australian retail adoption plans for online advertising and e-tailing

Australian Retail Adoption Plans for Online Advertising and E-tailingAIMIA RESEARCH FINDINGS • MAY 2012

RESEARCH CONDUCTED BETWEEN SEPTEMBER 2011 AND JAN 2012

SPONSORS:

Australian Retail Adoption Plans for Online Advertising and E-tailing • 2012

Foreword

On behalf of AIMIA, it’s my pleasure to be involved in the publishing of our second independent research report in an ongoing series: Australian Retail Adoption Plans for Online Media and E-tailing.

There is much published in Australia about the growing adoption of e-tailing by consumers and the impact of international e-tail competition, however, this is not the focus of this report. Our research looks at tracking what Australian retailers themselves are doing about adopting and evolving their “omni-channel” offering. The research aims to give retailers and our members an independent benchmark by which to assess their own business priorities and opportunities in this space.

This year’s research shows, as expected, growing adoption rates across the board for interactive, digital and e-tail services as retailers reorganise resources to focus more attention on the digital consumer, but also highlights the internal resourcing and cultural barriers that are hampering more rapid successful implementation. The stark reality for the industry is there are precious few senior, experienced “client side” personnel in Australia – meaning most retail organisations are learning as they go. This places Australian retailers at a disadvantage, when experienced international retailers enter Australia – either directly through stores or simply through online marketing to Australian audiences.

I’d like to thank the people within AIMIA, the ACRS and our sponsor organisations for the work that has been done to bring this important research work to fruition in 2012.

Robert Wong

Chair AIMIA Retail Industry GroupCEO CC Media iNC Network


Executive summary

The current state of online retailing and marketing in Australia

• 75% of all retailers (large and small) now have an online presence and 43% are selling online.

• 88% are advertising online (even without a website).

• Retailers are using a wider variety of digital channels/tools with email, social, video and mobile growing rapidly over the last year.

• Almost a third of retailers are leveraging social media, but there is still uncertainty as to how to extract maximum value from it.

• Mobile e-tailing is embryonic for most, perceived as expensive – but having huge growth potential.

• Retailers are using their TV resources to create content – not just ads.

• SEO, email and SEM are the most popular forms of online promotional strategies.

The current barriers to online channel entry/growth

• Internal expertise, organisational culture, systems integration, and supply chain management continue to be the biggest barriers to growth.

• Hardtofindexperiencedsenioroperationstaffwhoknowe-tailing(notjusttechnology).

• Consumers are not the problem (they get it and want it).

Retailer digital plans and goals for 2013 and beyond

• 86% of retailers will increase their online budgets to further focus on driving sales (through both physical and online stores) and building multichannel operational capabilities.

• Retailers are reliant on a wide number of external partners to set & implement strategies.

• Most Australian retailers have accepted e-tailing is not going away.


Contents

Research overview

Section1: The current state of online retailing and marketing

Section 2: The perceived barriers to online channel growth

Section 3: Retailers’ digital plans and goals for 2013 & beyond

5

6

15

20


Research overview

To understand online retailing and marketing in Australia, AIMIA engaged Dr Sean Sands from Monash University’s The Australian Centre For Retail Studies.

Qualitativeresearchwasfirstperformed,consistingof20interviewswithlargeAustralianretailers.

This was followed by an online survey of 169 Australian retailers, and compared to a similar 2010 survey of 128 Australian retailers

Respondents represented a cross section of retailers in terms of:

• Size (revenue, number of stores)

• Retail sector

• Respondent division or department

• Structure (Pure online retailers, bricks & clicks, pure bricks & mortar)

• Franchises versus company owned


It has become more of a priority for all retailers to become active in the online and digital space.

Australia has, for a long time, hidden behind the fact that we’re so far away from everything ... Now with the growth of e-commerce, and the fact that there’s so many more companies shipping to Australia from overseas, we can’t hide behind that anymore.

There’s no boundaries for Australian retailers, we have to embrace it.

—EYEWEAR RETAILER

“

The current state of online retailing in Australia

SECTION 1


Channel adoption

75% of retailers now have an online presence

The vast majority of retailers with multiple stores have an online presence (78%). This means they have a consistent online website which may have online purchasing capability.

Even small single stores are putting more effort towards online, with 46% having an online presence.

75%78%

46%

Retailers who have an online presence

All Multiple Single

Almost a third of retailers are leveraging social media, but there is still uncertainty as to how to extract maximum value from it.

Retailers are beginning to understand the nature of social media and its business value.

Social media is being used to engage customers and gather insights, but not necessarily as a direct sales channel.

It is used primarily for engagement and tracking brand conversations.

Some retailers fear losing control of their reputation because they don’t control the messages.

Facebook is the most dominant social network for retailers.

Social media is a work in progress.


Retailers are exploring a range of digital channels to reach customers

Clearly, physical stores are still important for retailers, but an increasing array of go to market channels are being explored.

For online channels, website is still the most common, but email, social networks, online catalogues, video and mobile are on the rise.

Website

Physical store (strip)

Physical store (mall)

Online - email offer

Social networking sites

Catalogue - paper based

Online - video content

Online catalogue

Mobile (iPhone app, SMS)

Shopping comparison sites

Online - coupons

Call centres

Online - consumer review sites

Self-service or information kiosks

Mail order

2011/12

2010

73%

55%

83%

69%

50%

54%

47%

43%

33%

41%

31%

30%

31%

26%

19%

20%

19%

19%

18%

19%

10%

6%

9%

18%


Smart mobile is being used to make customer interactions easier

Mobile is seen as a key tool being used by consumers – in-store, for pre-purchase research and location-based information.

Retailers recognise the importance of using mobile micro-sites or apps to enable customers to easily view and access their web content, but not all have detailed strategies in this area.

They see mobile as being able to integrate the online channel further – social media, online, couponing, location-based information, catalogues.

They believe the link between mobile and social media is important as consumers also access social media from their smart phone, but do not have highly developed strategies.

Retailers perceive the cost of creating mobile micro sites as an inhibitor.

Fashion, electronics and hardware categories appear to be strongest in using video, where they can leverage advertising resources to create content.

Video content is seen as important by most retailers.

Video is used to bring content, products and processes to life


Multichannel is evolving rapidly

Many of Australia’s larger retailers moving to e-tail enablement across their product range. David Jones announced in April 2012, that they are embarking on a major project to be able to photograph up to 90,000 products and make them available as part of their E-tail strategy.


Use of online throughout the Consumer Decision Making Process

Online capabilities are changing as capability increases

There are varying degrees of online capability amongst retailers, with a spectrum from:

Informational

• Retailers offer the online channel for information, such as store locators and product information.

• Retailersatthisstageofadoptiontendtoeitherseetransactionalcapabilitiesastoodifficultorassufficientfortheircustomers,i.e.theirproductcategoriesdonotlendthemselvestoonline transactions.

• These retailers tend to focus on rudimentary objectives and measures for online, such as websitetrafficnumbers.

Fully integrated and transactional

• These retailers strive to manage integrated multiple channels to deliver seamless information, education, purchase, support, and even entertainment across platforms.

• These retailers are beginning to look at conversion, contributing brand metrics and ROI.

Online advertising was deemed the most important and had the highest penetration at 88%. The way advertising is presented on the website can vary from simple broad sale messages to full product and price display.

Loyalty and feedback are deemed important, but most functionality is rudimentary, e.g. few link loyalty schemes to online behaviour.

After-sales service and transacting are important but show lower implementations due to the organisational complexity in offering them.

Loyalty or repeat purchase

Feedback

After-sales service

Transacting

Advertising

63%

4.9

4.4

6.0

43%

88%

The primary role of a retailer’s website is advertising, but other uses are developing as capability increases

65%

55%

4.9

4.8

Sample percentage who have implemented

Importance — mean rating (1–7)


The top 3 digital media are:

• Search engine optimisation

• Email marketing

• Search engine marketing

The least popular media are:

• Online coupons

• Affiliateprograms

• Ad networks

SEO, email marketing & SEM are still the most popular media for advertising & promotion

2011/12

2010

Search engine optimisation

Email marketing

5.95.8

5.85.7

Search engine marketing

Traditional media

5.55.3

5.55.3

Online catalogues

Social networking widgets

4.84.8

4.34.7

Mobile marketing

Performance based online media

4.4

4.3

4.4

Syndicated content

Banner advertising

Online video advertising

Price comparison websites

4.3

3.7

3.94.2

Syndicated content

Ad networks

4.1

3.5

4.0

Affiliateprogrammes

Online couponing

3.93.9

3.8

4.3

4.0

Traditional media still lags behind online and interactive media.

Mean rating of popular media usage1.0 7.0


On average 43% of retailers are selling online, but retailers with 50-100 stores are rapidly embracing online selling

Small single retailers are resource and market constrained.

Stores with 50-100 stores are embracing online more rapidly. This is because they have resource capacity and realise online selling offers them an increased footprint.

Larger stores 100+ are slower and are often impeded by franchise and organisational momentum.

Retailers who sell online

28%

42%

73%

1 store 2-10 stores 11-30 stores 31-50 stores 51-100 stores 100+ stores All

25%

71%

38%43%


Customer, Sales and Revenue outcomes

Online stores are becoming top performing stores

Many multichannel retailers commented that their online store is fast becoming a top performing store.

Leading multichannel retailers measure the online store relative to physical stores.

Someonlinestoreshavedevelopedintotheirownprofitcentres,thereforereinvestingbasedonprofit.

Online’s share of revenue can be high for smaller retailers

Inthemajorityofcasesretailersconfirmthate-tail sales are less than 5%.

Some smaller retailers are recording a much higher e-tail sales share.

33% of retailers with 100+ stores do not know how much online sales contribute to their total salesrevenue,whichsuggestsitisnotsignificant.

40%30%

44%

Less than 3%

11%17%

22%

50%

3-5%

20% 19%

0% 0% 0%

32%

5-10%

10%

0%

14%20%

10-50% 50-99%

20%

0% 0% 0%

100% I don’t know

1 store 2-30 stores

31-100 stores 100+ stores

One in five retailers say 60-99% of their customers are active online shoppers

Retailershavesaidsignificantnumbersoftheircustomer base are active online shoppers.

20% of retailers surveyed said that 60%-99% of their customers are active online shoppers.

Only 4% of retailers believe none of their customers shop online.

31% of the sample did not know – which indicates many retailers are not actively considering this metric.

2%

31%

I don’t know

100%

20%

60-99% 40-60% 20-60% None

9%10%

10-20%

7%4%

17%

Less than

10%

0%10%

33%

7%


The barriers & enablers to growth online

In the next 18-24 months, the online landscape is going to be significantly different to what it looks like today.

At the moment, there are not that many big brands trading online, and I guess the consumer is probably thinking, “Why isn’t X brand or Y brand online?”

It’s exciting that some major players are now making the decision to venture into the online space ... it’s going to give consumers more confidence to shop online.

—FOOD RETAILER

“

SECTION 2


Retailer barriers focus on systems, supply chain and people

Systems integration and supply chain management are the most common barriers.

While several retailers are moving towards dedicated internal resources, there is still a lack ofsufficientexpertise.

Barriers

Mean rating of current retail systems

Integration of systems with existing business model

Changes to supply chain management

Internal skill sets in e-commerce

5.0

4.7

4.6

Physical distribution of goods

Organisational resistance to change

Franchisee pressure

4.4

4.4

4.3

Fulfillmentmanagement&customerexperience

Buying products that are conducive to online selling

4.3

4.0

3.9Warranty & returns management

Measuring ROI

Management support

3.9

3.7

5.9Other

Customer barriers are relatively low

Australian retailers believe customers are fairly comfortable with buying online.

Shipping costs were nominated as the biggest barriers to customers shopping online (but

thisismorereflectiveofAustralianretailercompetitiveness, rather than a consumer barrier).

Mean rating of customer barriers

4.1

3.8

3.7

3.7

Shopping online

Payment concerns

Security of personal information

Spam concerns

1.0 7.0

1.0 7.0


Overall, organisations are placing greater priority on the online channel

Retailers are placing greater priority on:

Resources: especially people – some retailers are moving towards creating a multichannel division. However, there are significantproblemsinsecuringexperiencedskilledstaffforonline e-tailing.

Systems: mainly backend and support infrastructure. Retailers are thinking more deeply about multichannel integration, as opposed to stand alone e-tail businesses.

Budgets are being allocated, but this tended to be tied to short term marketing/ sales performance.

Strategy development

Organisational structure is evolving

The composition of the digital/ online team within an organisation differed across retailers.

Savvy retailers were looking to recruit multichannel directors/managers and also attempting to create cross-functional teams.

Sometimes a stand alone unit had been created within the organisation, with the common reporting line to general management.

Often the structure remained within the marketing team.

Support typically still sits within marketing, but in some instances it lies with senior management.


Online strategy development is shifting away from the Marketing Department

The Marketing Department is still the most common area from which the online strategy is developed, however it is substantially lower than in 2010.

Slightly more retailers are managing the online strategy across multiple departments.

36%

51%Within the marketing department

27%

22%Across multiple departments

20%20%

Within a standalone business unit

14%8%

There is no organised online operation/function

3%0%

Other

2011/12

2010

Although strategy is driven primarily by senior management, an abundance of external resources are being used

Senior management

Agencies

67%

70%

37%

36%

Technical support

Other internal staff

31%38%

38%30%

External industry contacts

e-tailing specialists

21%24%

5%

20%

We do not obtain support

External industry contacts

14%

10%

13%

External retailers

Senior consultants

Industry bodies

Other

3%

2%

2%2%

9%

13%

15%

9%

Only 14% of retailers do not engage external strategy support.

36% of retailers rely on agencies.

31% use external technical support.

Consultants play a minor role, at 9%.

2011/12

2010


Smaller retailers are prioritising online spend

Over 20% of larger chains have their online budget sit outside of Marketing.

29% of retailers with 100+ stores dedicate up to 10% of their marketing budget to online.

65% of retailers with 31 – 100 stores dedicate up to 10% of their marketing budget.

Over 30% of small chains and single stores dedicate over 10% of their marketing budget to online.

5% 6%13%

0%

I don’t know

4%

None

9%

22%

6%0%

17%

34%

17% 17%

65%

29%

Up to 10%

20% 15%

37%

0%

17%

10 to 20%

17%

33%

26%

0%8%

More than 20%

Online retailing — % share of total marketing budget Total 1 store 2-30 stores 31-100 stores 100+ stores

25%

Budget does not sit within marketing

23%

9%

22%

100+ stores

31-100 stores

2-30 stores

1 store

16%Total


Retailers’ plans for 2013+

The online channel is extremely important – number one.

It has become a new revenue channel for the business; 12 months ago we weren’t trading online.

It’s become a profit centre in its own right. We are seeing it as one of the channels that is going to give us significant growth over the next 12 – 24 months.

—ELECTONICS RETAILER

“

SECTION 3


83% of retailers will spend more on online

Retailers expect the share of advertising budget allocated to online activities will increase over the next 3 years.

There is clear evidence from this study that retailers will be spending more on capital development as well as marketing.

Budgets

It will decrease

It will remain the same

It will increase

3%

14%

83%

Survey on budget allocation

Email marketing, SEO and online catalogues are the most important tools for advertising and promotion in 2012/3

Retailers were asked to rate the three most important digital tools for the next 12 months.

The top 3 are:

• Email Marketing• SEO• Online catalogues

But there is also clear evidence that retailers are increasing spend across a variety of online advertising vehicles (e.g. online coupons).

Email marketing

SEO

60%

67%

57%56%

Online catalogues

Banner advertising

37%47%

24%

28%

Social networking widgets

Online coupons

28%

24%

16%

19%

Mobile marketing

Online video content

18%

17%

17%

SEM

Ad networks

Click-through advertising

Syndicated content

4%9%

9%3%

12 %

2%

36%

Affiliateprogrammes12%

3%

2011/12

2010


Advertising and enabling e-tailing are key focus areas

The main focus areas for online for the next 12 months are:

• Enabling online selling

• Advertising and promotion

• Increasing retail brand awareness online

Goals and strategies

Enable online selling

Advertising & promotion

None of these areas

Main focus areas for online in the next 12 months

2011/12

2010

31%

41%

25%

45%

16%

4%

16%

7%

Increasing retail brand awareness

Optimisethemix/efficiencyofadvertising options

4%

10%Encourage post-purchase interaction

Retailers will focus on online sales and leveraging insights

Retailers are focused on increasing sales through the online channel:

• As it enables an extended footprint.

• To retain some of the online dollars spent with overseas online retailers.

• To convert online customers into purchasers.

Many retailers plan to gain and leverage customer insights:

• By leveraging their online/social community using survey tools and social media posts.

• Using consumer reviews.

• Integrating CRM programs to improve offerings and communication.


Drivingtraffictowebsite

Drivingtraffictophysicalstores

Building a customer database for marketing

The most important online advertising strategies in the next 12 months

2011/12

2010

88%88%

85%69%

44%62%

41%56%

23%15%

Building an e-commerce capable website

Establishing a dedicated internal online division

19%

10%Other

Driving traffic to both physical and online stores are the most important online sales strategies

Respondents were asked to rate the three most important online advertising strategies for enabling online selling for their organisation in the next 12 months.

As in 2010, the most important strategies in 2012 were:

• Drivingtraffictostores

• Traffictowebsites

• Building customer databases

18% of retailers believe group buying will impact them in 2012

Respondents were asked if they perceived buying groups as having an impact on retailing for the year ahead.

Only 18% believed there would be an impact, whilst 41% were unsure.

18%

41% 41%

Perception of buying groups’ impact on retailing for the year ahead

Yes, some effect

No, no effect

Don’t know


The reality is, businesses that don’t embrace online in the next 12-24 months won’t have a business in the long run.

Executives in most organisations are now realising that they need to be online. And it’s not good enough just to have a presence nowadays ... Consumers out there have an expectation, and unless you are serious about it, they’re going to work out pretty quickly that you’re not serious about the channel and they won’t engage with you. Ultimately that will affect your bricks and mortar business.

—ELECTONICS RETAILER

“


Sponsors & acknowledgements

Reactive is a digital agency specialising in strategy, creative, technology andmarketingwith100staffacrossourfiveofficesinMelbourne,Sydney,London, Auckland and New York. Our reputation is one of excellence and innovation in the online channel—evidenced not only by the quality of work that we do but also by the results we achieve for our clients. Over the past fifteenyears,wehavedesigned,builtandmarketedeCommerceWebsitesfor some of Australia and the world’s most prestigious retail brands, such as Rip Curl, General Pants Co, British Airways, Bras N Things, GAZMAN, Crumpler, Berlei, Emu Australia and Tesco.

reactive.com

The iNC Network is the largest digital catalogue distribution network in Australia, reaching in excess of 4 million Australians every monthacross multiple digital devices including pc, mobile and tablets. We work with Australia’s largest store retailers to reach online consumers whether they are in their home, in transit or at work, to drive both off and online sales. iNC is part of CC Media and the APN News Media Limited.

The Australian Centre for Retail Studies (ACRS) is an independent retail and consumer research centre based within the Department of Marketing in the FacultyofBusinessandEconomicsatMonashUniversity,CaulfieldCampus.TheACRS provides a range of research and consulting services to the private sector and government clients, with a particular emphasis on retail and consumer research. Research priorities are developed in consultation with industry clients and promote research-based knowledge and thought leadership.

incnetwork.com.au/

AIMIA would like to acknowledge the AIMIA Victoria committee, the AIMIA Retail Industry Group and Janine Wiedermann (report editor) and Dr Sean Sands from the ACRS in combining to produce this report.

If you would like more information regarding this report, to inquire about sponsorship of the 2013 report please contact: Robert Wong – AIMIA Retail Industry Group Chair—[email protected] 0419238768—or www.aimia.com.au

Sponsors

Acknowledgements

australian retail adoption plans for online advertising and e-tailing

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