Online retailers say rivals need to catch up on service, not price

Online retailers say their devotion to customer service is their true advantage, and that if bricks and mortar retailers can respond in kind they’ll be back in the game.

The Productivity Commission’s Draft Report on the “Economic Structure and Performance of the Australian Retail Industry” has won favour from online retailers, who believe its finding that lowering the GST threshold on imports is not feasible highlights the need for traditional retailers to improve customer service, rather than fighting on price.

Phil Leahy, Founder of The Professional eBay & eCommerce Sellers Alliance, said the report is “A good wake up call to traditional bricks and mortar retailers.”

“They find themselves in this position because they have taken a long time to embrace online,” he adds. “A good example of this is the Australian Retailers Association. Up until a couple of years ago they would put out a quarterly press release warning about the dangers of shopping online.”

Lucas McEntee, Managing Director of online retailer OHKI.com.au summed up the opinion of many online retailers by saying “If all the effort that has gone into complaining about the GST by the major retailers was diverted to running their respective businesses better they would have found as solution by now.”

McEntee adds that online retailers don’t win on price alone. “An online business is cheaper to operate and can compete on price, but only to a point,” he says. “We still focus on customer service as we know we will get a better quality customer, willing to pay more and repeating with us on purchase many times over.”

Kellie Byrnes of online retailer Kindred Gifts agrees.

“Take a look at the myriad of comments on blogs and forums, and you'll see that most Australian shoppers are fed up with a lack of service in bricks and mortar stores. If there were able to walk into a store, receive value for money and fabulous service, then the vast majority of consumers wouldn't need to shop elsewhere. Sadly, this has not been the case in many, many retail outlets for a very long time (particularly the large chains, who are the ones complaining the loudest about tax thresholds).”

Craig Reardon of e-commerce consultancy The E Team has similar views.

“Unfortunately the bulk of retailers will not take this decision 'on the chin' and thus continue to practice their 'complain and avoid' approaches to the Web instead of embracing the obvious opportunities it provides them,” he says. “Whilst they are investing their energies into fighting the web and all it represents, their competitors are understanding the 'eChange', working hard to understand how it works and staking their claim on their piece of the online pie.”

The Chamber of Commerce & Industry Queensland has expressed similar views, with Nick Behrens, the body’s General Manager – Advocacy, stating “… retailers need to recognise that loss of trade to overseas retailers is not entirely based on price competitiveness and extends to diversity of the online product range, ease of shopping from the living room and perhaps most importantly timeliness in terms of products arriving at the door.”

Behrens also says traditional retailers need to innovate, and says “ … they will ultimately need to consider investing in their own online shop front infrastructure either directly themselves or through clustering, or alternatively remove the wholesaler from the supply chain and source directly from the manufacturer.”

Behrens and the Australian Retailers Association (ARA) both also praised the Commission’s raising of issues around regulation and landlords’ power. Behrens says the Draft Report highlights “regulation as a significant barrier for retailers,” that advantages larger retailers.

The ARA’s Executive Director Russell Zimmerman says “ … planning and zoning restrictions are propagating the power imbalance between landlords and retailers at the negotiation table” and therefore supports the Draft Report’s recommendation for “…a harmonisation of lease information and nationally consistent model legislation as well as voluntary national code of conduct for shopping centre leases that is enforceable by the ACCC.”

Dissenting voices

But not everyone feels the Draft Report is a wake-up call for traditional retailers and lawmakers.

“Real-world retailers are unwittingly operating free showrooms for online retailers,” says Stefan Sojka of Sydney web design company Cyrius Media Group. “They pay rent, have stock, employ salespeople and do their own marketing so that the public can walk in, discuss, try on, test, touch and feel products (that you can’t do online) then go online and make the purchase, based on price alone.”

This is a very unfair situation. Online retailers are reaping all the benefits by not needing to pay for stock, staff and showrooms, whilst the real-world retailers deal with an ever-increasing stream of non-customers, assisting the online sales process with a real-world shopping experience.”

“Online retailers probably don't even know what a great service the real world retailers are doing. They are just as unwittingly making sales without knowing how much real-world research shopping, fitting and testing the customer has done. If they had to contribute financially to these real-world showrooms, would they? Why would they when they are getting the service for free now? One sector is cashing in, the other is going broke and there is no direct connection between the two businesses.”

“Unless a shift in thinking occurs, where real world shops are seen as showrooms for online shopping and the cost is shared by the online retailers, the real world shopkeepers will suffer greatly.”

Kindred Gifts’ Kellie Byrnes says things aren’t all roses for online retailers either.

“As an Australian online business, we actual have trouble competing with international retailers as well - it's not only brick and mortar stores that are finding the current retail slump very difficult. The costs to ship products to Australia, and the corresponding customs and quarantine costs, are huge.”

“On top of that, Australian wages are high, office space is expensive, and general business costs are high. However, we know that if we work hard to offer something different; make life easy for our customers; offer them fabulous customer service; and keep our pricing at the most competitive levels we can, then Aussie customers will enjoy shopping with us. I honestly believe that for the most part, Australian consumers would much rather shop locally if the convenience, customer service, range and value for money are there.”

Byrnes also says all retailers need to be pragmatic.

“At Kindred Gifts we import a lot of products into Australia ourselves, an d are now also distributing many brands, and we know for a fact that we simply have to compete on price with international pricing. While this means a smaller margin on our products, we understand that we made the choice to be in business, and we have chosen the type of business we're in, so we have to face the conditions that come with doing that. While we could choose to go down the path that many other distributors have, and set retail prices at ridiculous levels in Australia just because we think we can get away with it, we know that this isn't feasible - or ethical - for business in the current climate.”

Online retailers say their devotion to customer service is their true advantage, and that if bricks and mortar retailers can respond in kind they’ll be back in the game.

The Productivity Commission’s Draft Report on the “Economic Structure and Performance of the Australian Retail Industry” has won favour from online retailers, who believe its finding that lowering the GST threshold on imports is not feasible highlights the need for traditional retailers to improve customer service, rather than fighting on price.

Phil Leahy, Founder of The Professional eBay & eCommerce Sellers Alliance, said the report is “A good wake up call to traditional bricks and mortar retailers.”

“They find themselves in this position because they have taken a long time to embrace online,” he adds. “A good example of this is the Australian Retailers Association. Up until a couple of years ago they would put out a quarterly press release warning about the dangers of shopping online.”

Lucas McEntee, Managing Director of online retailer OHKI.com.au summed up the opinion of many online retailers by saying “If all the effort that has gone into complaining about the GST by the major retailers was diverted to running their respective businesses better they would have found as solution by now.”

McEntee adds that online retailers don’t win on price alone. “An online business is cheaper to operate and can compete on price, but only to a point,” he says. “We still focus on customer service as we know we will get a better quality customer, willing to pay more and repeating with us on purchase many times over.”

Kellie Byrnes of online retailer Kindred Gifts agrees.

“Take a look at the myriad of comments on blogs and forums, and you'll see that most Australian shoppers are fed up with a lack of service in bricks and mortar stores. If there were able to walk into a store, receive value for money and fabulous service, then the vast majority of consumers wouldn't need to shop elsewhere. Sadly, this has not been the case in many, many retail outlets for a very long time (particularly the large chains, who are the ones complaining the loudest about tax thresholds).”

Craig Reardon of e-commerce consultancy The E Team has similar views.

“Unfortunately the bulk of retailers will not take this decision 'on the chin' and thus continue to practice their 'complain and avoid' approaches to the Web instead of embracing the obvious opportunities it provides them,” he says. “Whilst they are investing their energies into fighting the web and all it represents, their competitors are understanding the 'eChange', working hard to understand how it works and staking their claim on their piece of the online pie.”

The Chamber of Commerce & Industry Queensland has expressed similar views, with Nick Behrens, the body’s General Manager – Advocacy, stating “… retailers need to recognise that loss of trade to overseas retailers is not entirely based on price competitiveness and extends to diversity of the online product range, ease of shopping from the living room and perhaps most importantly timeliness in terms of products arriving at the door.”

Behrens also says traditional retailers need to innovate, and says “ … they will ultimately need to consider investing in their own online shop front infrastructure either directly themselves or through clustering, or alternatively remove the wholesaler from the supply chain and source directly from the manufacturer.”

Behrens and the Australian Retailers Association (ARA) both also praised the Commission’s raising of issues around regulation and landlords’ power. Behrens says the Draft Report highlights “regulation as a significant barrier for retailers,” that advantages larger retailers.

The ARA’s Executive Director Russell Zimmerman says “ … planning and zoning restrictions are propagating the power imbalance between landlords and retailers at the negotiation table” and therefore supports the Draft Report’s recommendation for “…a harmonisation of lease information and nationally consistent model legislation as well as voluntary national code of conduct for shopping centre leases that is enforceable by the ACCC.”

Dissenting voices

But not everyone feels the Draft Report is a wake-up call for traditional retailers and lawmakers.

“Real-world retailers are unwittingly operating free showrooms for online retailers,” says Stefan Sojka of Sydney web design company Cyrius Media Group. “They pay rent, have stock, employ salespeople and do their own marketing so that the public can walk in, discuss, try on, test, touch and feel products (that you can’t do online) then go online and make the purchase, based on price alone.”

This is a very unfair situation. Online retailers are reaping all the benefits by not needing to pay for stock, staff and showrooms, whilst the real-world retailers deal with an ever-increasing stream of non-customers, assisting the online sales process with a real-world shopping experience.”

“Online retailers probably don't even know what a great service the real world retailers are doing. They are just as unwittingly making sales without knowing how much real-world research shopping, fitting and testing the customer has done. If they had to contribute financially to these real-world showrooms, would they? Why would they when they are getting the service for free now? One sector is cashing in, the other is going broke and there is no direct connection between the two businesses.”

“Unless a shift in thinking occurs, where real world shops are seen as showrooms for online shopping and the cost is shared by the online retailers, the real world shopkeepers will suffer greatly.”

Kindred Gifts’ Kellie Byrnes says things aren’t all roses for online retailers either.

“As an Australian online business, we actual have trouble competing with international retailers as well - it's not only brick and mortar stores that are finding the current retail slump very difficult. The costs to ship products to Australia, and the corresponding customs and quarantine costs, are huge.”

“On top of that, Australian wages are high, office space is expensive, and general business costs are high. However, we know that if we work hard to offer something different; make life easy for our customers; offer them fabulous customer service; and keep our pricing at the most competitive levels we can, then Aussie customers will enjoy shopping with us. I honestly believe that for the most part, Australian consumers would much rather shop locally if the convenience, customer service, range and value for money are there.”

Byrnes also says all retailers need to be pragmatic.

“At Kindred Gifts we import a lot of products into Australia ourselves, an d are now also distributing many brands, and we know for a fact that we simply have to compete on price with international pricing. While this means a smaller margin on our products, we understand that we made the choice to be in business, and we have chosen the type of business we're in, so we have to face the conditions that come with doing that. While we could choose to go down the path that many other distributors have, and set retail prices at ridiculous levels in Australia just because we think we can get away with it, we know that this isn't feasible - or ethical - for business in the current climate.”

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