Ever since the Productivity Commission released statistics to show that online retail accounts for about 6% of total retail sales, something has been bothering me. Specifically, does this statistic tell the whole story of the rise of online retail?
Similar statistics were produced yesterday by property consultancy firm Urbis, which was commissioned by big shopping centres owners, including CFS Retail Property Trust, AMP Capital Investors, Stockland and Lend Lease.
Those figures suggest online retail was an even smaller deal that some are suggesting, with online retail sales accounting for just 3.9% of total retail sales, or $9.4 billion.
Simon Rumbold, Urbis Director in charge of the study, said in a statement that the research shows consumers aren’t abandoning the shopping centre.
“Online retail is a hot topic, but one that has become clouded by misinformation, guesswork and plain scaremongering. It is time for industry professionals to consider the real facts and to take a far more balanced and rational view of the future. Shopping centres are here to stay.”
Can’t disagree with that. Shopping centres are a part of the fabric of Australian life. They are places we go to buy stuff, but also places we go to eat, socialise, see movies and just hang out.
But I wonder if just looking at online sales as a percentage of total retail sales hides a story.
The Urbis report make the point that the large portions of retail are relatively well protected from online retail – 59% of total retail is taken up by food retailing and services, which can’t really be sold online.
That means of the $263 billion retail sector, online is only really a factor of 41% of this amount, or $108 billion.
So if we take Urbis’ figures and just look at the slice of retail where online is a viable threat, we see that online retail accounts for $9.4 billion of the total $108 billion.
So when we exclude food and services retailing, online sale actually account for 8.7% of total sales, not 3.9%.
Let’s go a step further and look at the projections for retail growth that Urbis came up with.
The consultants say total retail spending will increase by $85 billion to $348 billion, with online retail growing by $32 billion to $41.4 billion.
If we again exclude the 59% of online retail taken up by food and services, that suggests about $142.7 billion of retail dollars will face a major threat from online in 2020.
And if online retail grows as expected to be $41.4 billion by 2020, online retail would account for a massive 29% of non-food and services sales (and about 15% of total retail sales).
It all suggests a few things to me.
Firstly, non-food and services retailers should sit there and think that online retail is only a tiny slice of the market, less than 4%. Australia’s non-food retailers really need to get their eCommerce acts together – I was stunned to see a few our listed retailers only this week announcing they’re finally getting their sites together.
Secondly, shopping centre owners with a focus on specialty retailers may be in for some challenges in the next decade.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
