x0004 online shopping in australia industry report

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]

WWW.IBISWORLD.COM.AU Online Shopping in Australia January 2014 2

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.


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


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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SOURCE: WWW.IBISWORLD.COM.AU

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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


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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


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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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.



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



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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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.


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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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



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


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



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


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.


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.


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



17.7%People aged 55 years and over




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.


Products & Markets


TAS2.3

WA11.5

QLD19.3

VIC23.6

NSW33.2

NT1.2

SA6.8

ACT2.1

Revenue (%)

Cold Zone (


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



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:


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




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



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


Level & Trend Globalisation in this industry is Medium and the trend is Increasing


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%


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


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


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.


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


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


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


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



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



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.


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



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

x0004 online shopping in australia industry report

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