Digital dimes eat into analog dollars as online shopping comes of age

The attraction of lower prices, convenience and broader product ranges is swelling the ranks of Kiwi consumers choosing to shop online, both locally and on international websites. And, according to a report on the Australian and New Zealand online shopping market published by PriceWaterhouseCoopers and Frost & Sullivan, almost half of the New Zealand population will do just that in 2011, with each shopper spending an average of almost $1,400. 

Online retail now accounts for 5.1 percent of all retail sales in New Zealand, which puts us on a par with Australia. We’re still well behind markets such as the USA and UK, however, where online now accounts for 7.5 percent and nine percent respectively.

“Online shopping, both locally and offshore, is expected to show strong growth over the next four years, reaching $4.22 billion by 2015,” says Frost & Sullivan senior research manager Phil Harpur. “This represents a compound annual growth rate (CAGR) of around 12 percent.”

82 percent of online shoppers indicated they would increase or at least maintain their current level of online expenditure in the next 12 months (compared to 86 percent in Australia) and more than a third were using smartphones or tablet devices to buy products online.

“New Zealand’s retailers are now competing on the global stage and need to embrace the fundamental shift in underlying business models caused by the digital revolution,” says PwC New Zealand retail partner Julian Prior.

“As online retailing continues to grow, some retail sectors are more at risk than others,” the report says. “Retail sectors that are non-food are more vulnerable to offshore online retailing and these include clothing, footwear, gaming, books, magazines, recreational products, cosmetics etc.”

The study showed New Zealanders have particularly high adoption rates of social media, with 81 percent of online shoppers in New Zealand using Facebook within the last year, compared to 76 percent in Australia. Added to that, more than a third of all online shoppers in New Zealand currently follow an online shopping site on Facebook, compared to 26 percent in Australia.

Group buying sites are also becoming increasingly popular in New Zealand, with nearly half of online shoppers having used a group buying site in the past year.

There’s been much wringing of hands and gnashing of teeth from aggrieved bricks and mortar retailers about the ability online retailers have to undercut their prices and the fact that many purchases don’t attract GST. The report says one third of all online sales were expected to go to offshore retailers, but “while price and range remain the key drivers for growth in overseas online shopping, very few respondents (<1%) cited that they shopped overseas to avoid GST. Our survey findings indicate that the price differential between local and overseas retailers is far greater than the 10 percent rate of GST imposed locally”.

Of course, it’s not just about buying: 95 percent of online shoppers in Australia searched the web for product information, price comparisons and peer reviews before making a purchase online and over 65 percent of in-store purchases are initiated on the web.

In a special section in its monthly economic indicator report, the Treasury said the internet was coming of age economically and was unleashing its power at the right time during a retail downturn. Online competition is also likely to lead to lower inflation over time, it said.

“Consumers’ ability to find bargains will drive a competitive response among firms … As a result, someone, somewhere on the internet is bound to be having a sale.”

Treasury said a survey by Australia’s Macquarie Bank showed the number one reason for online shopping was price (55 percent), more than double the next reason (convenience at 25 percent). “One can assume that New Zealand online shoppers share similar preferences.”

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Despite all the hype around all things digital, however, there’s still a long way to go before it infiltrates some of the the more traditional business areas, as evidenced by a recent MYOB study that showed less than a third of Kiwi businesses have a website, and the vast majority of those without had no intention of establishing one.

“The general lack of an online presence by the large retail chains in New Zealand and in Australia over the last decade has been a significant factor for a relatively poor uptake of online shopping within this region,” Prior says. “Retailers that are able to engage customers through multiple channels will build a deeper relationship than through a single traditional store channel.”

According to Statistics New Zealand, the highest percentage of online purchases are made by the 25-44 age group.

“Interestingly, the 15-24 group’s third ranking is unlikely to be due to low internet skills, but rather their lower purchasing power and also because many may not possess a credit card for online purchases,” Treasury said. “Visa debit cards may mean this last factor is less of a constraint in future surveys.”

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