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E-commerce market In Australia worth US$ 26.9B by 2023

As of 2017, 85 per cent of Australians are connected to the internet and around 12.1 million Australians are on social media. This clearly shows the future of retail growth is in e-commerce.

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Definition / Scope

E-commerce, also known as electronic commerce refers to the buying and selling of goods and services using the internet or online. There are four types of ecommerce models that can describe almost every transaction-

  • Business to Consumer (B2C) : This refers to business selling a goods or services to individual consumers.
  • Business to Business (B2B) : This refers to business selling a goods or services to another business.
  • Consumer to Consumer (C2C) : This refers to consumer selling goods or service to another consumer.
  • Consumer to Business (C2B) : This refers to consumer selling their own products or services to a business or organization.

This report covers the scope of Business to Consumer transactions only.

Market Overview

Australia is one of the Asia Pacific’s highly developed eCommerce markets. In fact, it is APAC'S 4th largest ecommerce market. With global ecommerce sales expected to reach $4.5 trillion by 2021, Australia is already a top ten competitor.

There is a shift towards online channels from traditional stores. The convenience of the shopper, reduced overhead costs for for retailer, high internet usage and increase usage of mobile phones are driving the ecommerce industry in Australia.

AP.PNG

Key Metrics

Metrics Value Explanation
Base Year 2018 Researched through internet


Market Risks

  • The expansion of multinational e-commerce giants like Amazon poses serious threats to small local based ecommerce business. International retailers tend to have lower cost bases and greater economies of scale compared to small local ecommerce.
  • The growth in e-commerce volumes and values has been at the expense of brick-and-mortar retail. Former bigger players like Myer are experiencing decline in sales and stock prices.
  • There is shift in the nature of consumer-business relationship. The power and control is shifting from retailer to consumers. Consumers now have more control over how, when and where they shop. Consumers have more information and they can easily do research on products and compare prices with a quick online search.
  • Few traditional retailers are competing with their own online stores. For example, Kmart, Woolworths and Coles have retail stores as well as online stores.

Top Market Opportunities

  • As of 2017, 85 per cent of Australians are connected to the internet and around 12.1 million Australians are on social media. This clearly shows the future of retail growth is in ecommerce.
  • The global ecommerce sales is expected to reach $4.5 trillion by 2021 and Australia already falls into top ten competitors.
  • According to the NAB Online Retail Index Report, online shopping has increased by almost 10 per cent over the past year in comparison to in-store-foot-traffic which has increased only by 3 per cent.
  • 29 per cent of consumers make purchases online between 7 to 10 pm while 18 per cent shop between 2 to 5 pm. This gives opportunity to online retailers to develop some strategies to capitalize on the after-dark spike in online shopping.
  • The expansion of Amazon and Alibaba in Australia shows the high growth potential of Australian e-commerce market.
  • The Australia local e-commerce business can step to target overseas markets, especially countries like China where export demand for high quality health and food products are high.
  • Homeware, media, personal, food and fashion are the top five categories where Australians love spending their money. These categories account for 85 per cent of total online spend.
  • Statistics shows that 30 per cent of Australians don’t trust foreign sites and 29 per cent prefer buying from domestic sellers. This provides opportunity for domestic ecommerce stores to stay ahead of their international counterparts.

Market Drivers

  • Convenience for Shopper: Buying goods and products over the internet is convenient and time saving for consumers. Items are delivered at the door and the range of choice also exceeds compared to retail stores.
  • Demographics: Online shopping is dominated by people aged between 35 and 44, having 24 per cent online spending share. The growth for age groups 35-44 and 45-54 is strongest.
  • Internet Usage: About 88 per cent of the Australians are active internet users and the number of online users is growing at a rate of 1.7 per cent. Australians spend on average 3 to 4 hours a day online, which is 21 to 28 hours per week. High internet usage is a key driving factor of e-commerce.
  • Smartphones: Smartphones could become the core tool for e-commerce shopping as shoppers are becoming more comfortable in buying on mobile phones. One in a five online purchases are made from a mobile device. There is a whopping 52 per cent year over year increase in online purchases via mobile device.
  • Stronger Economy: Many people in Australia have more purchasing power and disposable income with GDP per capita of $88,000.

Market Restraints

  • The State of the Internet Survey, US internet firm Akami ranked Australia 50th in the world for internet speed.The poor access to high-speed broadband in parts of the country limits the growth this sector.
  • Australia is not an easy country for e-commerce business. It is geographically spread out that makes shipping and freight expensive.
  • Australian living in cities have more access to internet than those living in remote and rural areas. 88 per cent of households have access to internet in major cities while this falls to 82 per cent and 79 per cent for those living in inner regional and remote areas respectively.

Industry Challenges

Omni-channel

For retail today, it is not enough to only have a pure brick-and-mortar presence not it is wise to be pure online player. Customers favor both retail and digital presence. The consumers favor the touch and trying aspect offered by traditional retailers while convenience and price-competitiveness offered by internet retailing. The rising importance of both the channels have forced retailers to invest heavily in omnichannel offering. However, most retailers don’t have the required infrastructure, budget, support and measurement tools in place to do this effectively.

Changing consumer

The advancement in technology is raising the expectations of consumers. The shoppers demand end-to-end shopping experience, simple payment options and convenience across all touch points. They also expect flexibility on delivery time and collection locations. Though online shopping has already eased the shopping experience for consumer, the ever demanding consumers always want more.

Order fulfillment and Cost

Another biggest challenge for ecommerce is to manage shipping costs and fulfill order efficiently. With over 50 per cent of online shopping done cross border, there is pressure for local ecommerce players to stay competitive by offering same-day delivery and delivering to multiple locations.

Technology Trends

  • Payment services such as Afterpay led online spending to grow by 18.7 per cent. Buy now, pay later (BNPL) a digital service makes it possible to buy a product immediately and pay for the purchase in installments. BNPL payment accounted for 7.7 per cent of total online goods spend. In 2017, Neto State of Ecommerce Report, reported 147 per cent increase in adoption of BNPL methods like Afterpay and ZipPay by merchants
  • Purchases from mobile devices grew 58 per cent in 2017, a six percentage point increase from the previous year. By contrast, transactions from desktops and laptops fell 11 per cent.
  • In 2018, 48 per cent of total ecommerce purchases will be paid by cards.
Payment types.PNG

Pricing Trends

Australian shoppers feel that traditional brick-and-mortar stores do not offer good value for money. They perceive that they are paying higher prices for the similar products than consumers do in other countries like USA and UK. But, the growth of e-retailers has allowed consumers to have greater price transparency. Just with a click of button, Australians can now compare the prices and shop paying the cheapest price.

Regulatory Trends

Australia does not have specific regulation governing the online business or ecommerce. Online businesses are subject to common law, principles and legislation that applies to business generally. Some of them are Corporations Act 2001, Competition Act and Consumer Act 2010, A new Tax System Act 1999, Privacy Act 1998, Electronic Transaction Acts, Spam Act 2003, etc.

Other Key Market Trends

  • Megastores like Target, Kmart, Woolworth and Coles have also opened up ecommerce sites to benefit from the increased margin of online retail.
  • In 2017, the top three products bought online by spend were consumer electronics, clothing and books.
  • There is a strong correlation between online shopping events and buying behavior of consumers. Ecommerce sales rises during domestic and overseas shopping events such as Mayhem, Black Friday, Christmas, Merry Monday and others.

Market Size and Forecast

  • In 2018, revenue in the eCommerce market was worth US$ 18,628 million. In the same year, the market’s largest segment is Fashion with a market volume of US$ 6,595 million. The average revenue per user amounts to US$ 1,043.24.
  • The number of users is 17.9 million in 2018 and user penetration is 72. 2 per cent in 2018.
  • Online shopping reached 8 per cent of the total traditional retail sales at the end of 2017, which was 7 per cent a year before.
  • Australian ecommerce has 1.80 per cent share in GDP.
  • The annual growth rate of online market is 6 per cent.
  • In the year 2017, a share of 28.1 per cent of users is 25-34 years old, a share of 50.6 per cent of users is male and a share of 37.8 per cent of users is in the high income group.
Products bought.PNGNo of users.PNGUser penetration.PNGRevenue in ecommerce.PNG

Market Outlook

  • Revenue is expected to show an annual growth rate (CAGR 2018-2023) OF 7.6 per cent, resulting in a market volume of US$26,905 million by 2023.
  • The number of users is expected to amount to 19.7 million by 2023 and user penetration is expected to reach 75.3 per cent by 2023.
  • By 2020, it is predicted that 1 in 10 items will be bought online.

Technology Roadmap

  • In the near future, businesses that look to automation will be the ones that survive in highly competitive environment.The automation of inventory and fulfillment across sales channels will become increasingly vital.
  • According to eMarketer, people using voice assistant will grow to 76.5 million in 2019. To take advantage of this opportunity, eBay and Amazon can be leveraged as a means to being found through voice channels.
  • A study by Gartner forecasts that 85 per cent of customer interactions will be managed using AI. AI can be used to wallow through large amount of data to predict sales patterns.
  • Cloud based technology is assisitng e-retailers to reduce shipping costs, simplify their logistics and analyze their spend.

Competitive Landscape

In 2016 the market share for online retailers was fragmented. The top e-retailers accounted for nearly one-third of online sales for Australia. This was probably due to the absence of Amazon in Australia. Before, the arrival of Amazon, Australians used to buy through Amazon's US site. But now they can buy from their home country itself as Amazon has established a huge distribution warehouse on the outskirts of Melbourne.

Amazon is the largest online retailer business in the world. The long-awaited entry of Amazon in Australia is going to have ramifications for local online retail players in Australia. The shares of traditional retailers such as Myer Holdings and JB HiFi fell sharply after Amazon confirmed to enter in Australian market. Amazon Australia will offer wide range of products at a lower price than other retail stores and do free shipping with quick delivery.

The below list shows the top 5 ecommerce sites in Australia, ranked by visits.

1. eBay AU

2. Gumtree AU

3. Amazon

4. OzBargain

5. Amazon AU

All the above websites except OzBargain, belongs to international retailers. Amazon Australia soon after its entry made it to the top five list. It immediately took over a number of Australian popular websites. Amazon and eBay will continue to struggle for marketplace dominance in Australia.

Competitive Factors

The below chart shows the Australian consumer opinion on factors influencing online purchasing. Free delivery is the most important factor for e-shoppers followed by better loyalty programs and more deals.

Inflouencer.PNG

Key Market Players

Below are some of the top ecommerce websites in Australia

1. Ozbargain - It is 28th most sought website in Australia. It takes deals from multiple stores across Australia and lists them on its platform.

2. JB Hi-Fi - It is the biggest home entertainment retailer that includes wide range of electronic and computer products. The website ranks on 36th place in Australia.

3. Officeworks - It is one of the leading retailers of office products that includes range of products for offices, workplaces, schools and universities.

4. Kogan - This website started by selling televisions online in 2006 and now stocks groceries, toiletries and confectionaries.

5. Woolworths - It is the leading grocery shopping website whose unique selling point includes fresh produce and homemade meat.

6. EB Games - It is one of the biggest platform-based games reseller that has both online and physical store. It ranks on 115th place in web rankings.

7. Myer - It is one of the oldest chain of brick-and-mortar store that made its digital presence in 1998. This website ranks on 125th place in Australia.

8. The Iconic - It is a new player on ecommerce fashion marketplace that not only houses Australian designers but also had added famous international brands.

Strategic Conclusion

The widespread of internet access and smartphone ownership have been the two biggest driving factors for the rise of ecommerce. As the consumers now have increasing power over the shopping experience, businesses need to work on to finding ways to maintain their competitive advantage.

Further Reading

Appendix

AI - Artificial Intelligence

APAC - Asia Pacific

BNPL - Buy now Pay Later

GDP - Gross Domestic Product

US - United States


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