The big problem with the $22 billion online retail industry

ONLINE shopping is a $22 billion business in Australia but retailers need to sort out this irritating flaw.

IF you ever shop online, you’ve probably experienced this: reaching the checkout screen after choosing your perfect $30 item, only to find that shipping costs almost as much.

It’s a frustrating experience and the new figures show just how urgently retailers need to up their game, particularly with Amazon bursting on to the scene.

Australians spent $22.23 billion on online retail in 2016-17, and our expectations are even higher than those of shoppers in the United States, according to research by shipping software platform Temando.

As many as 65 per cent of consumers said they had abandoned their cart due to the high cost of shipping, and a bad shipping experience is enough to put off 59 per cent of customers from shopping with that retailer again.

Online stores need to offer us better and more flexible delivery options to compete with Amazon, say retail experts.

“We’ve seen a widening gap between what users are expecting and retailers providing,” Temando CEO Carl Hartmann told news.com.au. “Australians are pretty well educated, they get the value of this. The future belongs to whatever retailer can close that gap.”

With so many of us working 9 to 5, consumers need control over delivery — whether that’s a timeslot, after-hours delivery, hyperlocal delivery or a collection point. These on-demand options are currently offered by less than a quarter of retailers in Australia, according to the State of Shipping in Commerce survey. “There’s no silver bullet, the wider the variety the better,” says Mr Hartmann.

We also want transparency over how much shipping will cost. Free shipping is our biggest priority when it comes to deliveries — 68 per cent of shoppers said they would shop more online for free shipping, with up to 65 per cent willing to increase their spend to qualify.

Yet only 26 to 39 per cent of retailers use “free shipping with a minimum spend” as a conversion tactic, according to the survey of 258 retailers and 1279 online shoppers in Australia.

Most of us do our online shopping on a computer, but smartphones are catching up.

We’re willing to spend more for a “premium experience”. Enter Amazon, where users can order on-demand toilet paper to be delivered within two hours in a specified timeslot. “It’s remarkable,” says Mr Hartmann. “Amazon sets the minimum bar high really and well, the baseline expectation for the consumer elevates. If you can’t satisfy that, the consumer will shop elsewhere.”

Fashion retailers including The Iconic are leading the way with delivery within three to five hours to Sydney or Parcelpoint collection locations. Woolworths has also partnered with Australia Post to install more than 500 24/7 “click-and-collect” parcel lockers.

Then there are returns — 45 per cent of us would shop more online if offered free and easy returns, of the kind offered by retailers such as ASOS, and want to able to drop off at physical stores if the retailer has them. Just over a fifth of retailers offer free shipping on returns.

Despite the convenience of online shopping, Australians have not embraced the model and shunned physical stores to the extent that was predicted early on. The $22.23 billion spent online is dwarfed by the $296 billion spent in bricks and mortar stories. While four in 10 of us have bought a product online in the past month, just three per cent of us buy our groceries online each week.

What Baby Boomers (blue) and Gen Zs (orange) buy most online.

There are still some huge opportunities for growth in online retail, with sales of takeaway food, toys and media soaring.

Australian retailers are still shipping low volumes, with 43 per cent shipping between 21-100 deliveries and 35 per cent shipping between 101-1000. But that’s all set to change.

We’re expecting real-time shipping experiences such as live inventory views and Uber-style driver tracking in the near future. The highest online spenders are already embracing hyperlocal grocery delivery and 68 per cent are regularly using Amazon, even though it hasn’t yet launched its Australian warehouses.

The key is science and tailoring, according to Mr Hartmann. Offering a premium delivery fee at a flat rate doesn’t necessarily work if customers are spending different amounts or located in less accessible areas — you might need to work with a percentage.

“With complex delivery models, technology is key,” said Mr Hartmann. “Australian retailers have all the puzzle pieces but need the technology to execute it.”

HOW AUSTRALIANS SHOP ONLINE

• Millennials are the highest adopters of online shopping at 48 per cent, with Gen Z at 29 per cent

• The average online monthly spend is $182

• 81 per cent of millennials shop on eBay

• 60 per cent of millennials increased their shopping on international sites this year

• The average basket size is $184 for millennials

• Men are more likely to be high spenders than women, spending on average $301 on their most recent purchase compared with $207 for women

• More than half us use “webrooming” (look online, buy in physical store) or “showrooming” (look in physical store, buy online)

Originally published as The big problem with the $22 billion online retail industry