Digitally backward Australian retailers are about to learn a brutal Christmas lesson

“Now, children, if you’re very very good I’ll teach you about e-commerce.”
“Now, children, if you’re very very good I’ll teach you about e-commerce.”
Image: AP Photo/Steve Holland
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Australian retailers bank heavily on end-of-year sales, though perhaps with less fanfare—and more attention to air conditioners—than their North American counterparts. However, many are in for a rude surprise this season. A strong Australian dollar but a weak domestic economy means consumers are more likely to look for online deals from retailers based overseas.

And exchange rates are only part of the problem. Businesses aren’t very digital in the land down under, despite high mobile-phone use and technologically savvy consumers. And retailers more than any other sector could be next in line for a brutal wake-up call. ”Australia has been lagging by 5 to 10 years in the online shopping stage,” says David Shafer, executive director of Kogan Technologies, which buys cheap TVs and electronics in Asia and sells them directly to Australian consumers online.

In a survey of Australian retail executives conducted by Deloitte in September and October of this year, 65% of them said they expected less than 2% of Christmas sales to come through online channels (pdf). By comparison, online sales accounted for 7.4% of holiday spending in the US in 2011, according to ComScore, and that number is expected to increase this year. While US retailers launched massive “Cyber Monday” promotions, Australians said they were focusing on expanding their brick-and-mortar business, despite the encroaching threat of foreign retailers.

But physical shops cost more to staff and run, and so the goods cost more too. Deloitte Digital analyst Abigail Thomas explains that these high costs, combined with a highly mobile Australian population, will lead to a “big bang” of disruption in the retail industry in the next year:

The twin effect of the Australian dollar remaining strong and lower retail prices overseas means Australian consumers are increasingly turning to online shopping from international sites. These sites offer value to consumers, even after paying for overseas postage. The most successful online clothes retailers make it incredibly easy for shoppers to return unsuitable items with no questions asked.

Yet it’s not clear that Australian businessmen realize what’s about to hit them. In an IBM study conducted in 2011, just 12% of Australian chief marketing officers thought that social media expertise would be “crucial to their personal success” in the next three to five years, and perhaps even more surprisingly, a mere 26% thought they would need “technology savviness” in general.

If holiday sales so far this year are any indication, this strategy isn’t working out for them so well. Retailers are already bracing for a muted season, despite high hopes. ”There are more retailers currently under pressure than I’ve ever seen … I’ve been in retail 50 years,” said Gerry Harvey, the executive chairman of Harvey Norman, an Australian mega-retailer with operations across the globe. Harvey added that many Australian retailers appear to be hanging on by a thread, and could close after the holiday season.

At the same time, early figures from Google Australia show a 20% jump in online shopping. Another study by information analysts at IBISWorld suggests that growth in online spending will triple year-on-year for the Christmas season.

That said, building an online retail presence is easier said than done. In an attempt to change the game, entrepreneur Grant Arnott envisioned “Click Frenzy,” a massive, 24-hour sale starting on the evening of November 20 that he hoped would “stop the nation” and draw millions of Australians online for rock-bottom deals. Retailers across the country bought into the event, and the media ran wild with the story. Within minutes of going live, however, the volume of traffic overloaded and shut down both the sales aggregator and many of the participating retailers, leaving consumers furious.

Arnott was not overly concerned, however. “Whether positive or negative, the mass media surrounding the inaugural Click Frenzy sales event proves this undertaking was unprecedented on all accounts,” he wrote. New data also suggest that, despite the glitches, online retailers who participated in the sale saw their traffic increase 2.5-fold from the previous 24-hour period. Even those who didn’t take part reported that their traffic was up 30%. Telegraph to Australian retailers: your customers desperately want you online.