Survey: Etailing Fails to Deliver Cost Savings

SYDNEY (04/04/2000) - A study into Internet shopping in Australia has revealed that the perceived cost savings expected from online retailing are unlikely to eventuate in most product areas.

In fact, the study suggested only a limited number of retailers will successfully capture an online audience. By 2010, online shopping is expected to make up only 5.3 percent of Australia's total retail market.

According to the study "Internet retailing in Australia: Market outlook, implications and impacts", Australian consumers spent A$280 million (US$170 million) on online shopping in 1999, including A$75 million on travel sales.

This equates to 0.15 percent of Australia's total retail market for 1999.

"In Australia this is still a small niche market," said Simon Rumbold, director, Jebb Holland Dimasi. "At the moment there are a number of products that are cheaper online and that people want to buy online . . . there are also many categories (where products) are not cheaper and will never be cheaper.

Groceries and food will always be outweighed in the traditional markets."

Retail analysts Jebb Holland Dimasi, in conjunction with Marketshare, released the multi-client survey, which involved 1700 consumer interviews.

According to Rumbold, the Internet will only be an effective shopfront for a limited number of retailers in specific areas. He added that stores with both an off and online presence are more likely to succeed. Multichannel retailing is "the future online model for many products," he stated.

Computer, software and music sales are estimated to contribute 20 percent to 30 percent of the total online spend, travel and books will make up 10 percent, cosmetics and appliances will contribute around 3 percent and groceries and fruit and vegetables will be less than 3 percent, the study suggested.

Close to two-thirds of the retailing market will not attract online consumers, Rumbold said. "Online has potential; some products will be a success. But the remainder has far more limited potential. Groceries have very limited potential. As yet we have not seen the evidence that costs can be reduced."

While many online stores do not incur large rental bills, often an Internet company has high start-up, marketing, distribution and delivery costs. Rumbold said these costs could amount to between 20 percent and 35 percent of an online retailer's total operating costs, compared with only 4 percent for traditional retailers.

Total operating costs of traditional retailers are around 28 percent, but for an online retailer, total operating costs could be as high as 40 percent.

"Amazon.com is not making a profit because of the marketing and distribution costs they have been incurring," Rumbold said.

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