What you need to know:

• Ecommerce has hit an inflection point post-pandemic that has more than a couple of retailers recalibrating investment away from online back into store. But this is a mistake, industry pundits believe.
• While there’s no doubt record Covid ecommerce growth is behind us, it’s critical retailers find a better way of understanding the more holistic impact and commercial value ecommerce presents to their businesses.
• Experts from Australian Retailers Association, Circana and Arktic Fox say it’s time for retailers to look beyond the low-hanging ecommerce fruit and continue to build capability, taking advantage of AI, omnichannel experience, new fulfilment models, social commerce and more to progress their ecommerce game.

Ecommerce might be starting to feel old hat for some, or a Covid boom that’s since busted for others. But many retailers are only scratching the surface of opportunity and can’t afford to take their foot off capability building pedal, industry leaders agree.

According to Circana insights director, Daniel Bone, the state of Australia’s ecommerce market has reached an inflection point after industry wrestled its way through retail recalibration following the pandemic boom, and stares into a cost-of-living crisis. Yet while retailers might have plucked the low-hanging fruit of ecommerce during Covid, he’s adamant it’s time to inject further life into ecommerce plays.

“We’ve had an 18-month period where online sales growth has underperformed relative to the lofty highs of the pandemic,” Bone tells Mi3. From the end of 2018 to end of 2022, retail ecommerce sales growth in Australia went from $27.5bn to $60bn, more than doubling over that period.

“Some industry stakeholders created unrealistic forecasts because of that impressive performance. Those forecasts were too heavily underpinned by erroneous expectations that what happened amid the pandemic would reflect the ‘new normal’. The forecasts didn’t reflect the ongoing hesitancy we see from shoppers to embrace online shopping.”

For Bone, this should be prompting retailers to ask the question: What do we need to do differently to entice reluctant online buyers?

“Without new households embracing the online channel and becoming omnichannel shoppers, it will be difficult to engineer that next wave of growth – especially when the industry’s focus has shifted to profitability rather than sales-at-all costs.”

Arktic Fox founder, Teresa Sperti, has witnessed a doubling down across certain retail groups to invest in ecommerce – albeit not as much during Covid – including grocery retailers. However, others have been pulling back and potentially reorienting focus back on physical stores. And that’s a big mistake, she says.

“Some brands are reorienting back around stores, which will naturally shift behaviour and may mean they are not getting their fair share of spend online,” she comments. “Others who are doubling down are continuing to see growth.

“Over the next 3-5 years, there will be an ongoing shift to online. We have to stop measuring ecommerce performance against performance in Covid. We’re now at a very different baseline. Getting 100 per cent growth over three years is very significant – you don’t see that in the industry, and it isn’t naturally going to continue on that trajectory. There is a bit of a shift and recalibration in mindset around this. It’s not growing at the rate it was, but it’s a much bigger portion of sales, of course it’s not going to grow at that rate.”

Sperti notes ecommerce is projected to grow to reach one-third of all retail sales in this country over the next decade, driven by the shift in workforce population and dominance of millennials and Gen Z in overall shopper make-up.

"My belief is organisations have to continue to build capability – supply chain right through to proposition, experience and fulfilment,” she says. “The landscape is continuously changing, shaped by key trends happening in other markets. There may be early adopters here who start adopting those, or alternatively as Amazon continues to push further into the market, it forces brands to adapt. You have to continuously build capability. A lot of organisations don’t have capability where it needs to be to shift based on competitive threats."

Australian Retailers Association (ARA) CEO, Paul Zahra, is another industry expert who has seen some retailers taking their foot off the pedal on ecommerce while others still surge ahead.

“While there was a settling back of growth post-pandemic, which is to be expected, the proportion of shoppers making purchases online continues to grow year-on-year – and retailers are continuing to innovate their approach to ecommerce to meet this surge in demand,” he says.

In the 2022-2023 financial year, ecommerce made up 18.1 per cent of the overall retail spend in Australia, valuing spending at $63.8 billion. 

“Retailers must continue to invest in the omnichannel experience - it's the holy grail of modern-day retail,” Zahra urges. “Customers expect a seamless, integrated experience across all channels, from social media to mobile apps to physical stores – and most retailers now understand that and have a presence in both worlds.” 

Connecting the dots on digital influence on in-store sales

Presence, sure. But innovation and progress? Perhaps not. One of the hurdles is how ecommerce investment and impact is valued. For Sperti, the practical path forward requires bricks-and-clicks retailers to shift the way ecommerce is perceived and measured.

“Ecommerce does not only drive online sales, it influences so much of what is purchased in-store,” she comments.

An example of a retailer actively pursuing this path is Myer, which already reports on the influence of digital on in-store sales (often known as ‘research online, buy in-store’, or ROBIS). Online contributed $691 million in FY23 to the Myer group, or 21 per cent of total sales, returning to growth in H2, 2023. Yet Myer also revealed in its financial report that 59 per cent of shoppers searched its website before making an in-store purchase based on market research. What’s more, multi-channel customers spent 2.6x more than in-store only shoppers.

It’s indicative of a growing movement towards understanding digitally influenced sales. According to Forrester estimates, these will top US$3.8 trillion in 2027 thanks to a five-year compound annual growth rate of 7.2 per cent. In 2021, 59 per cent of total US retail sales were estimated to have been digitally influenced.

“This is what will change the game in terms of investment and focus: When organisations really realise ecommerce doesn’t exist as a discrete channel, but is a big part of that omnichannel journey and probably influences and delivers more in-store than it does online,” Sperti says.

“When brands get this right, it changes the conversation at the executive table, the board table and at an executional level, and significantly changes the investment profile of the business in digital and ecommerce – which unlocks a whole new world of possibility.”

The challenge for many brands is they haven’t been able to figure out this measurement framework, Sperti admits. “But we are seeing some of it emerging in market as players start to quantify the impact of ecommerce on the whole business.”

According to Bone, partnerships between analytics providers can help bridge this measurement gap between digital and in-store. Circana, for example, has partnered with digital shelf analytics provider, Profitero, on a solution to connect item-level digital shelf with item-level ecommerce point of sales (POS) data for multiple retailers.

“Businesses need to be tracking online versus offline performance by category and brand as table stakes,” says Bone. “Ideally, the sales data will be integrated with other digital shelf measures allowing both retailers and suppliers to ascertain how certain performance outcomes materialised due to the way different digital shelf levers were optimised.”

Beyond that, Bone says a holistic ‘value’ lens should be placed on what ecommerce truly means in a retail context.

“Winning in ecommerce is more than just what you measure in online versus online transactions, it’s about leveraging digital capabilities to provide better customer experiences and perception of total value,” he says. “For Australia’s leading grocers, digital engagement has become a key part of delivering value – even when online sales were declining, year-on-year digital engagement metrics were strong. This has helped them post strong performance amid the cost-of-living squeeze.”

Zahra stresses the criticality of giving customers ability to browse products, make purchases, and interact with brands in whatever way is most convenient for them.

“Whether that means shopping on their mobile phone during their commute, using social media to discover new products, or visiting a physical store to see products in person, customers expect a consistent experience across all channels,” he continues. “By offering a seamless and integrated experience across all channels, retailers can increase customer satisfaction, build relationships and ultimately drive business growth.

“Retailers large and small are increasingly bringing a lot of their ecommerce needs in-house given the importance of this relationship to their business and to customer loyalty outcomes.”

Customers don’t distinguish between an online or instore experience when it comes to judging a retail brand, Zahra says. At the same time, there are growing requirements across data management and privacy and cyber security, meaning managing online customer relationship closely is increasingly important.

“However, third-party supplier relationships are likely remaining in place with ecommerce platforms, social networks and distribution networks,” he says.

Injecting new life into ecommerce

So what other ways can retailers innovate the ecommerce experience? For Zahra, growth and investment is likely to come from strategic use of artificial intelligence – across marketing in particular, but also within buying and operational areas such as inventory management, distribution and warehousing. A recent survey of small to medium sized retailers found even smaller retailers are planning to invest in AI in 2024 across marketing, stock management, logistics and operations and reaching or engaging customers.

“An omnichannel approach is a great way for retailers to connect their online and in-store offerings,” he says. “As consumer habits continue to change, retailers are becoming increasingly aware of the importance of connecting the dots between ecommerce and in-store sales. 

“This integration is essential for delivering a seamless customer experience, devising marketing strategies, and gaining a competitive edge in the retail landscape.”

And it’s especially critical in a cost-of-living crisis, where shoppers are being seen to limit discretionary spending. 

“The current cost-of-living crisis combined with the cost-of-doing business crisis does make it difficult for retailers to invest in ecommerce – however, that capacity varies between retail categories,” Zahra adds.

Bone cites Coles and Ocado’s fulfilment partnership as the most telling example in online FMCG of digital transformation and associated benefits to come.

“It promises to deliver the best in-full on-time order metrics and allow more efficient last-mile delivery,” Bone explains. “Short term, we are already seeing retailers benefit from a more flexible approach to fulfilment, mostly enabled by q-commerce [quick commerce] partnerships and acquisitions.”

Circana figures suggest q-commerce could reshape online retail’s skew towards bigger, high-volume items. In a comparison of grocery and pharmacy total online versus in-store baskets, its figures showed units per trip were 2.36x higher and volumes 2.65x higher per trip in grocery and 1.13 x and 1.06x in pharmacy.

“As more Australian shoppers buy online, the speed of order fulfilment will increase in importance. It will drive more varied online usage behaviour resulting in more buyers, not just those using for large stock-ups. Accordingly ecommerce demand will be spread across more trip types,” Bone says. 

For certain categories, social commerce will fundamentally change the landscape, Sperti says. In others, conversational commerce presents new opportunities. But there are only the tip of the iceberg.

“Brands that understand how commerce is changing and are building capabilities profitably to evolve inline with the changing market will win,” Sperti says.

Whatever the tools, Bone’s advises retailers to plan for a long-term migration of sales from physical stores to online transactions.

“Ecommerce is here to stay, it is just the pace of acceleration that is more uncertain,” he says. “It’s a balancing act rather than an either-or decision. Despite the push and pull between online and in-store, both experiences hold importance.

“What we know for certain is omnichannel buyers are more valuable, so we should be nurturing connections with the omnichannel buyers. Consumers interact with multiple touchpoints on their shopping journeys, be present in the ones that matter most for your category and brand to maximise sales.”