How Australian retailers are transforming the e-commerce marketplace

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1 Research Conducted Between April 2014 and June Australian Retail Research Report How Australian retailers are transforming the e-commerce marketplace Sponsors

2 Contents 03 Executive Summary SECTION 1 08 Introduction & Research Overview SECTION 2 11 Interview Research Highlights SECTION 3 25 Survey Research Findings AIMIA 2014 How Australian retailers are transforming the e-commerce marketplace 2

3 Executive Summary Some retailers are still early in the journey to adopt online channels and digital tools. Similar patterns in the variety of online capabilities exist in 2014 as in There are a number of retailers early in the process of adopting online transactional capabilities, or see no need to develop such capabilities. Thus, the role of the online channel and digital tools lies on a spectrum, from information provision to fully integrated transaction capabilities. Of those that actively use the online channel and digital tools, < 30% consider best practice. While the vast majority of retailers actively use the online channel and digital tools for promotional, advertising and selling purposes, less than 30% of retailers consider their online/digital strategy as best practice. Digital tools play a key role in service, sales, awareness, acquisition and loyalty. Retailers rate digital tools as highly important in assisting with the provision of customer service, generating brand and store awareness and sales. The online channel and digital tools also play an important role in acquiring new customers and fostering existing customer loyalty. No silver bullet strategy exists. No common strategy seems to exist in implementing online channels or digital tools, with variation across category and channel/tool. Mixed perceptions of social media Insights gleaned from interviews suggest that the social channel has mixed perceptions of efficacy in driving sales, however the channel remains important and ranked as the most important digital media in 2014, increasing in importance since AIMIA 2014 How Australian retailers are transforming the e-commerce marketplace 3

4 Executive Summary (cont.) However, social media and online store developments are priorities. Retailers rate new technology developments as impactful on their business and accordingly, 41% report prioritising social media investments and 32% are focused on building online sales via e-commerce over the next 12 months. Measuring customer satisfaction, increasing sales and enhancing brand awareness and customer loyalty are major goals. Retailers rate customer satisfaction measurement, increasing sales, enhancing customer loyalty and brand/product awareness as the most important goals for the next 12 months. Increases expected in online advertising budgets. It was not uncommon for retailers to report expectations that the share of advertising budget allocated to online media would increase over the next 12 months. Continued increases in online retail revenues. Reported online revenues have grown in the past 2 years and are expected to continue. In 2012, almost two thirds of those retailers interviewed reported online contributing less than 3% in revenue, by 2016 this figure is forecast to decrease to 25%. AIMIA 2014 How Australian retailers are transforming the e-commerce marketplace 4

5 Forward It s safe to say that the pace at which Australian consumers have adopted shopping online has taken some retailers by surprise. While many may have seen the writing on the wall during the years following the Global Financial Crisis, a turning point in online trade, some of the more traditional retailers were slow to accept the inevitable and even slower to invest. This is particularly true in Australia which seemed somewhat shielded from the financial crisis sweeping the world why invest in digital innovation when the local economy seemed to be so robust? Fast forward to today, where we can look back with the benefit of hindsight, and it now seems obvious how the market was going to change. Innovation overseas would bring new waves of competition and the data driven marketing techniques that were reshaping the communications and media industries would forever alter the way that retailers connected with their customers. The Australian retail marketplace would be, and still is, going through a digital transformation. For the last six years AIMIA, in partnership with Australian Centre for Retail Studies at Monash University, have been asking Australia s retail professionals how they see this changing landscape. The report combines qualitative interviews and a quantitative survey to deliver deep insights into the state of Australia s digital retail landscape. This year s report dives deep into the minds of many of Australia s leading online retailers to uncover the key trends and insights that online retailers need to be aware of to compete and win in a rapidly evolving marketplace. While e-commerce itself may still only make up a small percentage of overall sales for many retailers, the digital landscape touches every aspect of the retail marketing and branding journey. It would seem that Australia retailers are now fighting back against overseas competition by adopting digital marketing techniques and looking for new ways of thinking through long term strategy, with customer experience and data and the centre. Mark Cameron Chief Executive Officer, Working Three Chair, AIMIA Retail Industry Group AIMIA 2014 How Australian retailers are transforming the e-commerce marketplace 5

6 Sponsors DIGITAL MEDIA AN APN NEWS & MEDIA COMPANY Inc Digital Media The inc Network is the largest digital catalogue distribution network in Australia, reaching in excess of 4 million Australians every month across multiple digital devices including PC, mobile and tablets. We work with Australia s largest store retailers to reach online consumers whether they are in their home, in transit or at work, to drive both off and online sales. inc is part of CC Media and the APN News Media Limited. IE The Connected Commerce Agency - IE Agency provides the innovative business tools, technology platforms and creative thinking that helps Australia s leading organisations rethink and reinvent in the age of disruption. With dedicated practices in Platform Delivery, Mobile & In-store and Performance, the firm provides a flexible range of creative and technology services built around our core principals: Disrupt Yourself, Think Like A Start Up, Embrace Technology Innovation, Stay Nimble, Be Responsive, Go Agile, Test, Measure, Learn And Be Creative In Everything You Do. IE s portfolio of clients includes: Telstra, Nike, Movember, ABC, Sportsgirl, Sussan, Mitre10, Hurley, Simplot, Mozi, Tourism Victoria, Betts Group and Australia Post. Victoria Government AIMIA have a long association with the Victorian Government s Department of State Development, Business and Innovation (DSDBI) in helping to develop the digital services industry in Victoria. The Department of State Development, Business and Innovation (DSDBI) supports the Victorian Government s probusiness policies and programs and the development of innovative industries. It s vision is to work with business and the community to boost productivity, exports, investment and jobs. AIMIA primarily works with the Innovation, Services, Small Business and Technology division which is responsible for informing and implementing Victorian Government s policy, programs and other initiatives to support small business, encourage research, innovation, commercialisation and technology diffusion to drive sustainable and enduring economic growth for Victoria. DSDBI s interest in the AIMIA Retail/E-tail commerce project is in helping to identify priorities and assist retail businesses take advantage of Internet based consumer and technology trends. AIMIA 2014 How Australian retailers are transforming the e-commerce marketplace 6

7 Acknowledgements Monash University Dr Sean Sands, The Australian Centre for Retail Studies (ACRS) The Australian Centre for Retail Studies (ACRS) is an independent retail and consumer research centre based within the Department of Marketing in the Faculty of Business and Economics at Monash University, Caulfield Campus. The ACRS provides a range of research and consulting services to the private sector and government clients, with a particular emphasis on retail and consumer research. Research priorities are developed in consultation with industry clients and promote research-based knowledge and thought leadership. W3 Mark Cameron, CEO, Working 3; AIMIA Victoria Committee, Project Leader Working Three is a digital innovation and customer experience consultancy that helps organisations put their customers at the very heart of everything they do. They produce strategic insights and thoughtfully designed innovations that drive customer engagement and retention. Klyp David Perkins, Managing Director, Klyp; AIMIA Victoria Committee Klyp is a team of professional creatives, coders and marketers at the top of their game. Every project presents the opportunity to excel by challenging conventional thinking. They can show you how to engage, influence and convert customers with proven digital strategies that deliver real results in an environment where nothing is static. Klyp specialise in digital strategy, website and mobile app development, elearning systems, and digital marketing. Simon Hampson, Online Retail Consultant; AIMIA Victoria Committee Simon Hampson has over 15 years experience in the digital space. He has worked with everyone from retail clients, FMCG companies, international franchises to local Australian businesses. Simon is perfectly positioned to understand the ever-evolving space of retail online and the complex relationship between online and offline. He recently moved on from the digital agency that he founded in 2010 and he is now bringing his insights to a select range of clients, ranging from an ecommerce startup to a well-known Australian publishing company. A big thanks to the entire team for collaborating to produce this report. If you would like more information regarding this report, or to enquire about sponsorship of the 2015 report please contact: Robert Wong AIMIA Victoria State Chapter President or AIMIA 2014 How Australian retailers are transforming the e-commerce marketplace 7

8 Association Partner Nora Title Here Lorem ipsum dolor sit amet, consectetuer adipiscing elit, sed diam nonummy nibh euismod tincidunt ut laoreet dolore magna aliquam erat volutpat. Ut wisi enim ad minim veniam, quis nostrud exerci tation ullamcorper suscipit lobortis nisl ut aliquip ex ea commodo consequat. Duis autem vel eum iriure dolor in hendrerit in vulputate velit esse molestie consequat, vel illum dolore eu feugiat nulla facilisis at vero eros et accumsan et iusto odio dignissim qui blandit praesent luptatum zzril delenit augue duis dolore te feugait nulla facilisi. Nam liber tempor cum soluta nobis eleifend option congue nihil imperdiet doming id quod mazim placerat facer possim assum. Typi non habent claritatem insitam; est usus legentis in iis qui facit eorum claritatem. Investigationes demonstraverunt lectores legere me lius quod ii legunt saepius. Claritas est etiam processus dynamicus, qui sequitur mutationem consuetudium lectorum. Mirum est notare quam littera gothica, quam nunc putamus parum claram, anteposuerit litterarum formas humanitatis per seacula quarta decima et quinta decima. Eodem modo typi, qui nunc nobis videntur parum clari, fiant sollemnes in futurum. AIMIA 2014 How Australian retailers are transforming the e-commerce marketplace 8

9 SECTION 1 Introduction & Research Overview AIMIA 2014 How Australian retailers are transforming the e-commerce marketplace 9

10 Introduction Online and digital is as important as ever in retail Online retailing remains a small part of the overall retail landscape, accounting for 5% of global retail spending in However, online retailing is an increasingly important component of the modern retail mix. Today, retailers are investing in online and digital channels primarily as means to connect and transact with consumers. As more of the global population moves online (increasingly via mobile platforms), the myriad of ways to interact with consumers will only continue to expand. The state of online and digital in retail differs by sub-sector, with retailers of relatively standardised products (i.e. toys, games and consumer electronics) having the highest online sales. While there is much room for growth across many retail sub-sectors, issues related to product margins, fulfilment and distribution are proving difficult to overcome. Nonetheless, many traditional retailers with a strong bricks-and-mortar focus are integrating online and digital channels in order to deliver an optimal consumer experience. In mid-2014 ACRS conducted research on behalf of the Digital Industry Association for Australia (AIMIA) to identify the current state of the online channel and digital tools in the Australian retail industry. This is the third time such research has been conducted, with previous reports developed in 2012 and This report provides the findings of the 2014 State of Online & Digital in Retail research update, and where possible comparisons are drawn to the previous State of Online & Digital in Retail research. AIMIA 2014 How Australian retailers are transforming the e-commerce marketplace 10

11 Research Overview Since 2010, ACRS has conducted research on behalf of AIMIA to identify the current state of and future developments for the online channel and digital tools among Australian retailers. A broad overview of this ongoing series of research is provided below and major shifts in the findings are noted throughout the report. Research Objectives Identify and understand current online channel and digital tool strategies among Australian retailers. Quantify retailers current online channel and digital tool uptake in Australia. Identify and understand future online channel and digital tool challenges and developments among Australian retailers. Research Approach A two stage research approach was undertaken, as follows: 1. In-depth telephone interviews with Australian 2. retailer Online/ Digital/ Marketing Managers. Interviewees were guaranteed anonymity in their responses, with anonymous quotes included throughout the report. The interview discussions were structured around several key areas, including: Current online channel and digital tool importance and usage Current and future online channel and digital tool challenges and opportunities Best practice online channel and digital tool aspects and strategies Online survey of 183 Online/ Digital/ Marketing Managers from a range of Australian retailers to quantify the interview findings. The survey was conducted in May 2014 with a sample similar to that of the 2012 and 2010 State of Online & Digital in Retail research. The survey questions addressed several key areas, including: Current uptake/ usage of the online channel and digital tools, including their relative value and importance Current online channel and digital tool budget allocation/ spend and share of revenue Future online channel and digital tool priorities, strategies and goals AIMIA 2014 How Australian retailers are transforming the e-commerce marketplace 11

12 SECTION 2 Interview Research Highlights AIMIA 2014 How Australian retailers are transforming the e-commerce marketplace 12

13 Online Channel & Digital Tool Developments Macro trends are driving online channel and digital tool developments Retailers discussed a number of macro trends that are influencing their online channel and digital tool developments. These broad trends are unique to the 2014 State of Online & Digital in Retail research. Millennial consumer expectations Several retailers refer to Millennial consumers as the connected generation given their perpetual use of digital devices to stay connected to virtual relationships and conversations. This connectedness is providing retailers with numerous opportunities, not only in real time targeting but also by participating in peer-to-peer conversations. Millennial consumers are innovative, image-conscious, brand-savvy, highly social, digitally sophisticated, and environmentally conscious. Having grown up with the Internet, retailers understand that they are quick to adopt new technology and media and, as such, are conscious of meeting their expectations. It s not omni-channel, it s just retail! Many retailers dislike the many buzz terms used in relation to retailing today, particularly onmi-channel and multichannel. Many retailers are of the view that omni-channel retailing has past the tipping point of being an accepted business approach it is normal retail practice. Importantly, retailers recognise that there is no one-size-fits-all approach and that understanding the relative role of each channel is crucial in optimising consumers cross-channel experiences. Omni-channel is just a normal term today and consumers expect this Now customers expect to be able to research on their mobile, maybe even buy on the device, or at least then go to the store the next day and look at the product. There is an expectation for how retailers deliver on these channels and that is what is important We need to take commercial advantage of these consumer expectations. AIMIA 2014 How Australian retailers are transforming the e-commerce marketplace 13

14 Online Channel & Digital Tool Developments (cont.) The store remains central While online, social media and mobile channels are perceived as more important now than they were 12 months ago, bricks-and-mortar stores remain the primary channel focus for retailers. This sentiment is echoed by global research conducted by ACRS on behalf of the World Retail Congress (WRC), which finds 68% of global retail executives holding the store as the most important channel for retail growth. Despite online channel growth and the rapid uptake of digital tools, retailers recognise the store s value proposition as the ability to engage customers in a rich, tactile and meaningful way. At their best, physical stores stimulate consumer senses, stir emotions and inspire imagination. When the store is doing well, why change or fix it? I think for that reason there is a bit of hesitancy to try and shake things up and turn the business into a true omni-channel offer. Traditional media still pays off Several retailers noted that traditional media is still performing well in terms of the return on advertising spend. For some retailers, strong traditional media advertising performance has resulted in re-evaluating their emerging media spend, particularly social media. Emerging media/ channel developments and spend are also being reviewed as a result of continued low conversion into sales, with indirect impacts (i.e. driving traffic to websites) often insufficient to secure ongoing channel investment. We trialled social media as a marketing and advertising channel, but had very little pay-off, if any... We find we have much more success reaching our customers through targeted print. We can see the impact on sales when we run specific campaigns. I just do not see us succeeding in social as a channel to sell. AIMIA 2014 How Australian retailers are transforming the e-commerce marketplace 14

15 Role of the Online Channel A spectrum of online channel adoption exists Similar patterns in the variety of online capabilities exist in 2014, as compared to previous years. Specifically, a number of retailers are either in the process of adopting online transactional capabilities, or see no need to develop such capabilities. Thus, the role of the online channel and digital tools lies on a spectrum, from information provision to fully integrated transaction capabilities. Early adoption stage At one end of the spectrum, retailers are focused on the online channel (and digital tools) to connect with consumers early in their shopping journey (i.e. information search, product evaluations, store locator, etc.). Retailers at this stage of online channel adoption tend to either see transactional capabilities as irrelevant to their sector/ product category (i.e. does not lend itself to purchasing online) and/ or their customer base, or the business is yet to be convinced of the profitability potential (i.e. due to perceived high distribution costs). We are really just starting on the [online and digital] investment journey, but we have started so that is a big step. We re a lot further behind than most I would say We are more focused on learning and trying to create a business model as opposed to purely growing the online business. Advanced adoption stage At the other end of the online channel adoption spectrum, retailers are striving to manage and integrate multiple channels to deliver seamless information, customer engagement, purchase capabilities, and after-sales support. AIMIA 2014 How Australian retailers are transforming the e-commerce marketplace 15

16 Role of the Online Channel & Digital Tools Online channel and digital tools are ultimately about providing an integrated customer experience Retailers commonly note that the primary role of the online channel within the organisation is to enhance customer experience and engagement, especially given that so many consumers interact online. While no retailer professes to have all the answers, many are looking for methods of constant improvement. Consumer experience and engagement evolutions Retailers discussed a number of examples of brands that are taking the consumer experience and engagement to the next level, many of which combined the collection of data with the online channel and a variety of digital tools. One such example was the Disney Magic Band, which provides consumers with a seamless Disney experience while collecting individual-level data on their preferences, behaviours, lifestyles and socio-demographics. Ultimately, and as aspired to by several retailers, the Magic Band provides Disney with the opportunity to offer truly personalised consumer experiences. Marketing automation has a role Marketing automation was seen as the only scalable way to manage the levels of consumer interaction and engagement initiatives that many medium to large retailers seek to achieve. However, some retailers cautioned that marketing automation can be very expensive and time consuming if not implemented properly. AIMIA 2014 How Australian retailers are transforming the e-commerce marketplace 16

17 Online Channel & Digital Tool Strategic Importance Online channel and digital tools are critical The online channel and digital tools were seen as critically important in previous editions of this research. In 2014, retailers report that the online channel and a range of digital tools have become an integrated part of normal business operations. Although there are some differences in the strategic focus and level of support for the online channel and digital tools across retail organisations. Contribution to sales is growing Many retailers note that the online channel and digital tools are becoming stronger contributors to sales growth. Growth is linked to the personalisation of offers and the integration of customer data from multiple sources. In 2012, retailers estimated the contribution to sales would be in excess of 15%. While this figure is hard to quantify in the interview stage of the research, it is addressed later in the survey section of the research. Marketing automation was seen as the only scalable way to manage the levels of consumer interaction and engagement initiatives that many medium to large retailers seek to achieve. However, some retailers cautioned that marketing automation can be very expensive and time consuming if not implemented properly. Because of the rapid growth of our [online and digital] performance, we are making a material difference to our company s overall year-on-year sales growth. So we re not fifty percent of the business, but contribution sales growth is significantly more than our sales as a percentage of overall sales. For that reason, we re getting growing visibility because we re basically helping the company grow quicker than it would otherwise It s about the customer, giving them great service and offering different service to a regular store. With digital we can provide more and more value added services, where a few years ago it might just be store locations and opening hours, now it s personalised specials using data, just to actually help people shop and save money. AIMIA 2014 How Australian retailers are transforming the e-commerce marketplace 17

18 Online Channel & Digital Tool Strategic Importance (cont.) Retailers strategic focus and support differ As in the past editions of this research, retailers primarily consider the online channel and digital tools as information-based (i.e. consumer research). However, the strategic importance of and the resource support provided for the online channel and digital media remains highly category specific, with some retailers only investing in a small selection of the full product range for purchase online. Recent years have seen the importance of the online channel and digital tools increase in priority with retail organisations, particularly in terms of resources (especially people), systems (mainly back-end/ support infrastructure) and budget (although tied to marketing/ sales performance). While the online channel and digital tools were an after-thought 3 5 years ago, leading retailers today are purposefully restructuring their business model and management teams to be online and digitally-focused. In days gone by you would have a customer strategy led by marketing, digital was often an afterthought You would just create a brochure and stick that on your website. We have come a long way from this in the past few years. Now I would say digital is leading the agenda, it is definitely at the front of the planning process. AIMIA 2014 How Australian retailers are transforming the e-commerce marketplace 18

19 Levering the Online Channel & Digital Tools No silver bullet solutions Retailers report a variety of strategies across available online channels, with no clear silver bullet identified. The common sentiment and approaches to leveraging the online channel and digital tools are highlighted below. Social media Social media is not utilised as a sales channel. One possible reason for this is that there is a fundamental difference in how consumers and brands use social platforms. For consumers, social media is largely a channel for personal use and hearing about new products and offerings, receiving deals and having a clear line of communication with the brand. In contrast, many retail brands are using social media as a tool to reach out to potential and existing consumers and drive sales. Increasingly, retailers social media strategies are focused on social content, features and partnerships. As several retailers note, social media platforms such as Pinterest and Instagram demonstrate the creative pull of niche social contentfocused solutions. Mobile Mobile is commonly seen as central to online retail strategies. For many retailers, the focus of mobile strategies is on implementing responsive website design. For consumers, mobile is not often about completing the purchase cycle, but rather about price/product comparisons and accessing store information (i.e. location, hours). AIMIA 2014 How Australian retailers are transforming the e-commerce marketplace 19

20 Levering the Online Channel & Digital Tools (cont.) Tablets Compared to the findings of past editions of this research, the importance of tablet devices has increased significantly, and is now considered a critically important online/ digital channel. Retailers are aware that tablet devices are experiencing a growing share of sales in international markets, with tablet sales expected to surpass those made via a desktop, laptop and mobile sales by many. However, most Australian retailers do not have dedicated tablet strategies. Catalogue There is no surprise that many Australian retailers still see catalogues as a key channel to reaching consumers. Digital catalogues are still dominant in this regard and were discussed in terms of becoming more integrated with e-commerce strategies. For many retailers, is a central (and often under-utilised) marketing tool. Several retailers discussed the implementation of automated campaigns and lifestyle campaigns based on more advanced segmentation (via access to better data) than possible in previous years. Leading retailers are customising s according to granular segments, providing tailored content and personalised messages and promotions. AIMIA 2014 How Australian retailers are transforming the e-commerce marketplace 20

21 Online Channel & Digital Tool Barriers & Knowledge Gaps Little change in channel/ tool barriers and knowledge gaps Despite some significant online/ digital developments since past editions of this research, several online and digital tool barriers and knowledge gaps continue to exist amongst Australian retailers today. The major online channel and digital tool barriers and knowledge gaps mentioned by retailers include: Supply chain and infrastructure Supply chain and logistics are the major knowledge gaps for retailers, as well as a barrier to development for some. The high cost of order fulfilment continues to be a major barrier to retailers online channel and digital tool adoption in 2014, particularly with regard to distribution costs. Senior management support and internal process Some retailers continue to experience a lack of C-level support for their online channel and digital tool strategies and thus have not advanced their capabilities as planned. This issue is common among retailers with low margin business models. Leading retailers have moved toward dedicated in-house resources in support of their online channel developments, however some retailers continue to report a general lack of online/ digital resourcing. AIMIA 2014 How Australian retailers are transforming the e-commerce marketplace 21

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