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7.6 billion reasons for retailers to invest in digital innovation

7.6 billion reasons for retailers to invest in digital innovation

Why has the performance of Australian businesses in the field of digital innovation fallen so far behind their counterparts in the UK, USA and many other countries?

Part of the answer lies in the impact of the GFC and the response to its aftermath in different economies. The Australian economy performed relatively strongly in the early years following the GFC. Most other OECD economies, including the USA and the UK, were much harder hit. Businesses in these countries were faced with deep economic recession, shrinking markets and intensified competition.

The impact, based on analysis of previous recessions as observed by McKinsey and others, was predictable. Some businesses failed, some survived, and some thrived. Big changes in competitive positions occurred. As in other recessions, the “winners” have been those firms that made significant investments in marketing and innovation.

What was different this time is that much of the winners’ investment has been in digital innovation focused on e-commerce and online marketing. These technologies opened up markets in new consumer and geographical segments, including Australia. In other words, the GFC forced companies to adapt or die. The foreign companies that adapted have created a new global paradigm, a paradigm that has given them a big bite of the Australian retail and consumer goods market. Sure, a relatively strong Australian dollar gave importers an advantage, but the way they capitalised on that advantage was new and powerful.

A PwC and Frost & Sullivan report forecasts Australian online shopping expenditure will be worth $26.9 billion by 2016 (and many think this figure is vastly underestimated), taking a bigger slice of overall retail sales. Worryingly for slow movers, local retailers will face increasingly fierce competition from offshore, with up to 45 per cent of total online spend going overseas. The report’s conclusion is stark; those retailers that do not move to the new model will not survive.

The competition from offshore e-commerce based retailers was brought even more sharply into focus last year when the Australian Bureau of Statistics started to include purchases of less than the “low-value threshold” of $1000 in their data. This adjustment showed purchases made on international websites sat at $7.6 million for the 2012/2013 financial year. And this has been increasing at 20 per cent per annum. In an interview for ABC news back in October 2013, CommSec chief economist, Craig James, said “If you average that $7.6 billion out across the 23 million people that we have here in Australia, you basically get something like $330 for every man, woman and child”.

Relentless pressure


This relentless market pressure has finally led to a change in attitude for the Australian businesses community. Some retailers have taken the plunge and it is paying off. Myer, David Jones and Coles have seen online sales increase to somewhere around 2 per cent of sales over the last 12 months as they improve digital execution. There is still a long way to go, with foreign companies like John Lewis and US Chain Neiman Marcus generating 25 to 30 per cent of their sales online.

To understand how to be successful, Australian retailer and consumer businesses just need to look to successful digital foreign competitors. There is a lot to learn. Modelling their behaviour and response to the disruption they are facing on these new foreign competitors is a good place to start. Their focus on customer relationships, customer experience and the success that brings is a great lesson. Success does mean an aggressive investment in digital innovation and marketing. The alternative is to become the proverbial ‘roo in the headlights, and no one wants to end up as road kill.

As Craig James said in that same ABC interview “It may not be the case that Australian retailers can offer the lowest possible price, but if they can provide additional benefits through service and the like, it may be that Australians are more tempted to continue to buy here in Australia, rather than buying abroad”. And this is where really focusing on digital innovation comes into play.

Australian businesses are some of the best in the world. It is time more Australian firms wholeheartedly embrace digital innovation and become world class in that arena. It would be great to see our “thrivers” take a decent bite out of the overseas market while they are at it.

*Original Article by Mark Cameron: