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Some of Australia’s biggest retailers have recently spoken out at a conference in Melbourne saying that while selling online has the benefit of lower overheads, it is not yet as profitable as traditional bricks-and-mortar retailing.

Despite frequent reports on the demise of traditional retail and the rise of online shopping, ecommerce still only represents a small fraction of consumer spending.

For example, Officeworks managing director Mark Ward recently announced that online sales actually only accounts for 10% of his chain’s annual profit:

We are selling more online than we ever were before... we are selling more units; we have more transactions going through our entire business. But we are selling them for less, as basket sizes have come down because we have made life so convenient for the customer. 

That’s not a bad thing, but it does have implications for your profitability because your supply chain is under more pressure than ever from selling more baskets, more often.

Myer’s managing director Bernie Brookes agrees with this, but also says that while online retail may not be bringing in the largest share of profit right now, in the future it could potentially overtake bricks-and-mortar stores due to lower staff and rental costs. 

Retailers heading online

A report last year from IBISWorld predicts that the revenue to Australian online retailers will reach $10 billion in the next 5 years, increasing 8.6% each year. 

Yet some Australian retailers are still struggling to get their head around the online world, choosing to apply the wait and see method when it comes to e-commerce.

Big W’s managing director Julie Coates says this can’t be done, stressing that moving online is vital.

You’re setting yourself up for the future, not for today, and you need to be in it now if you’re going to build and learn to create the multi-option future for the customer.

Coates believes that online selling should be integrated into the rest of the business, rather than operated as a separate division, and stresses that retailers will need “resilience, patience and courage” to make it through the early years of online retail. 

E-tailers heading offline

While traditional retailers grapple with the online shopping phenomenon, online retailers are starting to head offline, in an attempt to better display their products and gain consumer attention. 

Shoes of Prey, an online retailer that allows consumers to create custom designed shoes, is one of these stores heading into the bricks-and-mortar world, teaming up with department store David Jones so that they can display their products without having to open an entirely separate store. 

David Jones has set aside specific space within its store for the shoe company, giving consumers the opportunity to browse examples of custom-made shoes that can be purchased from the site. 

Tablets are even on hand to allow shoppers to create their own shoes while in-store.

Jodie Fox, Shoes of Prey co-founder, said she believes this move will be a profitable one, and said that her company will always act in the best interest of their customers. 

I actually don’t think the strategy is about marrying or integrating the experience. For me, it’s about a seamless experience, and I believe in what the customer needs and wants, and then finding the most innovative and optimal way to solve the problem.

Another example of this can be seen with Bonobos, a US online retailer that aims to provide men with better fitting clothes.

Realising that their website was excluding men that wanted to try before they buy, the e-tailer opened a bricks-and-mortar store specifically designed to serve as an extension of the Bonobos website. 

Their bricks-and-mortar store has staff that works one-on-one with customers during booked appointments to create an intimate and personalised offline experience. 

The store is inventory-free but offers a full range of merchandise and sizes for customers to try on, allowing the company to avoid any of the issues that comes with carrying inventory. 

After their appointment customers are emailed their size and clothing information, which is also kept on file with the store, and Kaitlyn Axelrod, senior PR manager at Bonobos, says that so far the strategy of having both an online and offline presence is proving incredibly successful.

On average, order values in the Guideshop stores are double what they are online. Return rates are lower and repeat transactions happen in a shorter time period.

Marrying online with offline

Brian Walker, Retail Doctor Group managing director, says this new trend of e-tailers moving offline shows that businesses are finally starting to understand the importance of using both retail domains to reach consumers.

Eighteen out of the top 20 online retailers in the United States have physical stores to support them, so it’s a pure cross-channel play. 

They are doing exactly what the market is wanting them to do, and that is have a physical, tactile experience as well as the efficiency and process of an online one. 

Thinking about the future, retailers will really need to embrace both online and offline models in order to capture a wider segment of consumers.

Offering just one model excludes many potential customers and potentially may leave companies competitively behind the pack. 

[Image credit: kokogiak]

Claire Brinkley

Published 21 May, 2013 by Claire Brinkley

Claire Brinkley is Econsultancy Australia's news and insight reporter. Follow her on Twitter, Google+ or connect with her on LinkedIn

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