The battle for retail is not between the online players
You might remember when the news broke in April 2017 that Amazon was coming to Australia.
The company promised "low prices, vast selection, and fast delivery".
It was far from Australia’s first experience with online shopping. Grocery shopping had been available on the internet since at least 1999 and local electronics retailers had jumped on the bandwagon early.
Plus, our own Amazon lookalike (at least to some degree) Kogan.com, had been operating here for over a decade.
Still, Amazon was expected – probably unrealistically in the short term – to ratchet up the pressure on local players, offering new competition in everything from DVDs and televisions to nappies and groceries.
And then, everything went quiet. Well, sort of.
The headline-worthy announcements stopped, save for the unveiling of its Prime membership program earlier this year. But the online retail space continues to grow, in terms of products, retailers and sales volume.
In just the past few months Coles has inked a deal with a Britsh online supermarket and a couple of IT consultancies; Woolworths is trialling order-picking robots; and Wesfarmers – which still owns Officeworks, Bunnings, Target and Kmart – bought online specialist Catch Group.
Not to be outdone, in the last 12 months, Kogan has launched Kogan Energy, Kogan Marketplace, Kogan Money and Kogan Super.
Stationery, jeans and pyjamas retailer Premier Investments saw a 35 per cent lift in online sales in its March report.
None of these, in isolation, is a game-changer, but it’s a reminder that the future is well and truly online.
Meanwhile, Amazon just chugs along in the background; sans the huge disruption many expected but slowly increasing its presence in the Australian retail market.
For those keen on knowing who is winning the online retail war, I would suggest you’re asking the wrong question – at least for now. Eventually, it’ll come down to a knock-em-down-drag-em-out online fight.
But for the disruptors, in particular, the enemy isn’t the online competition. Indeed, a company like Kogan, or even JB Hi-Fi, is likely to benefit from the early successes of an Amazon.com, as it simply brings more people online to buy.
And while some are judging retail by the success (or otherwise) of Myer, David Jones or Target, the online sales of Smiggle, Peter Alexander and Catch continue to be in ruddy good health – and growing at an attractive clip.
Kogan boasts 1.6 million active customers, having added more than 200,000 over the prior year.
Which is not to say that online retail won’t have losers and some participants will likely go broke in the process.
But a more sober reading suggests that long before the ecommerce players have to worry about each other, they’ll inflict meaningful pain on the physical world.
It’s inevitable when retail sales are barely limping along, while the large (and increasingly dominant) online-only players, plus the online arms of some of the biggest and best multi-channel retailers, are delivering high double digit growth rates.
Yes, off smaller bases, but if you grow 15 per cent – 35 per cent per year for any length of time, you get big, quickly. And while a small amount of that growth is created by the availability of 24/7 shopping from the couch, most will be coming from the old guard.
The time will come for the online retail war. But in the meantime, the battle is between the clicks and bricks. And while some are trying to straddle both there can be only one winner.
Scott Phillips is the Motley Fool’s chief investment officer. He owns shares of Amazon.com
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