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Nov 20, 2012

Click frenzy, profit wait for local retailers

Australia’s big retailers are trying to jump on the Click Frenzy bandwagon, while Target is still fighting to make a profit online. The numbers for many simply don't add up.

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We’ll be watching the start of Click Frenzy — the Australian retail sector’s attempt to steal a little limelight away from the Black Friday and Cyber Monday shopping events in the United States — very closely tonight.

It’s a good concept and a valiant attempt to grab a few of the retail dollars that will be speeding around the internet in the lead-up to Christmas. We don’t have a sense of the scale of discounts on offer in Australia, but the promotion has certainly built a bit of hype and it’s a good test for the attractiveness of the offerings of Australia’s big retailers like Myer, Kathmandu and Target who have got on board.

Those retailers will be hoping for a good response. But some may have to wait a little longer than you might think to turn a profit.

Late last week I spoke at the Victorian Country Press Association’s 102nd annual conference in Geelong. Speaking before me was Dene Rogers, the managing director of Target, which is headquartered in the Victorian regional centre. Rogers gave a fascinating presentation on the challenges facing Australia’s retail sector and how Target is meeting them.

One thing he did was provide a great breakdown on the economics of selling into Australia if you are a large overseas retailer like Amazon, Asos or any one of the major overseas department stores.

Take a product that costs $100. If you are an Australian retailer selling online, you add up to $10 for customs duties and excises, $11 for GST and $9 for delivery to take the product’s price to $120-130. If you are an overseas retailer selling that same $100 product, you pay no customs or GST, you pay the same $9 in delivery, such that the goods cost $109. Then you take away a 30% swing on the Australian dollar and the price falls as low as $72.

The result, as Rogers says, is that many retailers stayed away from online because they simply couldn’t turn a dollar.

Of course, Australian retailers know they need to follow the crowd and they’re doing it in droves. At Target, for example, the number of products online has been increased from 15,000 to 60,000 and sales are growing at 25% a month, albeit from a low base. The improved sales have helped Target go from losing 40% in its online business to breaking even.

Rogers has done well to turns things around and he expects profit to flow from online sales in the next few years. But the data underlines why Australia’s big retailers have been relatively slow to start selling online, and the size of the challenge in front of them. Click frenzy or not.

*This article was first published at SmartCompany

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