There were a couple of interesting articles in the press last week regarding online shopping and its viability. In the SMH article titled “One in three shoppers tipped to buy gifts on go” which appeared on 7 December 2013, PayPal is predicting 60% jump in mobile shopping purchases compared with last year. Last year one in five transactions at Christmas were on mobile devices and this year it is expected to be one in three. Such a strong usage of this mobile payment system indicates that people are shopping at different times (e.g. on bus on way to work) and while watching TV when prompted by advertising. Not surprising however is that the size of the transactions appears small given SMH had earlier reported on 3 December 2013 in its article “Doubts raised over GST windfall ” where the NAB indicated that the average online transaction in October was $41.
One could assume that given the size of the transactions and the frequency with which items are being purchased that these goods have an immaterial postage component and it is here that larger ‘bricks and mortar’ retailers are taking a pounding in their sales. Where products are price competitive (incl postage) and delivery is hasstle free, the consumer is prefering their couch to pounding the pavement.
However, online retailers aren’t having it all their own way. The Iconic is still making headlines with the size of its losses. The AFR reported on 7 December 2013 in its article “The Iconic says it’s here to stay” that despite having $40m in annual sales, 3m visitors a month and 450k products, it has incurred losses of more than $45m. Management says the $20m capital injection (second in five months) is not a sign the business is faltering whilst it appears to view success as a positive net promoter score (customer satisfaction) and repeat purchases.
What is unclear is whether it is the Iconic’s “online only” policy that is failing or whether it is its business model?
How much longer can this money losing business sustain itself as I’m sure its investors will soon tire of funding below cost prices for their customers? What will remain to be seen is if online only works in Australia (on a large scale) or whether a retailer must have a mixed channel to stay alive.