Internet-only retailers start to slow

According to the Commonwealth Bank of Australia’s (CBA’s) analysis, online sales for multi-channel retailers – those with both an online and brick-and-mortar offering – increased 22 per cent over the past year. Sales for internet-only retailers rose 13 per cent, a significant decrease from October 2011 when sales increased 107 per cent. 

The report, based on $1.3 billion in credit card transactions across two million CBA customers, also showed that, for the first time, more than 50 per cent of the analysed online spending was made at multi-channel retailers.

Analyst Andrew McLennan stated in the CBA research that multi-channel retail sales growth would likely “continue to outpace pure play [internet-only]” because its primary driver was new customer acquisition.

“This [new customer] conversion process remains in its infancy compared to pure-play online retail customer growth and suggests the outperformance of omni-channel [multi-channel] will persist over the medium term,” he explained.

Brian Walker, founder and CEO of the Retail Doctor Group (RDG), told Jeweller that the CBA’s findings were consistent with those of RDG’s consumer and retail insight division. 

“Research from RDG Insights shows that a retailer set up with an omni-channel platform – that is, a physical store, an online site, social media, and all the traditional advertising mediums – will typically trade four times greater than a retailer that is only online, or that only has a physical store,” he explained. 

“By and large, people want a physical experience; however, an online presence is becoming increasingly important for pre-purchase research.”

Walker said that another trend that was beginning to emerge was a “maturing and rationalisation of online”. 

“I think we’ll see pure-play online retailers starting to close, because it’s all about volume and scale. The ‘Amazons’ of this world will continue to grow, but the smaller, pure-play online retailer will find that having a website and nothing else is a very challenging business model. Ultimately, many will not survive that.”

While McLennan acknowledged in the report that the weakening of the Australian dollar might have impacted the rate of online sales growth, he said “there is little doubt that omni-channel retailers have regained their online mojo as consumers return to the domestic brands”.

This news might come as relief for jewellery retailers, given the growing concerns about international websites that sell heavily discounted online-only products. However, Walker said that the threat of international competition would never truly leave.

“Jewellery has some higher barriers to entry [by international competitors] compared to other retail categories. For example, if we look at the more well-established jewellers, they’re very much based on aspiration and heritage, and they’ve got good location advantage because they’ve been here a fair while. But I wouldn’t suggest for a moment that there isn't always an international threat.

“Australia’s an attractive market because of our GDP. Our economic position is relatively healthy, compared to other countries – particularly the US – so there’s always going to be the threat of international competition,” he explained.

Walker suggested that jewellery retailers that only have a brick-and-mortar store would benefit by evolving into a multi-channelled business.

“86 per cent of all big ticket item purchases are pre-researched online,” Walker stated. “Social media has a much bigger influence on consumer perception and behaviour than we might consider; human beings are motivated by peer group and community opinion.”

According to Walker, multi-channel retailers are appealing to consumers because it allows them to do business with the retailer at any hour, from anywhere in the world. He said consumers like to be able to research the business via its website, view catalogues both physically and online, look at social media and see what people think of the business and its products, and most importantly, have a positive experience when they visit the physical store. 

“Physical stores, particularly when it comes to jewellery, gives consumers more of a sense of trust and security about their purchase,” Walker said, emphasising the importance of retaining a physical presence.

According to Walker, the key for jewellery retailers looking to maximise their multi-channel platform is integration. 

“Focus on your physical stores. Make sure that each in-store experience is wonderful, that you have great merchandising with products beautifully presented, and that you have attentive, productive staff. But also have a good online offering that provides up-to-date information and shows a point of difference,” he advised.

Walker added that it was important to recognise that an online presence acts as a valuable research tool, so it is essential that retailers ensure online information is integrated with their physical presence.

“We're talking about having 24/7 brand touch points, ensuring that consumers have as many ways as possible to get in touch with your brand – they can see you online, watch you on television, listen to you on the radio, be on your database, have your catalogue delivered and, of course, visit your physical store,” he said.