It seems to happen with any new technology -- IT or otherwise -- some early adopters hit the ground running while others get their fingers burnt and get out. Retail level e-commerce saw its share of retailers on both sides of the e-coin.
Now, however, with some of the early lessons well learnt, retailers are moving into the market offering a vast array of merchandise, from CDs to cucumbers.
Consumer interest and confidence is growing, but some barriers still need to be removed. A perception seems to exist amongst shoppers that online prices should be cheaper than in a conventional shop. Retailers, however, say they still need personnel to collect and ship the goods While the costs of building an online presence vary depending on the intricacies of a site and can be controlled, the rate of, and time for return, is still something of an unknown.
High noon on High Street
The contenders line up; the buzz increases from the crowd watching and waiting for the most courageous of the combatants to make the moves that will lead to the hoped-for surge in consumer confidence which will bring online shopping into the mainstream. A number of retailers have already made inroads with varying success but shoppers are now looking for merchandise online. Sue Bushell reportsIn June last year, David Jones backed away from its leading-edge stance on e-commerce after a "hard nosed" business review suggested its efforts would be more profitably directed to its core business.
Renouncing 18 months at the head of the pack the top retailer scaled back its Web site, which once boasted hundreds of online product offerings, to an information-only billboard.
But the experience wasn't a total loss. Other traditional Australian 'high street' retailers are struggling to build their e-commerce strategies; uncertain about the gains on offer and the true nature of the investment required. David Jones has been there and back and now has at least one competitive advantage up its sleeve -- it knows exactly why it failed as an online merchant.
It knows how big an investment it will have to make to capture a share of online business, how many of its customers will have to be online before the business model stacks up and exactly what processes it will have to improve before expanding its online business again.
It knows that it was more important for it to get its core business right during a tough time than to lead the charge on e-commerce. And it also knows that the best B2C (business to consumer) e-commerce Web site will be wasted unless you have all of the processes -- from procurement to order fulfilment -- right from the start.
Although few consumers are ready to make purchases online, with research citing reluctance to give credit card details and a preference for human intercourse as the main inhibitors to wider uptake of e-commerce, Australian 'high street' retailers are racing to get on the Net.
The comfortable wait and see strategy most were running with 18 months ago was all but destroyed by the better-than-anticipated Christmas trading figures out of the US. Now they know that complacency won't serve, and are either actively online or building their strategies to get there. After labelling e-commerce a waste of time in February Harvey Norman has begin rebuilding its online retail business under pressure from suppliers told by their head offices they must be able to sell products over the Internet.
Its new Web site, to be built in three stages over the next six months, will eventually become a full Internet portal to tackle mainstream portals like nine.msn head-on. Initially Harvey Norman will sell computer and communications equipment, with an aim of $6 million in sales a year.
The ABC Shop Online, Lowes and Australia Post are busy relaunching or revamping their sites after some early success. Australia Post has a philatelic site for overseas stamp collectors which is generating orders from more than 30 countries, 62 per cent from new customers.
Coles Myer acquired profitable online computer reseller Harris Technology in March amidst forecasts it would be doing $500 million in turnover within three years. Now it has teamed with Australia Post to take its Internet grocery service to customers in 90 Melbourne suburbs.
Woolworths, still officially in pilot, is covering 200 Sydney suburbs out of its Eastwood store and has more than 10,000 registered customers.
Greengrocer.com.au delivers fruit and vegetables free in Sydney, Wollongong, the Central Coast and the Blue Mountains and reportedly plans to expand into dairy, bread, poultry, seafood and meat products.
Dymocks, which has had a Web page for a couple of years, is concentrating its efforts on building strategic partnerships online. It is already working with organisations like Big Pond, AOL, the Australian Stock Exchange and others, and says it has some big deals in the pipeline to try and secure some strategic partnerships. According to IT manager, Julian Bish such partnerships are delivering between 30 and 40 per cent of the traffic to its site, although total online revenue is less than two per cent of its total turnover. Some reports suggest it is costing the bookseller more to deliver books to customers through e-commerce than through its stores. Undeterred, it intends investing significant R&D expenditure into the site into next year.
Kaos Music Market is selling music online and clothing manufacturers, including Lowes, Gowings and Just Jeans, are doing their bit. Lowes, with a B2C site running since May 1996, is currently upgrading to become a secure site. The list goes on.
Making a success of e-commerce right now is incredibly tricky. There are plenty of different models coming out of the US, but there are still very few absolute answers for classical retailers to draw on. Experience shows Australian consumers are sufficiently different from their US and European counterparts to make it unwise to draw too heavily on overseas experience. But if the David Jones experience shows anything, it shows even failing at e-commerce could be a lot more valuable than not trying it at all.
Figures from Ramin Marzbani, principal of the Internet research company www.consult, suggest retailers netted $252 million from e-commerce in 1998, expected to rise to the $1 billion mark this year. That's less than one per cent of total retail consumer spend. Forrester Research predicts online retailing will account for a trillion dollars in turnover by 2003 -- just half a per cent of worldwide retail turnover in that year.
But now that the dam has burst the slow update of retail e-commerce by customers is not likely to deter retailers from moving online, and the pressure from competitors is a powerful spur. Unfortunately, no one has yet figured out a really good way to do it.
Early experiences among Australia's retailers highlight some major difficulties with retail e-commerce and show Australian consumers are in some ways quite different to their overseas counterparts.
For one thing, US customers have a long tradition of being voracious consumers of mail-order shopping services. There, the improvement of overnight and second-day delivery services that spurred the growth of catalogue shopping in the 1980s and 1990s is leading people to shop over the Internet. Here we have no mass mail-order culture, consumers have little confidence in relying on images and information to determine the quality and fit of a product, and resistance to products you can't hold in your hands and then take home with you is higher. That makes life especially hard for clothing retailers.
"It's hard to sell clothes over the Internet," said Lowes Internet coordinator Brooke Halliwell, adding that people expect to be able to feel the clothes they buy before they purchase them.
Nonetheless, while Lowes does just a tiny fraction of its overall business on the Web site it has had since May 1996, it is getting six per cent of those orders from overseas and says the online business has grown by 65 per cent over the last three years.
When it comes to groceries another problem facing Aussie retailers comes into focus -- the logistics of delivery seem inevitably to translate to high costs for consumers and problems for retailers.
Coles levies a $6 delivery fee and a shop handling fee of 7.5 per cent of the order for its Online service, with a minimum order of $60. Woolworths' Homeshop levies a $7.50 delivery charge and a 10 per cent handling fee on a minimum order of $50.
Ian Muir, NSW Woolworths special projects manager, says customers are showing some resistance to paying steep handling and delivery fees.
"The general expectation of Internet businesses is that you should be able to buy the product cheaper, and have it delivered to you at minimal or nil cost. Everybody expects everything on the Internet to be dirt cheap, but really we've got to pay somebody to go and pick the groceries once we get the order through, and then we've got to deliver it, so at the moment those costs are being passed on.
"The other thing is in places like the US and Britain places are a lot closer and with the bigger population they've got better networks of delivery. We certainly have a superb transport system as far as delivery of stock to our supermarkets goes, but you can't exactly put a few bags of groceries on the back of one of those pantechs."
Whatever the reasons behind consumer resistance to online ordering, the effect is that consumers are using retail sites more for information than to order goods and the Web is being used more as a research than a shopping tool.
Greg Pearson, APT Strategies, said research customers who visit a Web page like Dymocks are more likely to print out details of a book from the Web site to take to a physical book store than they are to order online.
"I see the advantage of the Web as being in this research area where people want to jump online, do the background research because they're busy people, then turn up in the flesh to do the final purchase.
"Success stories are out there but my feeling is that the people who were geared for computer usage tend to be having the most success in the online world. For example, Harris Technology always had a computer focus so they were perhaps one of the first cabs off the rank. They have an obvious, big head start."
Craig Taylor, from ABC retail promotions, agrees. He said people tend to visit The ABC Shop Online to browse the catalogue and do price comparisons then turn off the computer and walk into an ABC Shop to make their purchases.
Even with a stated guarantee of 48-hour delivery for most online purchases consumers seem to prefer to walk out of a store with their goods than wait for them to be delivered.
All the same, the ABC Shop Online has experienced turnover growth of more than 25 per cent for the 12 moths to May 1999 and Taylor says online growth is "far and away outstripping the traditional retail growth".
A simple e-commerce solution is likely to cost around $50,000 a year, with an integrated e-commerce solution, including order look-up facilities, likely to range in price from $200,000 to $500,000 over a 12-month period.
That is a fair amount of money for a side of the business that could take years to bring a decent return. Pearson believes most companies that set up online would be pushing to achieve more than 10 per cent of their business transacted online over the next few years.
"That's legitimate in an industry that's embryonic. I think they shouldn't be shooting for the stars; they should be setting realistic targets bearing in mind this is really in its infancy. If they are first cab off the rank and they can achieve 10 per cent, in 10 years time they are going to be really well positioned," he said.
But whatever the cost and the likely return, he said customers now expected their retailers to have an online presence, even if they only used it for research purposes.
"The guys that are set up now, further down the track will have all the advantages," he said.
There's no other store like it
There were two main reasons why David Jones scaled back its Web site in June last year to an information-only billboard. The first had little to do with the complexities of doing business online. Rather, according to David Jones operations director Stephen Goddard, it was prompted by recognition that the leading retailer needed to get its core business right at a time of crisis for the company.
But the second highlights an important lesson for other aspiring online retailers. Put simply, the company was disappointing its customers because of its failure to build an internal infrastructure behind its e-commerce initiative.
"Whilst the site itself was generally viewed pretty positively, there was no internal infrastructure put behind it to support it. We were disappointing customers by not having the product in stock, we didn't have good processes to select the product and get it transported to our customers, and it was a pretty costly system.
"We learnt those two lessons pretty early, and they're the two major themes: when times are tough you've got to get your core business right. Second, it's not just a matter of good sites, you've got to have all the processes from procurement of the product up front right through to being able to fulfil orders and deal effectively with customers," Goddard said.
Now David Jones is considering its options and will decide in the next few months where it will go from here.
Goddard says the company accepts B2C e-commerce is a fact of life it will have to deal with, but adds it has many options to explore, from being extremely proactive through to ensuring it doesn't adversely impact its current business.
Trendsetters establish virtual malls
Several Australian-based cyber malls are leading the trend towards 'hubbing', the tendency for online consumers to visit mega sites to purchase products and services.
According to APT Strategies managing director Marc Phillips, all retailers would be wise to explore the pros and cons of moving their Web-based business into a cyber mall.
Current Australian cyber malls include Yellow Pages Shopping Guide, Telstra SureLink, Sofcom and ChoiceMall, one of the world's leading online shopping malls.
Sofcom, one of Australia's most successful Cyber malls, offers small businesses a do-it-yourself, online shopping mall from as little as $40 a month. Prospective merchants build their virtual shopfront and catalogue over the Internet, using the on-screen tools provided. Phillips said Sofcom, which provides an encrypted e-mail or fax-back service for communicating buyers' credit card details, receives more than 250,000 visitors a month.
"There are many gains to be had from locating your products and services in a cyber mall as well as integrating Internet technology into your business processes," Phillips said.
"A combination of both will provide dynamic competitive advantages for your business, not only in the domestic market place but in an increasingly global environment."