A recent report on ecommerce in New Zealand by PwC and Frost & Sullivan, shows online shopping will boom to a record NZ$2.68 billion in 2011. That is a massive increase of 12 percent from 2010. As traditional retailers struggle in the recession, online shopping will account for 5.1 percent of all retail sales in the country. It is estimated that $910 million (34%) of all sales will be to offshore online businesses.
The convenience, superior pricing and product choice is difficult to compete with for both large and small “bricks and mortar” retailers.
Smart phones and tablets bring us ever closer to online shopping and with the huge growth in these kinds of devices, we will see continued growth in this sector. At a recent Google conference I attended, a speaker there was discussing to track mobile traffic on your website and he mentioned that the increase in mobile phone and tablet use for internet browsing was around 16,000% in the past three years. Sure, this big number is due to the lack of use previously, but growth will still be in the hundreds of percent every year for the near future.
According to PwC’s Global Retail & Consumer Advisory Leader, Stuart Harker, “large and small retailers alike are facing stronger than ever competition from digital channels, both here and overseas. Lower prices, convenience, greater product range and growth in mobile devices are all factors fuelling online shopping.
Frost & Sullivan’s senior research manager Phil Harpur said that online shopping, both locally and offshore, is expected to show strong growth over the next four years, reaching $4.22 billion by 2015. This is a projected 12% compounding growth rate. New Zealand and Australia are very similar for online shopping use but are still far behind the USA and the UK.
- 82 per cent of online shoppers said they would increase or at least maintain their current level of online expenditure next year.
- 38 per cent of participants said they were using smartphone or mobile device such as a tablet to buy products online
Can traditional retailing survive?
I see this challenge to traditional retailing as similar to the shift in the last 20 years or so from owner-operated shops to big-box shopping malls. There has become no middle ground, either you are big, or you are boutique. Now, online shopping presents another difficulty. Boutique is no longer good enough if there is someone online offering a competitive product, more conveniently and at cheaper prices. You also have to be a specialist or innovative.
To give you an example, there was a local boutique shoe store that recently closed after being a well-known prescence for many years. The recession was certainly a factor but the recession also drives people to seek cheaper alternatives. My Wife liked a pair of boots in this store but they were $520. Choking on my lunch, I told her that the boots were overpriced for the brand and she should try online. While the store was boutique, the product was not. An hour later, she had purchased the same pair of boots from an online store in the UK for $85.
What’s the solution for traditional retailers?
The moral of the story is that no matter what a retailer does, they can’t continue to sell a budget product at a boutique price in an online economy and expect to survive. Boutique stores will have to specialise or offer some added value to draw people in. That’s why we’re seeing coffee shops pop up in book stores. You can’t do that online!
If I were a retailer, I’d question the viability of continuing to have a physical shop. Clearly, many have done this as there are empty retail premises all over the place. If I did decide to keep a shop, I’d try to come up with a way to make it unique.
- Can you add value?
- Can you do something no one else does?
- Can you sell something no one else can?
If not, close down now and save yourself time, money and stress, because if you’re selling the same thing someone else can online, you won’t be able to compete with them without changing.
The answer might be to move online entirely or compliment your physical shop with online services and support.