In 2009, eCommerce in Australia is expected to generate around $18 billion in sales. That’s a lot! But it’s still only a fraction of what is sold in more traditional channels such as retail stores. Still, I know what you’re thinking…it would be good to get a bit of that action, yes? The decision whether to sell online, and to what scale, is a difficult one. While many elements and variables in the decision are unique to each retailer, there are a number of common factors in the decision. I have explored five of the compelling ones below.

1. Your shopper has, for all time, changed
Just like those in many similar countries, the Australian shopper has evolved quickly in three fundamental areas that every retail marketer should be aware of.

Firstly, the nature of the media they consume and style in which they consume it has changed dramatically. Online has quickly moved up to challenge TV as the most-consumed media in the Australian household. A report released by Nielsen earlier this month claims that online has already taken over TV, with an average of 13.7 hours a spent week online compared to 13.4 hours watching TV. While there is some question over the methodology, covered briefly here, the can be no denying the trend: all major media is down, except online. This rise in online amidst the decline and fragmentation of the major media means a more challenging landscape for marketers, and one that must include online media.

Secondly, online has quickly become the key media to influence what people buy and from where. The Australian Centre for Retail Studies and Google combined to research Australian shoppers in early 2008. The results showed that half of Australian consumers use online to research what to buy and from where, in other words to pre-shop, prior to going into store to buy. Covering consumer electronics, entertainment and computers, a quarter of the shoppers nominated online as their most crucial research tool, well ahead of other media.

Finally, there are many shoppers (and many more coming) who want to buy online. Why? The key reasons, according to Forrester Research, are firstly convenience, then selection and then price. I remember my very first marketing lecture in 1986 (yes, it was called Marketing 101) where the opening subject was “give the customer what they want”. If they want to buy online; then this is a good argument for you to start selling online. Otherwise…

2. You will lose sales and market share if you don’t sell online
Moving online opens you up to an entirely new set of competitors. Leading retailers like Deals Direct did not exist five years ago and today have more online customers than any of our traditional retail brands. Competition has also come from offshore, something the US eTailers are determined to increase, with 53% (Forsee Research) of them able to deliver to Australia. We know that Amazon is the number one online bookseller in Australia and Apple is the dominant music retailer. However there are also large players in areas such as cosmetics, apparel, jewellery and accessories. There is also a growing move to manufacturers selling direct online.

3. Your customer base will be more loyal if you sell online and will buy more in-store
To turn point two above into a positive, selling online will mean you will increase your sales. Online will reach further than your store can; will appeal to those who want to buy online; and will give you more visibility to those researching online. However, it is important to remember (though this is less understood) that selling through multiple channels will have a positive impact on your customers, their loyalty and their spend. Much of this influence online will have will have a positive effect on your in-store sales as well.

There is a significant amount of real data from research and retailers showing that a customer who interacts with a retailer through multiple channels will buy more frequently and will have a larger basket size. The major impact will be on your store sales. JC Penney published figures on the average spend of its customers, showing store sales to be twice as great for customers using two channels instead of one and up to four times higher for customers who interact across their three main channels (online, in store and catalogue). This is supported by research from Dieringer conducted online, which found that shoppers spend +60% more ($400 vs. $250) and buy two more items (five vs. three) at local stores than they purchased directly online.

4. Online sales is the fastest growing retail channel, and continues to grow in the current climate
According to eMarketer, 49% of Christmas 2008 gift spending among US Internet users occurred online, compared with 44% in stores. This is significant because it is the first time that the web has surpassed the store as the preferred channel for Internet users to purchase holiday gifts. Along the same lines, results from both the US and UK over the recent months show that while online sales are slowing in growth, they are still growing month-by-month. This is in stark contrast with store sales. According to Euromonitor Intl, since 2001 the combined annual growth rate of Internet retailing has outstripped every other retail category by close to three times. The channel is healthy moving forward.

5. The online channel can be more profitable
Because of the nature of selling online, the fixed costs remain relatively stable as revenue grows. What is less understood is the efficiency of marketing and the ability to eliminate any wastage in this area and the impact this can have on increasing your profitability. In a future column I will focus on this topic in some detail, however quite simply the equation is this: if you know your conversion rate (percentage of people who buy), your average basket size and your margin, you can engineer your marketing to achieve a certain return. This allows you to eliminate marketing wastage and retain a strong profit margin on your sales.

So there are some good reasons to sell online. In a future column I will explore some of the potential hurdles of starting e-commerce in Australia, and hope to suggest a few ways to overcome these.

If there is a topic you are interested in me exploring further or have any feedback, please email me.