‘Massive tailwind and huge runway’: online to hit 30pc of sales

Sue Mitchell

Oct 14, 2020

AFR

Leading retailers expect e-commerce to reach about 30 per cent of retail sales as consumers who started shopping online for the first time during the coronavirus pandemic continue to favour it over bricks and mortar stores.

Accent Group chief executive Daniel Agostinelli told the Citi Annual Investment conference the footwear retailer’s digital sales soared when bricks and mortar stores were closed during the national lockdown, reaching 60 to 70 per cent of total sales compared with 15 per cent before the pandemic.

Accent Group CEO Daniel Agostinelli expects digital sales to settle at more than 30 per cent of total sales post-pandemic.

“We feel [online sales] will land between 22 to 25 per cent of all sales and make their way to over 30 per cent as we move forward,” Mr Agostinelli said.

Kogan.com co-founder and chief executive Ruslan Kogan, whose sales have doubled during the pandemic, expects online sales penetration to reach similar levels as those overseas, exceeding 30 per cent of total retail sales.

“We just have to look at the US, UK, China and Germany, which are five years ahead … that’s what we’re going to be in a few years time,” Mr Kogan said.

“It’s an industry with a massive tailwind and a huge runway.”

Mr Kogan said thousands of customers who started shopping on Kogan.com for the first time during lockdown were now making several purchases a month.

“It’s not category specific – e-commerce is becoming mainstream,” he said. ‘”In the first years it was price hunters and early adopters. Now we’re seeing the convenience customer coming online – the convenience customer is a big part of what’s driving ecommerce.”

Australia Post struggling to keep up

Australia Post’s general manager of parcels and express, Ben Franzi, thinks online retail penetration is likely to reach between 25 per cent and 30 per cent of retail sales, compared with 19 per cent now and 11 per cent pre-pandemic.

That’s still well above the 20 per cent penetration forecast by many retail analysts and has major implications for retailers, landlords and transport and logistics providers as online sales cannibalise bricks and mortar sales.

Mr Franzi said Australia Post was already struggling to keep up with demand after a 76 per cent spike in e-commerce and a 300,000 increase in shoppers buying online in six months.

“It’s been Christmas every month since April,” he said.

“If e-commerce is growing 76 per cent and retail [by] single digits, there’s cannibalisation. There’s massive repeat business online and if you lock that [behaviour] in for 12 weeks they don’t go back.”

Australia Post had added 14 freighters to assist with next-day deliveries, opened numerous pop-up sorting sites and hired hundreds of casual drivers, but delivery times had taken a hit, increasing on average from three days to five days.

“The real bottleneck is the man in the van delivering parcels, so we are a few days off normal service standards,” he said.

While online sales were booming, Citi analysts Craig Woolford and Bryan Raymond said profit margins would come under pressure if online sales growth cannibalised retail sales and was not incremental.

Online spending soared almost 63 per cent  in July, underpinned by a surge in demand from Victorians facing stage four restrictions.

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“Retailers may ultimately see modest total sales growth, and profit margin declines, as online grows, because the majority of online sales are not incremental,” they said in a report this week.

Retailers needed to be careful in assessing the return on investment online and find areas to cut store costs as online grew. They suggested retailers should close 6 to 8 per cent of stores for each 10 per cent increase in online penetration.

Mr Agostinelli said rents would inevitably fall but the omni-channel retailer, which owns The Athletes Foot, Platypus and Hype chains, would continue to open stores.

“We are opening stores in places we never imagined and are spectacular,” he said. “Where we put stores in play our digital sales grow as we sign up new customers who have never shopped with us before.”