Covid boosts Chemist Warehouse online sales

Discount chemist chain Chemist Warehouse has doubled its online sales during the COVID-19 lockdown period.

Jack Gance says Chemist Warehouse’s online business ‘has been escalating pretty strongly’. Picture: Aaron Francis

Discount chemist chain Chemist Warehouse has doubled its online sales during the COVID-19 lockdown period as customers shift to ordering healthcare products, hair care and other health essentials online, according to co-founder Jack Gance.

In an interview with The Australian, ahead of his appearance at the e-commerce summit on Wednesday, Mr Gance said Chemist Warehouse had seen its online sales boosted to about 8-9 per cent of total turnover of nearly $6bn since the onset of COVID-19.

While he expected this could come back a little once COVID-19 restrictions were eased, he said it would not drop back to pre-pandemic levels as customers became more familiar with ordering online.

“Our online business has been escalating pretty strongly since March,” Mr Gance said.

Mr Gance said Chemist Warehouse, which has been offering online sales for the past 10 years, in addition to its 450 stores around the country, had been able to cope with the big increase in ­demand for online sales as it had installed a more automated warehouse near its headquarters in Melbourne’s northern suburbs about four years ago.

He said the Preston warehouse, which handled online ­orders for Chemist Warehouse customers across the country, involved the use of computerised “pick to voice” system where warehouse operators spoke into a computer about the different items required for an order, putting them onto a conveyor belt for final packing.

“Luckily, we had that warehouse management system in place, and we were able to double our turnover without a lot of extra labour,” he said.

But he said if online orders continued to pick up, the company would need to invest some $40m-$50m in a more automated warehouse handling system.

“The system we have at the moment is not the most automated,” he said.

“We still have a way to go.

“But if we did fully automate, we would need to spend about $40m-$50m, which would make it much more efficient.”

Mr Gance said he expected that the company’s online sales would “probably come back a bit” as COVID restrictions eased “but it won’t go back to pre-COVID times”.

“COVID has accelerated trends by as much as five years, including the decline of cash and the increased use of credit cards,” he said.

Mr Gance said popular products being bought online during COVID included face masks, hand sanitisers, thermometers and other health-related products as well as haircare products.

“People are not going to the hairdressers, so they are colouring their own hair and buying more shampoos,” he said.

Mr Gance said the increase in online orders had helped to offset the drop in shopping from Australian-based Chinese shoppers, called the daigou channel, who had often bought goods at Chemist Warehouse to send to friends and family back in China.

“Our daigou market has dropped away,” he said. “There are no longer many Chinese tourists and students here.”

Chemist Warehouse has a strong following on Chinese e-commerce giant Alibaba through its TMall Global platform.

The company has done well in the annual November 11 e-commerce sales day in Alibaba called Singles Day.

Mr Gance said Chemist Warehouse had registered $20m worth of sales on Singles Day last year in the first hour and almost $38m for the day.

The company, which records some $400m of its total sales in the China market, is gearing up for this year’s November 11 sales.

The company has plans to open about 100 bricks-and-mortar stores in duty-free zones in China as well as its e-commerce sales on Alibaba.

“We are looking forward to good growth in China, but we are taking it one step at a time,” he said.

Mr Gance said the economics of the online sales business were not as attractive as many people thought. While it did not involve rents and instore staff, it still needed staff and a warehouse to pack orders with customers also expecting free home delivery.

“People think that online sales are very profitable, and they can be,” he said.

“But it can be a difficult market because the margins are pretty slim.”

He said customers who came into physical stores also tended to buy more products, as they saw other goods they liked while they were shopping.

But he said online shoppers generally only bought the one or two products they were looking for.

But Mr Gance said Chemist Warehouse believed it had to have an online offering to be ­competitive.

“You have to provide it, because otherwise, if you don’t, someone will eat your lunch,” he said. “You have to be there.”