The impact of the rising Australian dollar on the online retail sector has been well covered in recent months. Despite leading retailer and commentator Gerry Harvey's reported scepticism about the future of online retail, media reports during April show that the Aussie dollar's upward trend against its US counterpart, coupled with the acceptance of online shopping among Australian consumers, is driving the next wave of retail.
Ever since heavy discounting during the GFC, when retailers struggled to maintain sales and keep market share, Australian consumers have been sitting back waiting for a better price. And the internet has become the place to find it. The upward Australian dollar just serves to make shopping overseas even more attractive - all from the comfort of your home or office. Closer to home, the explosion of online price comparison sites and discount voucher sites are making consumers even more price savvy.
Gerry Harvey originally tried to protect Australian retailers by calling for changes to GST thresholds. However, it is not the Australian dollar that is driving changes in buying patterns. Since being so vocal on the subject late last year, Mr Harvey now accepts the consumer has changed. Indeed, he has recently announced his own online business, commenting in the Sydney Morning Herald on 27 April that "hopefully" his online business will not be competing with franchise stores within the next five years.
For retailers and franchisees more generally, Mr Harvey's hope has ramifications for brand strategies.
When the well known US lingerie brand Victoria's Secret was revealed to be destroying returned items instead of discounting or donating them to charity recently, the force of the media was unleased.
The company's response? They have to protect their brand.
In the case of Victoria's Secret, the core business's brand is so strong that the online offering is merely an extension of the store, offering the same products to new markets. The company's operations continue to be sustainable as the brand is founded on an "experience". That is, it plays to the emotion of becoming an angel - matching exactly that of their branding approach.
So would this work for Gerry Harvey? Well, it is unlikely that consumers will have quite the same emotional response to buying a washing machine as they would when buying a personal item from Victoria's Secret.
Does this mean that only certain retailers can run the same store and online brand? Possibly.
So, if adding an online shopping experience is the next step in the evolution of your business, what do you need to think about? Here are some pointers:
•1. Brand. Will you start a new brand or can you run the online store concurrently without causing damage to your established brand?
•2. Marketing. What regions do you want to service and how will they connect with you? This is your marketing challenge. Search engine optimisation will be key.
•3. Competitors. Going online takes you global. Who are your new competitors and what impact does this have on your pricing strategy?
•4. Foreign currencies. How will you manage the record keeping? Will your current bank support you and how will you manage FX risk?
•5. Risk. Aside from FX risk, does your website have sufficient security for transactions and support privacy laws.
•6. Business terms. Will your offer be competitive? Free returns or low delivery costs are just two options.
Modelling what your online business may look like, especially its cash flow and profits, will be important in your decision to invest in an online presence.
Raelene Berryman
Principal, Business Advisory
Tel +61 2 9367 3079