Current Retail Outlook

I've spent considerable time reading about retail over the past fewweeks and gleaning data from IBISWorld and there were a few things I picked up thatmay be of value.

According to this data I gleaned Kogan has an approx market share between 1.0% - 2% and with current growth prospects and verticals starting this year it will be interesting to see what happens.

Executive Summary
"The Online Shopping industry has grown dramatically over the past fiveyears to become part of the mainstream Retail Trade division. Rapid growth ininternet and broadband penetration, combined with consumer acceptance ofelectronic commerce as a viable and safe alternative to traditionalbricks-and-mortar retailing have aided online shopping. Industry operators havebenefited from consumers seeking variety and value, particularly in a period ofsubdued discretionary income growth and volatile consumer sentiment over thepast five years. Online shopping offers unprecedented choice through highly competitiveprices and a lack of geographical boundaries. Industry revenue is expected togrow at an annualised 14.1% over the five years through 2018-19, to $23.5billion. This includes anticipated revenue growth of 8.2% in the currentyear.Industry profitability has fallen over the past five years due to intensecompetition among industry operators and international online retailers.Start-up and maintenance costs for major websites, along with strongcompetition in the industry, have kept profit margins low. However, the cost ofsetting up a website can be minimal for small operators. As a result, theindustry has had a significant influx of new entrants over the past five years.Major international online operators have also entered the market, includingAmazon's launch of its Australian operations in December 2017.Industry revenueis expected to grow at a slower rate over the next five years compared with theprevious five-year period, as online retail is increasingly normalised.Industry revenue is forecast to increase at an annualised 7.8% over the fiveyears through 2023-24, to $34.2 billion. Regional areas will have access tofaster and more secure internet connections with the rollout of the NationalBroadband Network, which will substantially increase the industry's potentialconsumer base.The growth of online retailing through smartphones and tablets isanticipated to provide further opportunities for operators to enhance productsand services, and reach a wider, technologically savvy audience. An increasingnumber of bricks-and-mortar retailers are forecast to launch online stores tocomplement their traditional offerings, while many online operators areanticipated to open shopfronts and flagship stores. Industry revenue is alsoprojected to rise as older Australians become increasingly computerliterate."

Real Household Discretionary Income
"Real household discretionary income trends in real householddiscretionary income influence demand for industry merchandise. A rise indiscretionary income enables consumers to spend more money on a broader rangeof goods. However, a fall in discretionary income can contribute to consumersscaling back their spending, which threatens industry revenue. Realhousehold discretionary income is expected to increase in 2018-19, supportingindustry growth."

Consumer Sentiment Index

"Fluctuations in consumer sentiment can influence consumer demandfor merchandise at the retail level. Consumer sentiment regarding the state ofthe economy usually declines during periods of low economic growth, reflectingconsumers’ concerns about their current and future financial positions. As aresult, consumers tend to spend less money on industry goods when sentiment isnegative. Consumer sentiment is expected to increase and remain positive in2018-19."

Purchasing Decisions

“Online retailers allow consumers to search,compare and evaluate options from a variety of providers. While price isimportant, it does not solely determine consumer demand. Trust, reputation,warranties and add-on services increasingly influence consumers. Furthermore,offering good customer service on shopping websites is a key issue for theindustry. Consumers are demanding greater transparency regarding deliverycharges and enhanced information about products, with most retailers willing tocater to these requests.”

Participation and Profit

“A significant influx of online retail stores hasoccurred over the past five years, as new entrants have recognised theindustry’s growth potential. New entrants are either online-only retailers orexisting bricks-and-mortar stores with multichannel strategies. The number ofonline establishments is expected to increase at an annualised 8.7% over thefive years through 2018-19, with industry employment growing at a similar pace.While online retailers typically rely less on labour compared withbricks-and-mortar stores, they still require employees for various functionssuch as setting up, maintaining and upgrading web content; processing orders;performing warehouse functions and providing customer service.”

“Industry profit margins have decreased over thepast five years due to pressures from international online retailers. Onlinestores typically attract lower profit margins than traditional retailers due tofierce internal and external competition, and the potential costs incurredthrough advancements in website design and functionality. Furthermore, manyonline retailers attract consumer demand by selling products at a substantialdiscount compared with bricks-and-mortar stores, which keeps profitability low.Despite this trend, falling purchase costs have limited the decrease in profitmargins over the period. Industry players are increasingly sourcing productsfrom low-cost manufacturers overseas, lowering final costs for importedconsumer goods.”

Competition

“Industry operators face fierce competition fromtraditional bricks-and-mortar retailers, department stores and internationalonline operators. Given the variety of products sold by online retailers,numerous specialty bricks-and-mortar retailers compete with the industry.Traditional retailers and department stores have an advantage over onlineoperators as they can provide customers with face-to-face service, and theability to physically inspect products and instantly receive purchased goods.Many bricks-and-mortar stores have attempted to capitalise on these advantagesby investing in employee training and incentive programs, and new storefit-outs to improve the customer experience, to win back market share fromonline retailers.”

“International major retailer Amazon launchedits Australian website in December 2017. However, the company’s Australianlaunch initially met with mixed results, with the local website offering asignificantly smaller product range than the US site. The company’s decision toblock Australian consumers from their US site from July 2018 compounded thisproblem, although the company reversed this decision in November of the sameyear. Although the company’s entry has increased industry competition, it hasalso provided an opportunity for many operators. The company’s heavilypublicised industry entry contributed to a notable increase in consumerinterest in online shopping. A report by Mindshare indicates Amazon’s locallaunch contributed to online shopping traffic increasing by 9.9% (excludingAmazon) year-on-year between February and September 2018, having declinedby 0.1% over the same period in the prior year. Additionally, many domesticfirms reported stronger online sales and web traffic following Amazon’slaunch as consumers compared online prices.”

Other OnlineSpending

“The industry includes online sales by companiesthat purchase and resell goods. Consequently, the industry does not includeauction sites such as eBay and group-buying sites such as Scoopon. However,these websites are popular with Australian consumers and compete withtraditional retailers and service providers. Group buying, where websites offeronline coupons for various daily deals and limited-time products, is arelatively new retail model in Australia. These websites use the power of group(or bulk) buying to negotiate significant discounts with retailers and receivea commission for the number of coupons sold to customers through the website.”

Multichannelretailing

“Consumers can only undertake online shoppingthrough devices connected to the internet, which means thatdigital technology is an essential aspect of the industry. Therapidly increasing use of smartphones and tablets has prompted many industryfirms to develop mobile-optimised websites and applications. These servicesallow retailers to sell products to consumers anywhere and at anytime, enhancing the convenience of online shopping.Online orders made globally through mobile devices have grownsubstantially over the past five years. Mobile commerce enables retailersto connect and interact with customers through social media, messaging andmarketplace platforms.”

Industry innovationTechnological change is projected to be central to the industry’s success over the next five years. Mobile devices are one of the largest potential growth areas for online shopping, with smartphones and tablet computers already changing the way individuals shop. The increasing prevalence of these devices is forecast to lead to more consumers accessing online stores via mobile phones. Industry firms are anticipated to continue developing mobile-optimised websites and applications, improving customer navigation and helping boost impulse purchases.Advancements in computer programs and website design are projected to aid consumer ability to virtually try on clothing, footwear and accessories. Cameras taking precise body measurements are anticipated to help consumers choose sizes and styles. Some industry firms are already adopting this type of technology. For example, many online eyewear retailers have trialled virtual try-on services, where consumers can upload a photo of themselves and test different pairs of glasses.New payment platforms, such as Afterpay, have gained significant momentum over the past five years and are anticipated to continue driving sales over the next five-year period. Afterpay allows consumers to purchase goods instantly and pay only a quarter of the cost upfront, and make up the remainder in fortnightly instalments. These new payment platforms have already gained popularity among younger consumers.

Industry innovation

Technologicalchange is projected to be central to the industry’s success over the next fiveyears. Mobile devices are one of the largest potential growth areas for onlineshopping, with smartphones and tablet computers already changing the wayindividuals shop. The increasing prevalence of these devices is forecast tolead to more consumers accessing online stores via mobile phones. Industryfirms are anticipated to continue developing mobile-optimised websites andapplications, improving customer navigation and helping boost impulsepurchases.

Advancementsin computer programs and website design are projected to aid consumer abilityto virtually try on clothing, footwear and accessories. Cameras taking precisebody measurements are anticipated to help consumers choose sizes and styles.Some industry firms are already adopting this type of technology. For example,many online eyewear retailers have trialled virtual try-on services, whereconsumers can upload a photo of themselves and test different pairs of glasses.

Newpayment platforms, such as Afterpay, have gained significant momentum over thepast five years and are anticipated to continue driving sales over the nextfive-year period. Afterpay allows consumers to purchase goods instantly and payonly a quarter of the cost upfront, and make up the remainder in fortnightlyinstalments. These new payment platforms have already gained popularity amongyounger consumers.

Industry Data

	Revenue ($m)	IVA ($m)	Establishments (Units)	Enterprises (Units)	Employment (Units)	Exports ($m)	Imports ($m)	Wages ($m)	Domestic Demand ($m)
2009-10	6,691.0	1,825.1	26,277	23,888	32,249	-	-	1,412.0	-
2010-11	8,304.4	2,317.6	32,329	29,125	39,610	-	-	1,735.0	-
2011-12	8,943.2	2,574.7	37,055	33,085	44,996	-	-	1,976.5	-
2012-13	10,814.2	2,960.9	40,687	36,655	50,950	-	-	2,260.2	-
2013-14	12,143.5	3,161.9	43,225	38,594	53,259	-	-	2,380.7	-
2014-15	13,893.5	3,590.6	47,898	42,388	58,495	-	-	2,664.1	-
2015-16	17,311.0	4,111.4	49,760	44,429	62,200	-	-	3,005.8	-
2016-17	18,553.7	4,445.5	53,283	47,153	66,014	-	-	3,273.7	-
2017-18	21,716.9	5,132.9	58,854	52,083	73,437	-	-	3,867.5	-
2018-19	23,500.2	5,452.0	65,447	57,409	80,373	-	-	4,154.1	-
2019-20	25,341.1	5,929.8	68,042	60,215	84,903	-	-	4,454.9	-
2020-21	27,265.2	6,407.3	71,766	63,501	89,912	-	-	4,736.6	-
2021-22	29,352.0	6,927.1	77,187	67,281	95,714	-	-	5,062.4	-
2022-23	31,518.4	7,532.9	82,532	71,716	102,340	-	-	5,434.5	-
2023-24	34,167.5	8,405.2	90,584	79,459	112,832	-	-	6,015.6	-