Bricks-and-mortar build online market share

New data on the spending habits of 2 million Australian consumers suggesting that older, established retailers are clawing back online market share from the newer, pure internet businesses.

The research from the Commonwealth Bank indicates growth in total online retail spending still remains strong – up 30 per cent in the year to July to $14 billion.

And according to the analysis of customers' spending with CBA cards, online sales represents 5.4 per cent of total retail sales, with clothing now the fastest growing category.

But of interest to shops and stores stuck in the "real world" of shopping centres and suburban high streets will be the growing view from CBA analysts that pure-play online retailers no longer have the channel to themselves.

"After a year of explosive growth in 2011, the pure-play online retail sales growth is converging with total online sales growth," said Savanth Sebastian, economist at CommSec.

"This convergence suggests bricks-and-mortar retailers are making a greater impact online and stemming channel share losses to the pure-play operators.

"This may be an early sign that the international trend of traditional bricks-and-mortar retailers dominating the online channel is playing out in Australia."

Leading traditional retailers such as department stores Myer and David Jones, as well as Woolworths, Coles and even Australia Post have poured tens of millions of dollars into creating and deepening their online experience for shoppers, keen to take back market share lost to more nimble online players over the past few years.

This is had led them to form an omni-channel strategy, fusing the best of the physical store network and online infrastructure to meet the needs of ever-demanding shoppers.

For these reasons, the pure-play online retailers may now have a fight on their hands. Pure-play online retail revenues have increased 34 per cent over the year to July 2012, according to CBA, which is a slowdown in the rate of growth experienced in the 12 months to October 31 2011 (107 per cent). While volume growth has also slowed to 52 per cent (from 147 per cent in 12 months to 31 October 2011), it remains above value growth.

"Interestingly, the domestic online retailers seem to be clawing back market share from the international online retailers, with online sales growth more than double at the domestic online stores compared with their international counterparts," Mr Sebastian said.

"Looking at overseas metrics it is likely that this trend will continue to gain traction over the coming year."

The new research from CBA is based on the spending habits of 2 million of its customers.

Mr Sebastian said the shifts in technology and the strength of the Australian dollar was also playing a part in the shift to online spending.

"And given that the dollar is expected to remain well above parity over the coming year, domestic store retailers will need to continue discounting in the traditional store space to remain competitive with the online space."