Online Retail

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GUEST OBSERVER
Retailers are starting to realise the benefit of combining online and in-store shopping. And by encouraging you to buy online first and collect later, these businesses are saving in a number of areas. 
Despite historically lagging behind the rest of the developed world, Australian retailers are beginning to embrace this approach. From groceries, alcohol, fashion and accessories, sports clothing and even automotive parts, more and more retailers are adopting this strategy. KPMG research found that by 2014, 64% of customers in Australia had ordered online and picked up in-store. 
In Australia 42% of retailers are now offering click and collect, and perhaps in response to the impending threat from Amazon’s entry, this number is up from 24% in 2015. To supplement their pick up in store service, 38% of retailers also allow customers to return their online purchases in-store. 
By comparison, 36% of Western European and 31% of North American retailers offer a click and collect service. The UK’s click and collect market is expected to grow 78% by 2020, to £8.2 billion. This is not surprising given the intense competition among retailers within the British market and the strategic shift away from price to convenience.
<h2>Why you click and collect</h2>
Customers are embracing buying online and picking up in store because it offers them immediate gratification but with cost savings on delivery. Click and collect provides an immediacy that traditional home delivery usually can’t match, particularly in Australia where delivery times have traditionally been slow relative to international standards. 
Depending on the type of merchandise customers are buying, the costs of delivery can be high. In the US, 73% of supermarket shoppers reported they would pick up items in store to avoid shipping costs and 30% said they were not prepared to wait around for delivery of their online order.
The sort of in-store pickup service also helps customers avoid problems with unprofessional delivery services and dodge the dreaded “card in the mailbox”, where parcels are returned to the depot. 
In-store pickup is especially handy for customers purchasing online just prior to the weekend or at peak shopping periods such as Christmas and Easter when timing is paramount. It can also help solve delivery problems for many customers living in apartment blocks, or living or working in properties that are difficult to access. More and more customers are finding it convenient to order online and then pick up their purchases during their lunch hour or on the commute home.
Online shopping doesn’t allow for tactile purchasing – actually touching the products – in-store collection enables customers to check the quality, as well as assess the colour, style and size prior to leaving the store. Any problems can be resolved immediately in-store and returns can even be processed at the same time if products don’t meet customer requirements. 
With many retailers increasingly moving away from the traditional online “price wars” and recognising the importance of connecting with customers through multiple channels and touch points, click and collect is the natural progression to encourage customers back into physical stores. 
<h2>Why retailers are adopting click and collect</h2>
Retailers can save a lot on click and collect. It reduces operational costs and leverages impulse purchases. Retailers are finding that in-store collection also provides them with additional opportunities to connect with customers and enhance the customer experience.
One of the main benefits for retailers from shoppers who come into the store to collect their online purchases is that almost 50% make an unplanned purchase. A study by company Bell and Howell of 530 shoppers found 49% of customers were likely to purchase an additional item when picking up their online order. 
The International Council of Shopping Centres found 61% of shoppers who bought items online and picked up in-store, made an additional purchase. This was higher for younger shoppers, with three-in-four millennials making impulsive purchases when popping in to collect.
Offering click and collect also means customers feel more comfortable about returns as well. A report from packaging company UPS found 82% of shoppers are more inclined to purchase online if they can return the product in store. 
Average parcel delivery costs in Australia are around $25 for a 5kg parcel (for next business day delivery) with courier services even more expensive, particularly for large and bulky items. 
The majority of retailers provide in-store collection free of charge, however some retailers are charging a fee for pickup in order to recoup staffing and storage costs. At the cheaper end of the scale Kmart charges a A$3 fee while Ikea Australia recently announced its fees which range between A$59 and A$149. 
“Bricks and mortar” retailers see click and collect as a way to differentiate and defend themselves from online players. In the US, Walmart announced last month it would offer discounts on products shoppers ordered online, but picked up in stores as a tactic to combat Amazon.
Now Amazon has started its roll out in Australia, any edge over this competition will be an advantage. Deploying click and collect into a store allows retailers to compress sale time.
Australian retailer, Super Cheap Auto recently announced shoppers could click and collect their online purchases within 90 minutes - and is now exploring how it can reduce that time down to 60 minutes.
While shoppers continue to seek convenience, the frequency of online shopping (forecast to hit 12.5% of total retail sales by 2025), will also increase. But getting the product to the customer will continue to be a challenge for retailers. 
So you can expect more retailers to adopt a click and collect strategy. If you can’t get the products to the customers, get the customer to the products.
<a href="https://theconversation.com/profiles/gary-mortimer-1322" target="_blank">Gary Mortimer</a> is Associate Professor, Queensland University of Technology.
<a href="https://theconversation.com/profiles/louise-grimmer-212082" target="_blank">Louise Grimmer</a> is Lecturer in Marketing, University of Tasmania.
Both are authors for <a href="https://theconversation.com/au" target="_blank">The Conversation</a>.
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jchancellor-FAypfDUnLy

Why retailers want you to ‘click and collect’

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GUEST OBSERVER
Martin Currie Australia, active equity affiliate of Legg Mason, noted that contrary to some analyst reports, the entry of online retailer Amazon in Australia could boost the domestic retail sector instead of a ‘doomsday scenario’ for the sector.
It’s clear that some hedge funds have been shorting discretionary retailers such as JB Hi-Fi (JBH) and Harvey Norman (HVN) since the market became aware of Amazon’s Australia strategy to open distribution centers later this year.
They have based their analysis looking at the demise of bricks and mortar retailers in the US, a very mature market, due to the ‘Amazon effect’.
However, before we jump to any such conclusions in Australia, it’s worth looking at a comparable company to JBH, which is Best Buy USA.
Best Buy reported earnings which excluding abnormal items were up 40 percent pcp for the first quarter 2017. The share price rose 22 percent.
We believe that given JBH and HVN are very dominant and profitable retailers with leverage to population growth and housing, similar to Best Buy USA, they will be well placed when Amazon begins to operate in Australia.
Wesfarmers (WES) and Woolworths (WOW) are also well prepared for the entry of Amazon with online home delivery already a significant part of their customer focus and innovation.
The other key point is that WOW, Coles (owned by WES) and JBH are located in large shopping centers around Australia.
And there are considerable differences between the US and Australian retail sector that need to be taken into account when considering the likely impact of Amazon’s entry into the local market.
Australian retail centers are better placed then their US counterparts.
In the US, supermarkets are not co-located with discretionary shops, so they are separate trips which affects foot traffic. Retail space per capita is multiple times greater in the US than in Australia.
Australian online retail continues to grow towards market share levels seen in the US, so we may see a shift of market share within those online sales to Amazon.
Overall, we think the physical mall winners will be those that can fulfil the role of the town square and offer an experience to the consumer. Australian shopping malls already have a variety of restaurants, movie theatres, free car parking and entertainment.
We also think that real estate investment trusts with logistics assets will benefit from Amazon’s entry and moves by other retailers to beef up their online presence. 
Reece Birtles is a chief investment officer, Martin Currie Australia and can be contacted <a href="https://www.martincurrie.com/institutional/australia" target="_blank">here</a>.
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Amazon to boost Australian retail sector: Reece Birtles

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EXPERT OBSERVER
Retail turnover missed expectations of a 0.3 per cent increase in October, instead recording a decline (although the result rounded to 0.0 per cent, after an increase of just 0.2 per cent in September). 
<img src="https://1.bp.blogspot.com/-fRlgDvETnfo/XejDNMrF7SI/AAAAAAAAzM4/WdfpBKe6ADcoogB09uIFwHT1xSL6eyW7wCNcBGAsYHQ/s640/RT1.jpg" width="640" height="352" data-original-height="815" data-original-width="1481">
The annual turnover increase continued to decline to a 2-year low of just 2.1 per cent.
<img src="https://1.bp.blogspot.com/-owUayf-hqCY/XejDMgYWAiI/AAAAAAAAzMw/yePFAgvBZn4gsu6pVNgHFLv0eGDSuVrBQCNcBGAsYHQ/s640/RT2.jpg" width="640" height="374" data-original-height="811" data-original-width="1386">
The monthly decline was driven by clothing and footwear (-0.8 per cent), department stores (-0.8 per cent), and household goods (-0.2 per cent). 
<img src="https://1.bp.blogspot.com/-poYDqyXkXWk/XejDMwanRrI/AAAAAAAAzM0/s0QdBarf6ecabeAK-Cpx53yWn3DnvjE0ACNcBGAsYHQ/s640/RT3.jpg" width="640" height="360" data-original-height="791" data-original-width="1403">
At the state level there were monthly declines in New South Wales and Victoria, as well as in South Australia, perhaps in line with the asymmetric wealth effect thesis. 
<img src="https://1.bp.blogspot.com/-I7RSCOh_YSg/XejDNa4522I/AAAAAAAAzM8/fFi9dFRtJOAW0QML8-TaElQCA8I2PLCvACNcBGAsYHQ/s640/RT4.jpg" width="640" height="360" data-original-height="785" data-original-width="1394">
For excellent analysis of online retail sales from data king James Foster, see here:
'Meanwhile, online retail spending lifted by a healthy 8.5% in October to $1.930bn according to the ABS's estimates to be up by 13.9% over the year. 
At 6.5% of total retail turnover, the online segment seems poised to rise to a record high next month on the back of Black Friday sales promotions.'
Overall, though, this was frankly another terrible result, with the only potential (if dubious) 'silver lining' argument being that some savings were being held back for Black Friday and Xmas shopping. 
Occam's Razor, but...
This calendar year began with the RBA still talking of the next move in interest rates being up, despite years of below-target inflation.
The experiment could have worked, but now that the central bank forecasts are being shredded the baying mob is growing increasingly restless.
Recent national accounts figures showed a healthy rise in government spending, but private demand sinking into the abyss. 
PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank">blogger</a>. 
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Retail turnover declines are woeful: Pete Wargent

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The NAB Online Retail Sales Index for the December 2015 quarter edition has estimated the Australian online retail market was worth $19.1bn in the 12 months to December 2015.
The survey noted month-on-month figures to December 2015 grew 2 percent, seasonally adjusted, driven in part by online sales growth on 2.5 percent. Australians spent an estimated $19.1 billion in retail online to December 2015. NAB report this level is equivalent to around 6.5% of the traditional bricks &amp; mortar retail sector.
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<div><a href="/images/2016/02/18/Screen%20Shot%202016-02-18%20at%201.55.59%20PM.png" target="_blank"> Click to enlarge</a></div>
<div><img src="/images/2016/02/18/Screen%20Shot%202016-02-18%20at%201.55.59%20PM.png" alt=""></div>
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mick.cee-iDmgDDAmu8

Australian online retail market worth $19.1bn in 2015: NAB

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The Amazon effect has clearly set in.
Long before the online retail giant stepped into Australia, there was nervousness among retailers here.
Now, with Amazon officially launching its marketplace, Myers and Woolworths are among those who are preparing for the increased competition. So are other leading retailers such as JB Hifi and Harvey Norman, among others.
Myer has come up with The Myer Market, which launched recently and is a marketplace that allows third parties to sell their wares, similar to eBay.
At Woolworth's annual general meeting, its Chairman Gordon Cairns said the supermarket chain was ramping up its online offering in response to Amazon’s entry.
Meanwhile, at Mirvac's annual meeting in November, its chief executive Susan Lloyd-Hurwitz said she was looking forward to Amazon’s arrival.
"Our view is that the fear is far worse than the reality's going to be," Lloyd-Hurwitz told The Australian Financial Review after the AGM.
Mirvac’s portfolio includes the country's most productive mall, the Broadway, in uptown Sydney.
Mirvac's specialty sales growth, a key indicator, is also rising. In the September quarter, specialty sales growth hit 6 per cent among Mirvac's malls, unlike many other malls 
As online shopping surges, it has also had another effect.
Real estate developers are investing record sums of money into new warehouse space, building bigger, taller structures to meet the needs of e-commerce - and the robots that help it along, Bloomberg reported.
Builders spent $US2.7 billion on US warehouse construction in October, the most since the census started keeping track in 1993.
The size of the average warehouse completed this year was 188,000 square feet, more than double the size in 2001, according to a CBRE report cited by Bloomberg.
"It's the notion of the endless aisle," said Joe Dunlap, a managing director at CBRE.
A retailer stocking 30,000 items in its stores might offer 10 times as many items for sale online. More stock means larger footprints. Higher ceilings accommodate mezzanine levels, letting operators cram more shelves into a building.
Amazon recently bought more than 2 hectares of land in Sydney’s southwest, next to a warehouse it has a lease for. It paid $7 million for the land, according to News.com.au.
Earlier this year, Amazon secured its <a href="https://www.urban.com.au/expert-insights/73432-amazon-secures-first-aussie-distribution-centre" target="_blank">first distribution centre</a> in Melbourne's outer south eastern suburbs (picture above).
The online retail giant had earlier missed its widely anticipated launch on Black Friday.
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j.ballantyne1990-6AQqhLzZaK

Australian retail biggies beef up online presence to combat Amazon

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GUEST OBSERVATION
Online retail giant Amazon’s decision to block Australian shoppers from its US website has prompted an outpouring of anger from its customers. However, economic statistics indicate the actual value of online purchased products entering Australia from international marketplaces is relatively low. While some shoppers will be disappointed by Amazon’s decision, others will simply find ways around the geoblock.
The federal government has been <a href="https://www.2gb.com/gst-on-online-shopping-should-have-happened-ten-years-ago-gerry-harvey-says/" target="_blank">under pressure from legacy retailers like Gerry Harvey</a>, who have called for an end to the GST exemption on overseas online purchases worth less than A$1,000.
Federal Treasurer Scott Morrison last year <a href="http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22chamber%2Fhansardr%2F345ee0b5-7f9d-47ea-a37c-53d1b10edff0%2F0030%22" target="_blank">introduced legislation</a> for this measure, arguing it will “establish a level playing field for our domestic retailers”. From July 1, 2018, GST will apply to all overseas online purchases.
The Australian Retailers Association has proposed a “<a href="https://www.retail.org.au/mediacentre/ara-calls-productivity-commission-widen-net-gst/" target="_blank">vendor collection model</a>” under which foreign retailers would collect the GST at the time of purchase and then pay it to the Australian Taxation Office.
But the fact is that these measures won’t level the playing field. Overseas online prices for many items are so low that that even if GST were added, they would still be <a href="https://www.choice.com.au/shopping/online-shopping/buying-online/articles/buying-cheaper-clothing-online" target="_blank">far cheaper than they are in Australia</a>. For example, a recent search showed Levi’s 510 jeans for A$115 at Myer, compared with A$74.85 in the United States; and a Uniqlo Women’s ultralight down jacket for A$200 here, versus A$154.10 over there.
In 2017 Australians spent an estimated <a href="https://business.nab.com.au/wp-content/uploads/2018/02/NORSI-DEC-2017.pdf" target="_blank">A$24.2 billion online</a>. Yet this is just 7.8% of the amount spent at bricks-and-mortar shops. And more than 80% of online spending was through domestic retailers, which are subject to GST.
With only A$4.84 billion spent via overseas retailers, a quick calculation indicates that adding 10% GST to those purchases would have added A$484 million to the government’s coffers last year.
<h2>Why has Amazon blocked Australia?</h2>
Amazon has <a href="https://www.nytimes.com/aponline/2018/05/31/world/asia/ap-as-australia-amazon" target="_blank">blamed the new GST rules</a> for its decision to bar Australian shoppers, arguing that the vendor collection model would create significant operational difficulties:
<blockquote>
While we regret any inconvenience this may cause customers, we have had to assess the workability of the legislation as a global business with multiple international sites.
</blockquote>
Yet rival online seller eBay seems to have managed to <a href="https://sellercentre.ebay.com.au/content/gst-fees-ebaycomau" target="_blank">implement the vendor collection model</a> without undue trouble. It looks as if Amazon, which generated <a href="https://www.statista.com/statistics/266282/annual-net-revenue-of-amazoncom/" target="_blank">almost US$180 billion in sales last year</a>, views the Australian market as just too small to justify the hassle. In fact, one study has estimated that Amazon will only gain a <a href="https://www.macquarie.com/au/advisers/expertise/market-insights/is-amazon-the-end-of-australian-retail-as-we-know-it/" target="_blank">16% share of Australian online retail sales by 2025</a>.
Amazon’s view on Australia’s red tape may well be right. <a href="https://www.urban.com.au/property-observer" target="_blank">Modelling by Australia Post</a> suggests that if the postal service were tasked with assessing and collecting the GST on international deliveries, it would cost almost A$900 million to collect A$300 million in revenue.
<h2>Who are the winners and losers?</h2>
As mentioned above, Amazon probably won’t suffer much from cutting loose its relatively small Australian customer base. But what about the customers themselves, and Amazon’s competitors?
When <a href="https://www.amazon.com.au/" target="_blank">Amazon Australia</a> (not to be confused with the now geoblocked US site) launched in December 2017, just in time for the Christmas rush, <a href="https://www.smartcompany.com.au/industries/retail/amazon-australia-3-8-million-aussies-december" target="_blank">3.8 million Australians visited the site</a> during that month alone. But this is well short of the <a href="https://www.smh.com.au/business/small-business/does-amazon-australias-retail-launch-spell-the-end-of-ebay-20171205-gzywck" target="_blank">11 million Australian shoppers</a> who visit eBay each month.
Amazon’s withdrawal will undoubtedly benefit eBay and other sites such as <a href="https://www.alibaba.com/countrysearch/AU/australia" target="_blank">Alibaba</a>, which look set to attract shoppers who are still hungry for an international bargain.
While some dedicated fans of Amazon’s US site are <a href="https://www.news.com.au/national/nsw-act/we-regret-any-inconvenience-this-may-cause-amazon-to-stop-shipping-to-australia-from-july-1/news-story/f90d87e59d29cc589ea9c184f3f5f40b" target="_blank">understandably annoyed</a>, most customers simply won’t notice the difference. Customers will be automatically directed to Amazon’s domestic offering, which claims to stock more than 60 million products.
For Australia’s traditional retailers, the playing field still isn’t really “level”, even without access to Amazon US. Don’t expect everyone to suddenly start banging down Harvey Norman’s doors come July 1. In reality the impact will be minimal.
<h2>How to get around the geoblock</h2>
For the very determined shopper who demands access to Amazon US, there are naturally ways around geoblocking technology, such as re-shipping services, freight forwarders, and <a href="https://www.choice.com.au/electronics-and-technology/internet/internet-privacy-and-safety/articles/bypass-geo-blocking" target="_blank">VPNs</a>.
<img src="https://counter.theconversation.com/content/97612/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">But given that the <a href="https://gopages.neto.com.au/rs/618-SCT-255/images/The%20State%20of%20Ecommerce%20Guide%202017.pdf" target="_blank">average online shopping basket</a> was worth A$145 in 2017, it seems like a lot of trouble to go to just to avoid paying A$14.50.
<a href="https://theconversation.com/profiles/gary-mortimer-1322" target="_blank">Gary Mortimer</a>, Associate Professor in Marketing and International Business, <a href="http://theconversation.com/institutions/queensland-university-of-technology-847" target="_blank">Queensland University of Technology</a>
This article was originally published on <a href="http://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/fear-not-shoppers-amazons-australian-geoblock-wont-cramp-your-style-97612" target="_blank">original article</a>.
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Online overseas shopping not prevalent before Amazon geoblock

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GUEST OBSERVATION
Australians once lax expectations concerning retail delivery times are changing and service providers must adjust, a new survey suggests.
The retail goal posts are shifting, and as a result, businesses need to transform entirely.
CBRE has released a research report about the "Omni-Channel Revolution" the rise of and the importance of melding of shopping, advertising, delivery and payment into one unified buying experience in an increasingly online world.
A shopper’s journey now spans across bricks and mortar stores, social media, apps, desktops and other mobile devices. Constant digital connectivity is a driving force behind evolving customer experience and fulfilment expectations and over 80% of all Australians own a smart phone the newest tool for online shopping.
Online spending in Australia currently accounts for approximately 9% of all retail trade, with this expected to rise to 12% by 2022 accounting for roughly AU$24.4 billion to AU$43.1 billion.
It is estimated that by 2020, a third of in-store retail sales will be in some way influenced by the web. This growth in e-commerce sales will generate demand for an additional 350,000 square metres of distribution space annually. 
<a href="https://www.propertyobserver.com.au/images/2018/6/6/Omni%20Figure%201.png" target="_blank">Click to enlarge</a>
<a href="https://www.propertyobserver.com.au/images/2018/6/6/Omni%20Figure%201.png" target="_blank"><img src="https://www.urban.com.au/images/2018/6/6/Omni%20Figure%201.png" alt=""></a>
In CBRE’s Asia Pacific Millennial Survey, online shopping was selected as the most frequent method of purchasing goods, with respondents shopping online an average 4.9 days in Australia. However, millennials frequent bricks and mortar stores more than other generations preferring to make a final transaction in-store. This demonstrates the necessity of an omni-channel strategy to attract shoppers.
Retailers benefit from incorporating omni-channel operations into their business with successful omni-channel operations shown to improve loyalty, and repeat visitation to the retailer’s stores increasing up to 23% after strong omni-channel engagement.
Omni-channel engagement provides tailored analytics and by analysing customer data, retailers can more easily target a specific market through the most successful channel.
Greater choice in products and services is also dictating where individuals spend money, as a result shoppers are not as brand-loyal as they used to be so positive experiences for customers are vital for repeat sales and the ability to offer personalised services will prove crucial for both attracting business and building customer loyalty.
A McKinsey study showed that 25% of consumers were willing to pay extra for same day or instant delivery and this is expected to increase in coming years as just over 30% of millennial customers are more likely to choose same-day and instant delivery.
<img src="https://www.urban.com.au/images/2018/6/6/Omni%20Figure%202.png" alt="">
However reverse supply chain operations are equally important, with growing costs on both retailers and the environment as the volume of returns results in roughly two billion kilograms of goods being sent straight to landfill each year in the US alone because the cost of processing the return exceeds the cost of disposing of it.
Strong returns policies create customer loyalty and if a returns process is not easy, cheap and efficient, shoppers are not likely to use that retailer again, whereas if it is, 92% of consumers would consider making another purchase through that retailer.
It is estimated that approximately 30% of all goods sold online are returned, and 30% of these returned products never find their way on to a secondary consumer, when observing returns of clothing and apparel is 40%, which in 2017 means $2.32 billion of goods were sent back to retailers costing them 10-20% of their profits. 
Research found that 19% of the Top 250 retailers profitably fulfil omni-channel demand and that 28%. Total transportation cost is in the last kilometre meaning there is a growing competition for companies to secure warehousing and short term storage closer and closer to domestic centres. Particularly as Australian cities are built around ports meaning that industrial sites in these areas will be hotly contested as significant amounts of new logistics space will be required. 
Omni-channel retail and logistics in Australia is still evolving, and the cost of implementing last-kilometre delivery solutions for retailers, combined with Australia’s low population density, means same-day delivery and fulfilment is still a work in progress with the average delivery time in Australia being 3-10 business days, however despite this the convergence of retail and logistics is well underway.
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Retail purchasing facing omni-channel revolution: CBRE

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GUEST OBSERVATION
Last week, the Federal Reserve Bank of Kansas City held its much anticipated annual central banking conference in Jackson Hole. This year’s topic “Changing Market Structures and Implications for Monetary Policy” garnered even more attention than usual.
This was in no small part because it highlighted that macroeconomists and central bankers now care a lot about what used to be the province of other fields of economics – what firms are doing. As a result, part of the mystery of why advanced economies have had a decade of low inflation and low wage growth is being unlocked.
One of the most interesting papers went right to this issue. Alberto Cavallo of Harvard Business School examined how online retailing – involving easily discoverable prices that are often determined by algorithms – can change the pricing behaviour of more traditional retailers and, it turn, impact inflation overall.
Could it be that the new economy has fundamentally changed how prices are set across the economy, thereby changing inflation dynamics and what our Reserve Bank is prepared to permit? If so it could have a significant effect on the so-called “real economy”.
The short answer is – quite possibly. But the details are both fascinating and important.
Cavallo makes use of data from the Billion Prices Project, which he co-founded with Roberto Rigobon, which scrapes price data from the internet. It contains more than 15 million daily prices, from 1000 retailers, across 60 countries, since 2008 (disclosure: Rigobon and I were colleagues at MIT). Cavallo adds country of origin data from Walmart products and product descriptions from Amazon to construct a proxy for online competition of each good. His data go down to the zip-code level so he can look at how prices vary within the US.
Cavallo shows that price changes have been happening more frequently. Multi-channel retailers – who sell both online and in “bricks-and-mortar” stores – have gone from changing prices once every 6.7 months in 2008–2010 to every 3.7 months in 2014–2017. Often these changes are cuts. This “rapid change effect” is strongest in categories like electronics and household goods, where online retailers have high market share.
The clear conclusion is that online competition is intense due to the easy availability of information about competitors’ pricing, and the ability to change prices cheaply, quickly, and often even algorithmically. Added to this is that charging different prices in different locations seems, from the data, to be harder than before because consumers can find out.
As one might expect, this also facilitates the rapid passthrough of shocks to prices that come from movements in exchange rates or fuel prices.
All of this means that there is more of a lid on prices than in the past – so lower average inflation – this is the “Amazon effect”. This would help explain why the US has 3.9% unemployment but no sign yet of runaway inflation.
The other implication is that retail prices are less insulated from macroeconomic shocks than in the past. This makes it harder to central banks to glean how the economy is travelling. In essence, prices contain more noise and less signal.
For Australia and the Reserve Bank the implications are similar, if a little more muted than in the US. Online retailing is not yet as widespread. But in many ways it doesn’t need to be widespread to discipline prices. The mere possibility that goods can be purchased online is enough to discipline traditional retailers.
As game theorists like to say, “out-of-equilibrium threats matter”. This could be a leading explanation for why inflation is low in Australia despite low interest rates and relatively low unemployment.
Because the Australian dollar is fairly volatile and we do import goods worth about 20% of GDP the “noise-to-signal” effect could be particularly strong in Australia – making things harder for the Reserve Bank.
The new economy has changed the overall economy in a host of ways from casualisation and the gig-economy to lower prices and new products. It will probably lead to a new era of monetary policy, but we don’t know what. As Reserve governor Phil Lowe is fond of saying: “time will tell”.<img src="https://counter.theconversation.com/content/102338/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;">
Richard Holden, Professor of Economics and PLuS Alliance Fellow, UNSW
This article was originally published on <a href="http://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/vital-signs-online-retailing-is-changing-our-lives-whether-we-use-it-or-not-102338" target="_blank">original article</a>.
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Online retailing is changing our lives, whether we use it or not: Richard Holden

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EXPERT OBSERVATION
Retail sales rose 0.1% in January, a disappointing result compared to consensus expectations of a 0.3% gain. Retail was coming off a 0.4% fall in the final month of 2018, so the muted January rise speaks to continued weakness carrying into early 2019.
Annual sales growth has slowed to 2.7%yr with the trend pace over the last six months closer to 2%yr.
The detail showed gains were confined to food sub-categories – both basic food and cafes &amp; restaurants up 0.3%mth – with non food categories down 0.1%mth on a combined basis. Within the latter: department stores booked another sizeable decline (–2.1%mth following –1.3% in Dec and a muted 0.4% gain in Nov); clothing was down 0.3% coming off a 3% fall in Dec but a strong 4.4% gain over Oct-Nov; and household goods retail was flat, coming off 0.8% gains in Nov and Dec. The 'other retail' category - mainly 'small ticket' discretionary items – posted a 0.7% gain.
The picture by state did have one slight positive with a solid 0.7% rise in NSW. The state had shown a much weaker finish to 2018, raising concerns that wealth effect drags were starting to bite harder. The Jan gain pares that weakness back a bit although trend sales are still weaker, flat lining vs slight 0.2% a month gains in most other states.
Looking by channel, online sales look to have posted a 2-3% gain for the month, with retail ex online down slightly (–0.1%mth).
By retailer size, small retailers reported a 0.6% fall with non food retailers driving the monthly gain amongst larger retailers. Despite this, large food retailers have still seen the best growth over the last year, sales up 4.9%yr on a combined basis, some of which relates to firmer pricing.
Separate data on vehicle sales have been mixed in early 2019. Our estimates suggest monthly seasonally adjusted sales rose in Jan but slipped back a touch in Feb. Seasonal adjustment is more problematic around this time of year so these moves should be treated with caution. Sales are still down about 10%yr. The Q4 national accounts detail showed a 1.5%qtr decline in consumer vehicle purchases, tracking a 6% annual pace of declines over the last three quarters of 2018.
Overall the slight gain in January retail sales indicates that the soft spending conditions over the second half of 2018 have extended into 2019. While sales may not be contracting in nominal terms they are likely to be down in volume terms once price changes are excluded.
MATTHEW HASSAN is a Senior Economist for Westpac
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