Online retail has been viewed as either an interference or a ‘value-add’ by traditional store-based retailers, and has been the topic of much discussion in the retail industry over the past five years.

Due to evolving consumer preferences and technological advances, more and more retailers are moving ‘online’. Growth in online retailing continues to be driven by consumers’ access to an increased retail offering and product availability, compared to traditional bricks and mortar retail. Here, we briefly look at how the online trend is unfolding, and its ongoing impact on traditional store-based retailing.

According to the National Australia Bank (NAB), online retail spending in 2011 totalled AUD 10.5 billion and represented 4.9% of traditional retail spending. Online retail spending in Australia now represents approximately 7.0% of traditional retail spending, excluding cafes, restaurants and takeaway food, which equates to around AUD 17.1 billion over the 12 months to May 2015. The share of online retail spending by state closely correlates to the share of population by state, as well as the share of spending in stores. However, it is interesting to note that per capita (online) spending is the highest in the Australian Capital Territory and Northern Territory, which have the smallest populations of all Australian states and territories and very low international retailer presence.

On a year-on-year basis, the NAB Online Retail Sales Index showed that online sales have increased by 9.0%, compared with store-based retail sales growth of 4.8% according to the latest data (May 2015) released by the Australian Bureau of Statistics. Online sales growth has slowed significantly since 2011, when growth was at 29% per annum, and total retail spending growth in Australia (bricks & mortar) has been recovering since late-2013.

From a structural point of view it seems online spending growth has moved beyond the initial ‘high growth’ phase and is beginning to mature and stabilise. Another reason for the slowdown in the rate of growth more recently is the weaker AUD, making online purchases from overseas retailers less attractive. The recent expansion of major international retailers into the Australian market has also allowed consumers direct access to products, which were previously only available online. An enhanced domestic market, with a larger retail offering, and the Federal Government’s proposal to lower the threshold for Australia’s Goods and Services Tax (10%) on purchases from overseas, are likely to slow further growth in the online retail sector.

Growth in online retail spending growth has begun to stabilise, levelling the playing field for online versus bricks and mortar retail. Nevertheless, it is expected to continue to impact total retail spending growth in traditional bricks and mortar stores over the medium to long term as it adds another channel of competition. But as traditional retailers continue to expand and build their online platforms, they will capture an increasing share of the online market, which is growing in relevance.

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