $618.80 and $564.20 respectively.
The relative isolation of many consumers in these states from
shopping centres has led to strong demand for online retailers.
Perc
enta
ge
40
0
10
20
30
WA
ACT
NSW N
T
QLD SA TA
S
VIC
RevenuePopulation
Distribution of revenue vs. population
SOURCE: WWW.IBISWORLD.COM.AU
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WWW.IBISWORLD.COM.AU Online Shopping in Australia January 2014
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Cost Structure Benchmarks
The industry consists of a diverse range of retailers operating
across different segments such as groceries, electronics, fashion
and media. Therefore, cost structures vary significantly between
industry participants, depending on the type and price level of
products sold and the size of online retail operations.
ProfitOver the past five years, industry profit margins have
been relatively steady, representing 3.9% of revenue in 2013-14.
Despite the surge in demand for online retail, profitability has
been kept low by fierce price-based competition and high
development costs. Online operators
typically generate lower profit margins than traditional
retailers. This is largely due to the high initial costs of setting
up an online website and the potential costs associated with
mistakes in web design and functionality. In addition, online
retailers will generally attract consumer demand by offering
competitive prices and this can erode profitability. As a result,
many large bricks-and-mortar retailers have been reluctant to enter
the online space because of lower margins. Industry profitability
is anticipated to rise over the next five years, as operators
become more efficient at managing overhead costs and streamlining
supply chain processes.
Key Success Factors Ability to control stock on handBy
maintaining adequate stock controls, retailers are able to monitor
key selling items and ensure a sufficient supply of popular
products are on hand to meet demand during key selling periods
(e.g. Christmas, Valentines Day and Easter).
Ability to quickly adopt new technologyDue to the nature of this
industry, it is imperative that operators are able to adopt and
implement advances in technology efficiently to minimise
disruptions to consumers and maximise sales revenue.
A clear market positionRetailers should ensure their website
projects a clear picture of the companys target market, products
and pricing, delivery costs and returns policy.
A loyal customer baseRetailers benefit from establishing a loyal
customer base through the quality of their product, efficient
delivery and exceptional customer service.
Provision of superior after-sales serviceRetailers should
address all after-sales issues in a prompt and efficient manner to
build a loyal customer base.
Market Share Concentration
The Online Shopping industry is characterised by a low level of
market share concentration with the top four players accounting for
approximately 20% of revenue. Major players, such as Wesfarmers and
Woolworths, have significant influence over the market and a large
customer base. However, the industry also consists of a large
number of smaller, independent operators. Although these larger
companies have been expanding their online presence rapidly over
the past five years, substantial market share gains have
been offset by the multitude of new operators entering the
industry.
Concentration is set to strengthen over the next five years, as
retailers consolidate their operations in response to intensifying
competition. Major companies are expected to grow their market
shares as they continue to significantly grow their online
offering. The industry is likely to undergo mergers and
acquisitions as a growing number of businesses recognise the growth
potential of online enterprises.
Competitive LandscapeMarket Share Concentration | Key Success
Factors | Cost Structure Benchmarks Basis of Competition | Barriers
to Entry | Industry Globalisation
Level Concentration in this industry is Low
IBISWorld identifies 250 Key Success Factors for a business. The
most important for this industry are:
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Competitive Landscape
Cost Structure Benchmarkscontinued
PurchasesSimilar to bricks-and-mortar retailing, purchases
represent the largest expense for the industry, accounting for
61.4% of revenue in 2013-14. Online retailers purchase goods from
wholesalers or direct from manufacturers, and then sell these
products to consumers. Large companies are able to use their size
and economies of scale to secure competitive contracts with
suppliers. Over the past five years, purchase costs have been
declining, largely due to an increasing amount of stock that is
being sourced from low-cost factories in countries such as China
and India. A significant proportion of industry players have
established links with overseas suppliers and the strength of the
Australian dollar has led to lower import prices, further reducing
purchase costs.
WagesWages are the second-largest expense for online retailers,
accounting for 20.5% of industry revenue in 2013-14. Staff are
required to set-up and maintain web
content, process transactions and distribute goods to consumers.
Employees in the industry must have sufficient knowledge for the
business to be successful. For example, skills are required in
information technology, supply chain logistics and marketing. As a
result, employees will typically demand higher wages than those in
traditional retailing. However, the number of staff hired by online
stores is usually substantially less than bricks-and-mortar stores.
Once a website is operational, employees are only necessary for
administration and maintenance duties. Advancements in technology
are expected to decrease the industrys reliance on labour through
the automation of manual tasks, which will lead to a reduction in
wage costs over the next five years.
RentRepresenting 2.5% of industry revenue, rent costs have
increased moderately over the past five years due to the natural
rise in prices and continued
Sector vs. Industry Costs
Profi t Rent Utilities Depreciation Other Wages Purchases
Average Costs of all Industries in sector (2013-14)
Industry Costs (2013-14)
0
20
40
60
Perc
enta
ge o
f rev
enue
80
100 5.0
68.5
11.3
8.41.21.14.4
3.9
61.4
20.5
7.82.6 1.32.5
SOURCE: WWW.IBISWORLD.COM.AU
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Competitive Landscape
Barriers to Entry The difficulties involved in entering the
industry vary according to the type and scale of retailing
intended. Niche retailers are able to commence trading with very
little outlay, particularly if they are already connected to an
audience. Online auction platforms such as eBay enable
companies to sell online without actually having a website or
transaction system of their own, paying commission for eBay to act
as a host for classifieds or auction transactions. New entrants
that wish to go head to head with existing major online retailers
will need to be better prepared,
Basis of Competition The Online Shopping industry faces a high
level of competition. Industry participants compete based on price,
product range, marketing, size of operations and reputation. In
many instances, there are hundreds of different online retailers
stocking the same or similar products, enabling vast customer
choice. The industry is also subject to external competition from
foreign online retailers and traditional bricks-and-mortar
retailers.
InternalThe ease of price comparison between retailers offering
similar products has meant price competitiveness is arguably the
key battleground online. Consumers will typically search online for
the best value and retailers that are able to offer lower prices
will attract increased demand. In addition, retailers that offer
free delivery will have an advantage over those that charge for
shipping.
The more abstract nature of online retailing means the
reputation of the seller is also very important. Companies compete
based on the prominence of their branding, warranties, after-sales
service, delivery times, transaction
security and customer support. In order to build a strong
reputation and brand name, industry players will often invest
significantly in advertising.
ExternalThe industry faces external competition from traditional
bricks-and-mortar retailers. Although online stores are able to
boast lower prices and 24/7 shopping, shopfront retailings
advantages, such as the ability for customers to physically inspect
products, face-to-face customer service, higher perceived security
and the capacity to instantly acquire products, are the major
points upon which traditional retailers compete with their online
counterparts.
As consumers continue to search for bargains online, many
individuals may choose to purchase from overseas websites. Large
international retailers typically enjoy price and efficiency
advantages due to economies of scale. As a result, foreign online
operators are generally able to offer lower prices than domestic
retailers and the strong Australian dollar over the past five years
has further encouraged consumers to shop on overseas websites.
Cost Structure Benchmarkscontinued
demand for prime locations. As opposed to traditional
bricks-and-mortar retailers, industry operators generally do not
require a physical shopfront from which to operate. Nonetheless,
players do require premises that are large enough to serve as
warehouses to store merchandise that is sold via shopping websites.
Industry players typically compete for locations that are near
distribution facilities, such as couriers, mail or freight
transportation.
Other costsOther costs include advertising, depreciation,
insurance, administration, accounting and transportation expenses.
Other costs are estimated to account for 7.8% of industry revenue
in 2013-14.
Level & Trend Competition in this industry is High and the
trend is Increasing
Level & Trend Barriers to Entry in this industry are Low and
Steady
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Competitive Landscape
Industry Globalisation
The Online Shopping industry is characterised by a moderate
level of globalisation. Although international trade in the
industry is negligible as imports and exports are accounted for at
the relevant manufacturing level, Australian consumers have been
increasingly willing to purchase from foreign websites and this has
added to the overall globalisation of the industry. The concept of
national borders is less significant for online retailing than
other industries, due to the convenience and instantaneousness of
transactions.
The majority of companies in the industry are Australian-owned,
however the reluctance of many of Australias largest retailers to
enter the online retailing space has resulted in an increasing
number of international retailers that are specifically targeting
the Australian market. For example, in 2011-12, UK-based fashion
retailer ASOS, launched a new website dedicated to Australian
consumers, offering a wide range of products and shorter delivery
times.
Barriers to Entrycontinued
with extensive stock levels, marketing budgets and a
sophisticated website.
New online retailers can often struggle to establish brand
recognition in the marketplace, which makes it difficult to build
trust. Additional challenges exist for online retailers that seek
to do business in a product that has not been commonly sold online
in the past.
Customer attitudes and habits will need to be changed. There is
a chance that if a product has gone this long without being
commonly sold online, it is because there is either a highly
dominant shopfront retailer, or the nature of the product does not
lend itself well to individual courier delivery (such as frozen
food, highly fragile products or very heavy products).
The leading barrier inhibiting consumers from purchasing online
is mistrust or fear of credit card fraud or
the goods not being of the specified quality. This has, however,
declined sharply as Australians have become more experienced with
internet transactions and have found reliable online retailers.
Despite this, another leading reason discouraging Australians from
shopping online is that they generally prefer the social aspect
associated with traditional bricks-and-mortar stores.
Barriers to Entry checklist Level
Competition HighConcentration LowLife Cycle Stage GrowthCapital
Intensity MediumTechnology Change MediumRegulation & Policy
MediumIndustry Assistance Low
SOURCE: WWW.IBISWORLD.COM.AU
Level & Trend Globalisation in this industry is Medium and
the trend is Increasing
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Player Performance Founded in 1914, Wesfarmers has grown to
become one of Australias largest companies. The company has a
highly diverse spread of businesses across the supermarkets,
department stores, home improvement, office supplies, resources,
insurance and energy industries. Wesfarmers employs over 200,000
people across the country. The group has only recently made its
foray into the online retail space. Within the industry, the
company has made strong inroads with its flagship retail websites,
such as Coles, Liquorland, Officeworks, Target and Kmart, which
offer multichannel purchase options.
Financial performanceOutpacing the overall industry, the company
has posted strong growth in its online segment. In the five years
through 2013-14, segment revenue is estimated to grow at an
annualised 53.9% to reach $1.2 billion.
Traditionally, groceries and liquor were not perceived as
products that could be sold online, largely because of consumer
preference for physical contact prior to purchase. A decade ago,
consumers were generally reluctant to make transactions online
largely due to lack of experience and trust, combined with a gross
shortage of compelling e-commerce websites from the countrys
largest retailers. While Coles has had an online presence since
1999, in July 2008, Coles relaunched its grocery store website with
a view to make online purchases easier for customers. This has
assisted the companys online revenue
growth and profitability, as labour costs are lower for online
operations. Coles online is now available to over 90.0% of the
Australian population and operates 264 delivery vans.
Another important factor driving Wesfarmers industry-specific
revenue has been the expansion of the companys online offerings,
particularly from Coles, Kmart, Target and Officeworks. For
example, the number of products sold online by Target has increased
from 6,000 in 2010-11 to over 58,000 in 2012-13. Prices have been
paramount in driving sales revenue, with online sales providing the
additional advantage of convenience. The Coles smartphone
application furthered the companys entry into multichannel
electronic retailing. Through this application, consumers have been
able to purchase their groceries anywhere and have them delivered
within one to two days.
Major CompaniesWesfarmers Limited | Woolworths Ltd | Other
Companies
81.4%Other
Wesfarmers Limited 9.9%
Woolworths Ltd 8.7%
SOURCE: WWW.IBISWORLD.COM.AU
Major players(Market share)
Wesfarmers Limited industry segment performance*
YearRevenue
($ million) (% change)
2008-09 142.2 N/C
2009-10 223.9 57.5
2010-11 426.5 90.5
2011-12 697.4 63.5
2012-13 984.7 41.2
2013-14 1,227.9 24.7
*EstimateSOURCE: IBISWORLD
Wesfarmers Limited Market share: 9.9% Industry Brand Names Coles
Kmart Officeworks Target Liquorland Vintage Cellars First Choice
Liquor
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26
Major Companies
Player Performance Woolworths is one of Australias largest
retailers, spanning a highly diverse set of industries ranging from
groceries to electronics. The company has been one of Australias
early online innovators, particularly with the online offerings of
Big W, Dan Murphys, Cellarmasters, Masters Home Improvement and
Woolworths. In line with the overall industry, the companys online
sales have grown dramatically over the past decade. Dan Murphys and
Big W have led the way, with the former becoming the most visited
liquor website in Australia. Online sales are forecast to account
for nearly 1.5% of total company revenue.
Financial performanceOver the five years through 2013-14,
Woolworths online sales are expected to grow by an annualised 55.3%
to total $1.1 billion, a significant growth result compared with
the overall industry. Factors contributing to this strong increase
in revenue include the launch of the companys online websites over
this period. For example, in 2011-12, Woolworths launched the
countrys first online home improvement store with the Masters
transactional website, which receives over 25,000 visitors a day.
The Dan Murphys retail website was opened in 2010-11, and in
2009-10, the online store for Big W was launched. The company has
also successfully launched smartphone applications across the
group, attracting more than 3.2 million downloads. More than 13.0%
of Big Ws sales come from mobile devices.
In 2011-12, the company reported an increase of 95.0% in total
online sales, largely driven by the acquisition of Cellarmasters in
May 2011, which contributed 47.0% to growth. The purchase of this
online-only liquor retailer has greatly enhanced the companys
multichannel offer.
Woolworths online grocery store, which was originally opened in
the late 1990s, currently has the capacity to reach
over 90.0% of Australia households and has launched various
marketing programs across social media platforms to engage with the
younger demographic, who are more comfortable making transactions
on the internet. Woolworths prominence in the Supermarkets and
Grocery Stores industry provides a strong base for online
operations.
Big W has achieved exceptional growth in online sales since the
launch of its website. The retailer has focused on delivering a
profitable range online, introducing apparel to its offering in
January 2013. The number of stock-keeping units sold by BIG W
online grew from 9,500 in 2010-11 to 30,000 in 2012-13. The company
has been innovative in integrating social networking with its
online offer to promote deals and attract demand.
Woolworths has implemented click-and-collect options across the
majority of its businesses, which allow customers to purchase goods
online and then collect from their nearest store when convenient.
As a result of the companys continued focus on its multichannel
strategy, Dan Murphys was awarded Online Retailer of the Year in
2012-13 and Masters was awarded Best New Online Retailer. Masters
has grown rapidly since the launch of its website, now offering
30,000 products online.
Woolworths Ltd industry segment performance*
YearRevenue
($ million) (% change)
2008-09 118.8 N/C
2009-10 188.9 59.0
2010-11 307.9 63.0
2011-12 600.4 95.0
2012-13 852.6 42.0
2013-14 1,074.3 26.0
*EstimateSOURCE: ANNUAL REPORT AND IBISWORLD
Woolworths Ltd Market share: 8.7% Industry Brand Names Big W
Woolworths Dan Murphys Cellarmasters Masters Home Improvement
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WWW.IBISWORLD.COM.AU Online Shopping in Australia January 2014
27
Major Companies
Other Companies The industry supports a multitude of
product-specific operators, including greengrocers, music
retailers, computer and software retailers, clothing retailers,
toys and sporting equipment retailers, real estate operators and
travel and accommodation operators. Listed below are the prominent
players within their respective niches. However, due to the size
and intense fragmentation of the industry, these players do not
account for a significant share of the market.
Catchoftheday.com.auEstimated market share:
1.2%Catchoftheday.com.au was established in 2006 and is a daily
deal website offering heavily discounted goods on a limited-offer
basis. Catchoftheday, like its sister-site Scoopon, is owned by a
consortium that includes Daily Deals. Daily Deals also owns Deals
Direct and is a part of Ourdeals.com.au. In early 2011, James
Packer invested an estimated $40 million in the company, followed
by a $10 million investment in Deals Direct.
BooktopiaEstimated market share: Less than 1.0%Booktopia is one
of the countrys largest online retailers of books, DVDs and
e-books. Having only entered the market in 2004, the company has
grown dramatically to become one of the countrys largest online
retailers. Similar to Amazons business model, the company operates
warehouses from which it ships its listed products.
iTunesEstimated market share: Less than 1.0%Owned and operated
by Apple Inc., iTunes is a free application for download that
enables consumers to organise and play music from their computer or
mobile device. iTunes includes the iTunes Store, which is an online
store where consumers can purchase music, TV shows, games, e-books
and movies.
iTunes revenue is expected to decline as the trend towards
online media streaming grows. Services such as Spotify allow
consumers to stream music, creating intense competition for iTunes,
which charges consumers per song or album. In an attempt to combat
this new threat, iTunes has plans to release its own streaming
service, iTunes Radio.
Wishlist.com.auEstimated market share: Less than 1.0%The
wishlist.com.au website is owned by Wishlist Holdings Limited and
was launched in July 1999. In addition to operating
wishlist.com.au, the company operates evoucher.com.au.
Wishlist.com.au has a reported 250,000 members worldwide. Industry
research indicates the website is particularly popular with
consumers during the Christmas trading period. Products offered by
the website include baby and childrens goods, beauty products and
fragrances, books, corporate gifts, electrical goods, flowers,
food, wine, home and garden goods, and travel and gadget
accessories.
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28
Capital Intensity The Online Shopping industry exhibits a
moderate level of capital intensity. IBISWorld estimates that for
every dollar spent on depreciation, $7.88 is spent on wages. The
capital and labour costs of running a retail business online differ
from the traditional retail method. Real estate costs are generally
lower for online businesses, but significant investment is required
to create and maintain a high-quality website. Heavy investment in
e-commerce technology and innovation in the online trading market
is expected to contribute to increased depreciation costs.
The technical expertise required to undertake online retailing
generally calls for employees with non-traditional skill sets, some
of which can command high wages. Employees are required to process
transactions, maintain web content and perform warehouse
functions.
As businesses become more established within the market and
develop successful websites, it is likely that capital expenses
will decrease. However, new technology will automate a large number
of tasks, reducing the industrys reliance on labour. As a result,
capital intensity is expected to remain at a moderate level over
the next five years.
Operating ConditionsCapital Intensity | Technology & Systems
| Revenue VolatilityRegulation & Policy | Industry
Assistance
Tools of the Trade: Growth Strategies for Success
SOURCE: WWW.IBISWORLD.COM.AU
Labo
ur In
tens
ive Capital Intensive
Change in Share of the Economy
New Age Economy
Recreation, Personal Services, Health and Education. Firms
benefi t from personal wealth so stable macroeconomic conditions
are imperative. Brand awareness and niche labour skills are key to
product differentiation.
Traditional Service Economy
Wholesale and Retail. Reliant on labour rather than capital to
sell goods. Functions cannot be outsourced therefore fi rms must
use new technology or improve staff training to increase revenue
growth.
Old Economy
Agriculture and Manufacturing. Traded goods can be produced
using cheap labour abroad. To expand fi rms must merge or acquire
others to exploit economies of scale, or specialise in niche,
high-value products.
Investment Economy
Information, Communications, Mining, Finance and Real Estate. To
increase revenue fi rms need superior debt management, a stable
macroeconomic environment and a sound investment plan.
Supermarkets and Grocery StoresLiquor Retailing
Houseware Retailing
Courier Pick-up and Delivery Services
Domestic Appliance Retailing
Online Shopping
Capital intensity
0.5
0.0
0.1
0.2
0.3
0.4
SOURCE: WWW.IBISWORLD.COM.AUDotted line shows a high level of
capital intensity
Capital units per labour unit
Online ShoppingRetail TradeEconomy
Level The level of capital intensity is Medium
-
WWW.IBISWORLD.COM.AU Online Shopping in Australia January 2014
29
Operating Conditions
Revenue Volatility The Online Shopping industry has displayed a
high level of revenue volatility over the past five years.
Movements in revenue are typically associated with changes in
consumer sentiment, discretionary income and computing literacy.
Although the traditional retail environment has suffered from weak
consumer sentiment and subdued discretionary spending
over the past five years, these factors have not substantially
affected online retailers. The main reason for this is that during
economic downturns, many consumers will scale back overall
expenditure on discretionary items and instead purchase cheaper
alternatives online. Online stores have gained market share through
their ability to offer competitive prices, and this has
Technology & Systems The Online Shopping industry has
exhibited a moderate level of technological change over the past
five years. Online retail sales during the early days were hindered
by concerns about the security of doing business with a credit
card, privacy of information divulged on the internet, difficulty
navigating websites, high delivery costs and inconvenient delivery
times. In addition to these issues, many consumers were concerned
about the lack of ability to track the progress of their goods from
ordering time to delivery time.
However, over the past five years, developments in computer
software programs have enhanced website functionality, making it
easier for customers to navigate online stores. In addition,
advancements in technology have improved security systems and
payment processes, ensuring safe and efficient transactions. As a
result,
consumers have become increasingly comfortable and confident
with shopping online.
The rising penetration of social media and smartphones in
society has enabled online retailers to reach new customers and
broaden the way in which consumers make purchases. Mobile
applications for smartphones and tablets have been implemented by
some industry players, allowing customers to purchase products
online anytime and anywhere.
Other technological changes that have affected the industry
include the implementation of wireless computer chips called radio
frequency identification (RFID) tags. The system, which uses radio
signals to identify individual products, can log and track goods
through the supply chain. The technology enables better management
of inventory levels, increases efficiency and allows retailers to
better forecast trends.
Level The level of Technology Change is Medium
SOURCE: WWW.IBISWORLD.COM.AU
Volatility vs Growth
Reve
nue
vola
tility
* (%
)
1000
100
10
1
0.1
Five year annualised revenue growth (%)30 10 10 30 50 70
Hazardous
Stagnant
Rollercoaster
Blue Chip
* Axis is in logarithmic scale
Online Shopping
A higher level of revenue volatility implies greater industry
risk. Volatility can negatively affect long-term strategic
decisions, such as the time frame for capital investment.
When a fi rm makes poor investment decisions it may face
underutilised capacity if demand suddenly falls, or capacity
constraints if it rises quickly.
Level The level of Volatility is High
-
WWW.IBISWORLD.COM.AU Online Shopping in Australia January 2014
30
Operating Conditions
Industry Assistance Protection is not applicable to the
industry, and it does not receive any major government subsidies or
grants. However, assistance provided to upstream manufacturing
industries can indirectly affect online retailers. Tariffs are
applicable to a number of products traded by the industry,
including toys, household appliances and cameras, however imports
are accounted for at the relevant manufacturing level.
The National Online Retailers Association (NORA) is the main
body representing the industry and is the first
industry association to address the issues faced by online
retailers. Recognising the opportunities available in multichannel
retailing, NORA believes that by improving relationships and
communication, the Australian online retail environment will
flourish.
Currently, there is a GST exemption for goods valued under
$1,000 that are purchased from foreign-based online retailers. This
tax rule effectively makes the playing field uneven, by creating a
price discrepancy between domestic and overseas online retailers.
The Australian
Regulation & Policy The industry is subject to a moderate
level of regulation. The main areas of legislation affecting online
retailers are similar to that of traditional retailers, however
unlike bricks-and-mortar stores, industry players are not subject
to regulations concerning trading hours or tenancy issues. Despite
this, online operators are still bound by the Competition and
Consumer Act 2010, which applies to every aspect of business, from
advertising to price setting and customer transactions, and seeks
to promote competition, fair trading and protection for
consumers.
The Australian Communications and Media Authority (ACMA) is a
statutory authority that is responsible for the regulation of
online content in Australia. This includes the enforcement of
Australias anti-spam law. The ACMAs main roles include encouraging
the development of codes of practice for online retailers,
informing the public about internet safety issues and investing
complaints regarding online content.
The other major contentious regulation relating to online retail
in Australia is the enforcement of tax and duties on goods
purchased offshore and posted to Australians. Currently, the GST
exemption on goods valued under $1,000 that are purchased from
overseas retailers has prompted many Australian retailers to
question its influence on consumer demand and industry revenue. As
many foreign online operators already offer lower prices, the
discrepancy caused by this tax rule has further exacerbated
competition.
A consortium of Australian retailers have campaigned for the GST
threshold to be lowered or removed completely. However,
recommendations arising from a Productivity Commission enquiry into
the issue in 2011 stated that the GST-threshold should not be
lowered unless proven that it is cost effective to do so, with the
costs of collecting the tax potentially outweighing the amount of
revenue raised.
Revenue Volatilitycontinued
protected the industry from adverse economic conditions.
Growth in the technological literacy of the Australian
population influences the demand for goods online. In general, an
overall rise in computing literacy of the Australian population
bodes well for the
industry, with more consumers willing to purchase goods online.
Australian consumers have largely become more comfortable with
using online shopping websites over the past five years, supporting
the steady rise in industry revenue over this period.
Level & Trend The level of Regulation is Medium and the
trend is Steady
Level & Trend The level of Industry Assistance is Low and
the trend is Steady
-
WWW.IBISWORLD.COM.AU Online Shopping in Australia January 2014
31
Operating Conditions
Industry Assistancecontinued
Government has maintained that removing or lowering this
threshold would be prohibitively expensive, with the cost of
collecting the tax exceeding the amount of revenue raised.
Australian online retailers, in addition to bricks-and-mortar
retailers, have protested against this taxation arrangement, which
can be viewed as a form of reverse assistance. However, a push from
state and territory governments in late 2013 has led the Federal
Government to reconsider lowering the GST threshold. A decision is
expected to be made by the end of March 2014.
The National Broadband Network currently under construction is
primarily funded by public money. While this does not constitute
direct assistance to online retailers, an infrastructure investment
of this scale is certain to strengthen the competitive position of
online retailers against other retailing methods. Faster connection
speeds for the majority of Australians will allow for richer
website content, faster browsing and, in the case of fibre-optic
infrastructure, improved reliability.
-
WWW.IBISWORLD.COM.AU Online Shopping in Australia January 2014
32
Key StatisticsRevenue
($m)
Industry Value Added
($m) Establishments Enterprises Employment Exports ImportsWages
($m)
Domestic Demand
2004-05 1,843.2 577.3 9,402 8,659 11,344 -- -- 462.6 N/A2005-06
2,376.9 712.1 11,290 10,420 13,546 -- -- 560.9 N/A2006-07 2,979.9
893.1 14,141 12,967 16,987 -- -- 706.2 N/A2007-08 3,492.3 1,036.2
16,409 15,111 20,400 -- -- 806.7 N/A2008-09 4,193.2 1,216.0 19,994
18,177 24,720 -- -- 943.5 N/A2009-10 5,982.5 1,773.2 26,277 23,888
32,249 -- -- 1,370.0 N/A2010-11 7,785.0 2,195.4 32,329 29,125
39,610 -- -- 1,697.1 N/A2011-12 9,091.2 2,526.4 37,055 33,085
44,996 -- -- 1,927.3 N/A2012-13 11,097.6 2,946.6 40,687 36,655
50,950 -- -- 2,238.5 N/A2013-14 12,350.0 3,334.5 43,225 38,594
53,259 -- -- 2,531.8 N/A2014-15 13,988.0 3,655.4 47,898 42,388
58,495 -- -- 2,751.8 N/A2015-16 15,550.0 4,120.8 49,760 44,429
62,200 -- -- 3,125.6 N/A2016-17 16,975.0 4,428.8 53,283 47,153
66,014 -- -- 3,327.1 N/A2017-18 18,220.0 4,702.6 55,645 49,243
69,433 -- -- 3,516.5 N/A2018-19 19,832.2 5,229.8 62,802 55,089
77,125 -- -- 3,926.8 N/ASector Rank 10/17 10/17 7/17 5/17 10/17 N/A
N/A 10/17 N/AEconomy Rank 105/688 107/688 26/688 15/687 75/688 N/A
N/A 83/688 N/A
IVA/Revenue (%)
Imports/Demand (%)
Exports/Revenue (%)
Revenue per Employee
($000)Wages/Revenue
(%)Employees
per Est.Average Wage
($)
Share of the Economy
(%)2004-05 31.32 N/A N/A 162.48 25.10 1.21 40,779.27 0.052005-06
29.96 N/A N/A 175.47 23.60 1.20 41,407.06 0.062006-07 29.97 N/A N/A
175.42 23.70 1.20 41,572.97 0.072007-08 29.67 N/A N/A 171.19 23.10
1.24 39,544.12 0.082008-09 29.00 N/A N/A 169.63 22.50 1.24
38,167.48 0.092009-10 29.64 N/A N/A 185.51 22.90 1.23 42,481.94
0.132010-11 28.20 N/A N/A 196.54 21.80 1.23 42,845.24 0.162011-12
27.79 N/A N/A 202.04 21.20 1.21 42,832.70 0.172012-13 26.55 N/A N/A
217.81 20.17 1.25 43,935.23 0.202013-14 27.00 N/A N/A 231.89 20.50
1.23 47,537.51 0.222014-15 26.13 N/A N/A 239.13 19.67 1.22
47,043.34 0.232015-16 26.50 N/A N/A 250.00 20.10 1.25 50,250.80
0.252016-17 26.09 N/A N/A 257.14 19.60 1.24 50,399.92 0.262017-18
25.81 N/A N/A 262.41 19.30 1.25 50,645.95 0.282018-19 26.37 N/A N/A
257.14 19.80 1.23 50,914.75 0.30Sector Rank 13/17 N/A N/A 10/17
10/17 16/17 10/17 10/17Economy Rank 448/688 N/A N/A 432/688 302/688
661/688 474/688 107/688
Figures are inflation-adjusted 2014 dollars. Rank refers to 2014
data.
Revenue (%)
Industry Value Added
(%)Establishments
(%)Enterprises
(%)Employment
(%)Exports
(%)Imports
(%)Wages
(%)
Domestic Demand
(%)2005-06 29.0 23.4 20.1 20.3 19.4 N/A N/A 21.2 N/A2006-07 25.4
25.4 25.3 24.4 25.4 N/A N/A 25.9 N/A2007-08 17.2 16.0 16.0 16.5
20.1 N/A N/A 14.2 N/A2008-09 20.1 17.4 21.8 20.3 21.2 N/A N/A 17.0
N/A2009-10 42.7 45.8 31.4 31.4 30.5 N/A N/A 45.2 N/A2010-11 30.1
23.8 23.0 21.9 22.8 N/A N/A 23.9 N/A2011-12 16.8 15.1 14.6 13.6
13.6 N/A N/A 13.6 N/A2012-13 22.1 16.6 9.8 10.8 13.2 N/A N/A 16.1
N/A2013-14 11.3 13.2 6.2 5.3 4.5 N/A N/A 13.1 N/A2014-15 13.3 9.6
10.8 9.8 9.8 N/A N/A 8.7 N/A2015-16 11.2 12.7 3.9 4.8 6.3 N/A N/A
13.6 N/A2016-17 9.2 7.5 7.1 6.1 6.1 N/A N/A 6.4 N/A2017-18 7.3 6.2
4.4 4.4 5.2 N/A N/A 5.7 N/A2018-19 8.8 11.2 12.9 11.9 11.1 N/A N/A
11.7 N/ASector Rank 2/17 1/17 2/17 3/17 4/17 N/A N/A 1/17
N/AEconomy Rank 32/688 32/688 37/688 45/687 77/688 N/A N/A 19/688
N/A
Annual Change
Key Ratios
Industry Data
SOURCE: WWW.IBISWORLD.COM.AU
-
WWW.IBISWORLD.COM.AU Online Shopping in Australia January 2014
33
Jargon & Glossary
BARRIERS TO ENTRY High barriers to entry mean that new companies
struggle to enter an industry, while low barriers mean it is easy
for new companies to enter an industry.
CAPITAL INTENSITY Compares the amount of money spent on capital
(plant, machinery and equipment) with that spent on labour.
IBISWorld uses the ratio of depreciation to wages as a proxy for
capital intensity. High capital intensity is more than $0.333 of
capital to $1 of labour; medium is $0.125 to $0.333 of capital to
$1 of labour; low is less than $0.125 of capital for every $1 of
labour.
CONSTANT PRICES The dollar figures in the Key Statistics table,
including forecasts, are adjusted for inflation using the current
year (i.e. year published) as the base year. This removes the
impact of changes in the purchasing power of the dollar, leaving
only the real growth or decline in industry metrics. The inflation
adjustments in IBISWorlds reports are made using the Australian
Bureau of Statistics implicit GDP price deflator.
DOMESTIC DEMAND Spending on industry goods and services within
Australia, regardless of their country of origin. It is derived by
adding imports to industry revenue, and then subtracting
exports.
EMPLOYMENT The number of permanent, part-time, temporary and
casual employees, working proprietors, partners, managers and
executives within the industry.
ENTERPRISE A division that is separately managed and keeps
management accounts. Each enterprise consists of one or more
establishments that are under common ownership or control.
ESTABLISHMENT The smallest type of accounting unit within an
enterprise, an establishment is a single physical location where
business is conducted or where services or industrial operations
are performed. Multiple establishments under common control make up
an enterprise.
EXPORTS Total value of industry goods and services sold by
Australian companies to customers abroad.
IMPORTS Total value of industry goods and services brought in
from foreign countries to be sold in Australia.
INDUSTRY CONCENTRATION An indicator of the dominance of the top
four players in an industry. Concentration is considered high if
the top players account for more than 70% of industry revenue.
Medium is 40% to 70% of industry revenue. Low is less than 40%.
INDUSTRY REVENUE The total sales of industry goods and services
(exclusive of excise and sales tax); subsidies on production; all
other operating income from outside the firm (such as commission
income, repair and service income, and rent, leasing and hiring
income); and capital work done by rental or lease. Receipts from
interest royalties, dividends and the sale of fixed tangible assets
are excluded.
INDUSTRY VALUE ADDED (IVA) The market value of goods and
services produced by the industry minus the cost of goods and
services used in production. IVA is also described as the industrys
contribution to GDP, or profit plus wages and depreciation.
INTERNATIONAL TRADE The level of international trade is
determined by ratios of exports to revenue and imports to domestic
demand. For exports/revenue: low is less than 5%; medium is 5% to
20%; and high is more than 20%. Imports/domestic demand: low is
less than 5%; medium is 5% to 35%; and high is more than 35%.
LIFE CYCLE All industries go through periods of growth, maturity
and decline. IBISWorld determines an industrys life cycle by
considering its growth rate (measured by IVA) compared with GDP;
the growth rate of the number of establishments; the amount of
change the industrys products are undergoing; the rate of
technological change; and the level of customer acceptance of
industry products and services.
NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or
payroll, also known as nonemployers. These are mostly set up by
self-employed individuals.
PROFIT IBISWorld uses earnings before interest and tax (EBIT) as
an indicator of a companys profitability. It is calculated as
revenue minus expenses, excluding interest and tax.
VOLATILITY The level of volatility is determined by averaging
the absolute change in revenue in each of the past five years.
Volatility levels: very high is more than 20%; high volatility is
10% to 20%; moderate volatility is 3% to 10%; and low volatility is
less than 3%.
WAGES The gross total wages and salaries of all employees in the
industry. Benefits and on-costs are included in this figure.
Industry Jargon
IBISWorld Glossary
E-COMMERCE Commerce transactions made over the internet.
NBN National Broadband Network.
SMARTPHONE