Online shopping: Why we ain't seen nothing yet
ASHLEY BALLS EXAMINES WHY THE RISE OF E- COMMERCE IS UNSTOPPABLE AND IRREVERSIBLE.
THE ARRIVAL OF a box of new shirts from London set me thinking – what are the likely impacts from online shopping? Has it changed the way we buy things? What does it mean for customer loyalty?
Is consumer protection fit for e-commerce and do prices/profit margins reflect what many perceive to be lower operating costs?
Before setting out to answer the above questions it might be useful to set out some basic comparative data on e-commerce generally, as it may well have an impact on those who are already in retail business or plan to be. Unfortunately, there seems to be no single international source that compares data using purchasing power parity and other measures to ensure comparison is straightforward. The three primary sources I have used are Nielsen for New Zealand data, Eurostat for the EU and Entrepreneur magazine for context.
The starting point is the value of e-commerce today and to remember that virtually every dollar spent on web purchasing used to go across a counter in a ‘real’ (old fashioned) shop.
The data below covers a number of currencies, has not been converted and is taken from the 2016 calendar year.
ANNUAL AVERAGE SPEND 1
The three big spenders are, in descending order; Hong Kong, Norway and Israel where every citizen spends US$2,868, $2,448 and $2,171 per annum. The next five are; USA, Denmark, UK, Switzerland and Finland. (Every American currently spends more than NZ$78 every week online.)
Across the EU 55 percent of the entire 540 million population have purchased one of more items in the last year; in the top five more than 75 percent of people make regular online purchases.
The most popular online purchases in the EU are; clothing/ sports goods (61 percent of the population) followed by travel, and holiday accommodation.
In New Zealand the largest spend is travel, which may be because travel destinations are further away and prices per seat kilometre are higher than in Europe.
The proportion of total shoppers using the Internet is growing rapidly in the EU and elsewhere.
More than two thirds of those shopping online are comfortable with the experience and in the case of the EU a third of total purchases were made in another country.
According to Nielsen, New Zealand has two million e-commerce users3 who purchased 20.6 million items worth some NZ$4.7 billion in 2016.
Most people agree that the likelihood of sales revenue ever returning to traditional shops is zero, that is, the market for personally purchased items – 2 whether a bag of cement, load of firewood, the weekly groceries, clothing, entertainment, travel and more, is gone forever.
Unusually New Zealand is something of a laggard in e-commerce, which could indicate that rapid significant change is just around the corner as Kiwis play catch-up.
WHAT DOES IT MEAN FOR BRICKS AND MORTAR SHOPPING?
However I look at this, the picture is not good and the strong implications are there will be demand for fewer retail outlets, which will lead to lower rents and more empty shops.
Will property developers take note? Don’t bet on it as they tend to use history as a guide.
What about prices? The picture is less clear as many traditional businesses are building an online presence whilst retaining traditional outlets. However, once this is clear the online-only retailers have a distinct advantage as they have no need for expensive premises and can locate anywhere with good Internet access and an ability to ship goods to customers relatively easily.
Some go even further and set up online virtual offices in third countries, yet deliver from another. UK retailer Marks & Spencer does this, routing all its offshore purchases through Ireland with its 12 percent corporation tax rate.
Another factor of online shopping has been the emergence of online price comparison sites which operate in the travel and retail markets. I have yet to find compelling research that links these lower prices to increased customer demand as brand loyalty to online suppliers who started out in the ‘high street’ still exists.
Customer and brand loyalty would appear to have migrated with the change to e-commerce as there is ample anecdotal evidence to suggest buyers are influenced by more than just the lowest prices. They want service, a good returns policy, international guarantees, speedy delivery, smart simple websites and, above all, that goods ordered closely resemble those displayed online.
Would I consider investing in retail businesses or retail property? Despite e-commerce retail trading laws being inadequate, no way.