X0004 Online Shopping in Australia Industry Report

Net appeal: Technological innovations and
increased consumer confidence boost demand

IBISWorld Industry Report X0004
Online Shopping in Australia

January 2014
Lauren Magner
2 About this Industry
21 Competitive Landscape
Industry Definition
21 Market Share Concentration
Main Activities
21 Key Success Factors
Similar Industries
21 Cost Structure Benchmarks
Additional Resources
23 Basis of Competition
33 Jargon & Glossary
23 Barriers to Entry
4 Industry at a Glance
24 Industry Globalisation
5 Industry Performance
25 Major Companies
Executive Summary
25 Wesfarmers Limited
Key External Drivers
26 Woolworths Ltd
Current Performance
Industry Outlook
11 Industry Life Cycle
28 Operating Conditions
28 Capital Intensity
29 Technology & Systems
13 Products & Markets
29 Revenue Volatility
13 Supply Chain
30 Regulation & Policy
13 Products & Services
30 Industry Assistance
15 Demand Determinants
16 Major Markets
32 Key Statistics
17 International Trade
32 Industry Data
19 Business Locations
32 Annual Change
32 Key Ratios
www.ibisworld.com.au | (03) 9655 3881 | info@ibisworld.com
WWW.IBISWORLD.COM.AU
Online Shopping in Australia January 2014
About this Industry

Industry Definition
Retailers in this industry operate

websites that enable consumers to
purchase a broad array of products,
such as apparel, computers, recorded
music, electronic goods, general
merchandise and groceries. Industry
participants are either pure-play online
Main Activities
The primary activities of this industry are
retailers or bricks-and-mortar stores

that have an online presence. The
industry does not include the sale of
goods or services by agents that do not
take ownership of the goods and
services, or the sale of goods by
individuals.
Clothing, footwear and personal-accessory retailing

Electronic goods and appliance retailing
Cosmetics, fragrances and toiletries retailing
Food and liquor retailing
Book, newspaper and magazine retailing
Computer and software retailing
Textile goods and housewares retailing
Toy and game retailing
CD and DVD retailing
Online auction operation
The major products and services in this industry are

Clothing, footwear and personal accessories
Computers, software and electronic goods
Cosmetics, fragrances and toiletries
Groceries and liquor
Homewares and domestic appliances
Printed material, music and movies
Recreational goods
Similar Industries
G4123 Liquor Retailing in Australia

Operators in this industry retail liquor.
G4260 Department Stores in Australia
Businesses in this industry operate physical department stores.
G4251 Clothing Retailing in Australia
Players in this industry sell apparel via traditional bricks-and-mortar stores.
G4242 Video Game and Recorded Music Retailing in Australia
Businesses in this industry retail recorded music and video games.
G4243 Toy and Game Retailing in Australia
Companies in this industry retail toys and games.
G4244 Newspaper and Book Retailing in Australia
Businesses in this industry operate newspaper, book or stationery stores.
About this Industry
Similar Industries
continued
G4111 Supermarkets and Grocery Stores in Australia

Firms in this industry operate supermarket and grocery stores.
G4222 Computer and Software Retailing in Australia
Operators in this industry sell computer and software merchandise via retail stores.
G4221a Domestic Appliance Retailing in Australia
Operators in this industry sell domestic appliances such as fridges, washing machines, toasters and kettles.
G4213 Houseware Retailing in Australia
Businesses in this industry sell domestic housewares.
Additional Resources
For additional information on this industry

www.abs.gov.au
Australian Bureau of Statistics
www.acma.gov.au
Australian Communications and Media Authority
www.insideretailing.com.au
Inside Retail
www.pc.gov.au
Productivity Commission
IBISWorld
writes over 500 Australian

industry reports, which are updated
up to four times a year. To see all
reports, go to www.ibisworld.com.au
Industry at a Glance
Online Shopping in 2013-14
Key Statistics
Snapshot
Revenue
Annual Growth 09-14
Annual Growth 14-19
Profit
Wages
Businesses
$12.4bn 24.1%
9.9%
38,594
$481.7m $2.5bn
Internet connections
Revenue vs. employment growth
Market Share
Wesfarmers
Limited 9.9%
50
20
40
15
30
% change
% change
Woolworths Ltd
8.7%
20
10
5
10
0
Year 06
08
Revenue
10
12
14
16
18
20
Year
07
09
11
13
15
17
19
Employment
SOURCE: WWW.IBISWORLD.COM.AU
p. 25
Revenue

6.8%
SA
Real household
discretionary income
Consumer
sentiment index
1.2%
2.3% 2.1%
ACT
NT
TAS
33.2%
NSW
11.5%
WA
Demand from
department stores
Median age of the
population
19.3%
QLD
23.6%
p. 5
VIC
SOURCE:
SOURCE:
Industry Structure
Life Cycle Stage

Revenue Volatility
Capital Intensity
Growth
High
Medium
Regulation Level
Medium
Technology Change
Medium
Barriers to Entry
Industry Assistance
Low
Industry Globalisation
Concentration Level
Low
Competition Level
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 32
Low
Medium
High
Industry Performance
Executive Summary | Key External Drivers | Current Performance

Industry Outlook | Life Cycle Stage
Executive
Summary
Online retailing has changed the face of

the Australian retail sector, representing
a paradigm shift in the way consumers
make transactions. While the industry is
in its infancy, both technologically and
financially, it has grown dramatically
over the past five years to become part of
the mainstream consumer shopping
experience. The rise of the industry has
been aided by the rapid growth in
internet and broadband penetration,
combined with an acceptance of
electronic commerce as a viable and safe
alternative to traditional bricks-andmortar retailing.
The industry has benefited from
consumers seeking choice and value,
particularly as discretionary spending
and overall consumer sentiment have
declined. The online space offers
unprecedented choice, as there are no
geographical boundaries and prices are
highly competitive. Industry revenue is
expected to grow by an annualised 24.1%
over the five years through 2013-14 to
$12.4 billion. In 2013-14, the industry is
forecast to increase by 11.3%.
Industry profitability has remained at
a stable level, despite a strong increase in
total revenue. The start-up and
maintenance costs for major online
websites has kept profit margins low, as
have the high levels of competition within
the industry. However, for small

operators, the cost of setting up a website
can be minimal. As a result, there has
been a significant influx of new entrants
into the industry over the past five years,
with enterprise numbers growing at an
annualised 16.3%.
Revenue growth is expected to
temper over the next five years as online
retail becomes increasingly normalised.
In the five years through 2018-19,
industry revenue is forecast to increase
by 9.9% annualised to total $19.8
billion. Regional areas will be able to
access faster and more-secure internet
connections through the rollout of the
National Broadband Network. This will
substantially increase the industrys
potential consumer base. The growth of
online retailing through smartphones
and tablets will provide further
opportunities for operators to enhance
products and services and reach a
wider, technologically savvy audience.
An increasing number of bricks-andmortar retailers will migrate online to
complement traditional offerings.
Industry revenue will also be boosted as
older Australians become increasingly
computer literate. Furthermore, the
ongoing recovery of the global economy
will bode well for the retail sector
ingeneral.
The number of internet connections is of
particular relevance to the industry. With
increased internet penetration,
particularly in regional areas, the number
of consumers able make transactions
online will increase, boosting revenue for
industry participants. Increased
consumer confidence with shopping
online is also expected to affect the
frequency and amount of goods
purchased. In 2013-14, the number of
internet connections in Australia is
expected to increase, creating an
opportunity for online retailers to further
increase sales.
Real household discretionary income

Trends in real household discretionary
income influence the demand for
industry merchandise. A rise in
discretionary income enables consumers
to spend more and hence demand a
broader range of goods. On the other
hand, a fall in discretionary income will
result in consumers scaling back
spending, which poses a threat to
industry revenue. In 2013-14, real
household discretionary income is
expected to fall.
Consumer sentiment index
Fluctuations in consumer sentiment have

continued
a notable effect on demand for

merchandise at the retail level. During
periods of low economic growth,
consumer sentiment regarding the state
of the overall economy declines, leading
consumers to limit their expenditure.
This affects demand for products sold by
online retailers. Consumer sentiment is
anticipated to increase in 2013-14.
Demand from department stores
Online retailers face competition from
department stores, which stock a large
range of products from clothing to
electronic goods. The advantage that
department stores have over online
operators is that consumers are able to
physically inspect products, receive
face-to-face customer service and acquire
products instantly. Department store
revenue is forecast to increase marginally

in 2013-14, intensifying competition for
industry players.
Median age of the population
Due to the nature of the industry, the age
distribution of the population plays a
significant role in demand. Data suggests
that younger people are more likely to
purchase products online. Trends in
population age distribution also affect the
type of merchandise demanded by various
age groups. Over the next five years, the
average age of online shoppers is expected
to increase to more closely reflect the
average age of Australian residents. This is
due to online shopping becoming
increasingly normalised and established.
The median age of the population is
forecast to increase in 2013-14.
Real household discretionary income
20
15
15
10
% change
% change
10
5
0
Year
5
0
07
09
11
13
15
17
19
Year
08
10
12
14
16
18
20
Current
Performance
Over the past five years, online shopping

has been the lone shining star in an
otherwise dim retail sector, growing
strongly despite a weak global economy,
low consumer sentiment and subdued
discretionary spending. The dramatic
growth of the internet as a channel for
commerce, faster internet speeds and
higher internet penetration rates laid the
foundations for Australias next big
growth industry. These trends have
coincided with the strong proliferation of
online stores offering a range of products
and services at competitive prices.

Improvements to the security and
reliability of online retailers have
changed perceptions of the internet as a
credible medium for shopping. Many of
Australias largest retailers are belatedly
entering the online fray, reinforcing the
role of the internet in todays retail
landscape. Over the five years through
2013-14, industry revenue is expected to
increase by an annualised 24.1% to total
$12.4 billion. In 2013-14, revenue is
estimated to increase by 11.3%.
Geographical trends
While international retailers have been

perceived as a threat to Australias Online
Shopping industry, domestic retailers
account for about 73.0% of online
spending. According to the NAB Online
Retail Sales Index, for the year through
January 2013, domestic online retailing
grew by 28.0%, while international sales
grew by 25.0%. Hence, the domestic
segment is not only growing faster, but

also accounts for the majority of
Australian online retailing.
Online spending has also been spurred
on by geographic trends. The
commodities boom in Western Australia
has led to a dramatic increase in online
sales by consumers in this state,
particularly from regional areas.
Steady sales growth
Until recently, it was unclear how big

the Australian online retail market
actually was. Some estimates placed it
at over $30.0 billion. However, data is
beginning to reveal a different picture.
Although Australians spend billions of
dollars purchasing products online,
through platforms such as eBay, most
individual sellers are not commercial
entities and, therefore, are not
classified as retailers. Likewise, many
estimates include the sale of airfares,
concert tickets, accommodation and
beauty and entertainment services.
When these sales are removed to
provide a clear comparison with

traditional bricks-and-mortar stores,
the domestic online retail value of
goods is but a fraction (about 4.6%) of
total retail consumer goods.
Sales growth is expected to be
supported by growing consumer
confidence in online retail, a large
marketplace offering a variety of value
options and further growth in internet
use across the population. Initially,
specialist retailers dominated online
retailing, but e-commerce platforms are
quickly becoming common for
multichannel delivery.
Employment,
enterprises and
profitability
Over the five years through 2013-14,

enterprise numbers are expected to surge
at an annualised 16.3%, with a large
number of new online start-ups and
pre-existing retailers selling online for
the first time. Despite the strong rise in
enterprise numbers, the online offerings
of traditional bricks-and-mortar retailers
still lag behind their international
counterparts. This lag has provided new
retailers with opportunities in the
domestic market, but has also resulted in
a dramatic increase in consumers
choosing overseas online operators with
wider product ranges and more-advanced
and engaging e-commerce platforms.
Employment over the period is also
expected to swell, fuelled by the entry of
new enterprises. While the industry is
not as labour intensive as the rest of the

Retail Trade division, staff are required
to process consumer orders, carry out
customer service, perform warehouse
functions and maintain and upgrade
web content.
Average industry profit has remained
stable over the past five years, despite the
surge in demand for goods online.
Industry profitability has been kept low
by strong competition, both domestically
and internationally, and high
development costs, especially for large
retailers. At the bottom end of the
market, a range of internet service
providers offer template e-commerce
platforms for as low as $20 per month,
enabling even the smallest of stores to
migrate online.
Purchasing decisions
A key advantage offered by online

retailers is the unparalleled ability to
search, compare and evaluate options
from a variety of providers. While price
is important, it is not the sole
determinant for consumers. Consumers
are increasingly influenced by trust,
reputation, warranties and add-on
services. Furthermore, the level of
customer service offered by shopping
websites is a key issue for the industry.
Consumers are demanding greater
Other online spending The industry includes the sale of goods
Evolving technology
Consumers are increasingly
influenced by trust,
reputation, warranties and
add-on services
transparency with regard to delivery
charges and enhanced information
about products, with most retailers
willing to cater to these requests.
online by companies that take ownership

of these goods. Therefore, the operation
of auction sites such as eBay and groupbuying sites such as Scoopon are not
included. Nevertheless, these websites
are extremely popular with Australian
consumers and compete with traditional
retailers and service providers. Group
buying whereby websites offer online
coupons for various daily deals and
limited-time products is a retail model
that is new to Australia. These websites
use the power of group (or bulk) buying
to negotiate significant discounts with
retailers and receive a commission for the

number of coupons sold to customers
through the website. Cudo, Scoopon and
Spreets are major players in this rapidly
developing segment of online retailing.
For over a decade, eBay has been the
foremost auction website for Australian
consumers, with the American parent
company occupying the same marketleading position on a global scale. Until
recently, most eBay sales were for
second-hand goods. However, the
majority of transactions taking place on
eBay today are for new items, with
classified-style listings joining auctions.
Online shopping can only be undertaken

via devices connected to the internet,
meaning digital technology is an essential
aspect of the industry. Apples release of
the iPad in early 2010 marked the first
major technological shift since the release
of the touch-screen smartphone.
Together with the rapidly increasing

number of smartphones in Australia,
consumers are now able to easily access
the internet anywhere and anytime. This
is another positive development for
online retailers, whose value is primarily
based on convenience.
Industry
Outlook
The Online Shopping industry is forecast

to continue growing strongly over the
next five years. Demand for online goods
and services will be driven by continued
growth in computer literacy, internet
speeds and security, and the number of
consumers seeking greater convenience.
Online retailers will place greater focus
on website layout, efficiency, security and
reliability. Industry performance will be
driven by movements in real household
discretionary income, the average age of
the population and the consumer
sentiment index. Industry revenue will
also depend on how successfully
domestic online retailers can compete
with their international counterparts. In
the five years through 2018-19, industry
revenue is forecast to grow by an

annualised 9.9% to $19.8 billion.
Increasing
competition
Over the next five years, there will be

continued growth in the number of
operators entering the industry. Industry
employment will increase, but efficiency
and technology improvements will mean
that revenue and store numbers are
expected to increase at a faster rate. As
traditional retailers increasingly see
online retail as an opportunity, rather
than a threat, more will open their own
online stores, further driving industry
growth. These online stores will not
replace bricks-and-mortar stores, but
rather supplement them, providing
consumers with greater flexibility and
convenience.
A rise in enterprise numbers will
increase the range of products and
services for consumers, and heighten
competition in an already cluttered
environment. Faced with price-based

competition, operators will ensure that
associated costs to consumers, such as
delivery fees, are minimal, thereby
further constraining their product
margins. Online retailers will engage in
search engine optimisation strategies to
ensure that their web pages are listed as
high as possible on internet searches.
Operators are also likely to focus on the
needs of consumers by reviewing and
expanding after-sales services.
The Australian dollar is expected to fall
over the next five years, which will
increase operators competitiveness with
foreign online retailers. As retailers
become more efficient at managing costs
and become well-established in the
industry, profitability is expected to
increase.
Improved internet
connections
Over the next five years, the industry will

benefit from the rollout of the National
Broadband Network (NBN). Under the
NBN, Australians will have greater access
to faster and more-reliable internet
connections. Top-quality online retailers
require large volumes of data for
pictures, graphics and videos. Retailers
will be able to build more-functional and
interactive websites, and more

consumers will be able to access them,
due to improved internet connections.
This, along with growth in mobile data
devices, will lead to increased demand for
industry products, a rise in the number of
online retailers and more consumers
choosing online operators over
traditional bricks-and-mortar stores.
Industry revenue
50
% change
40
30
20
10
0
Year 06
08
10
12
14
16
18
20
10
Expansion of
customer base
Each year, a higher percentage of the

Australian adult population will have
grown up using the internet. Further
improvements to the user-friendliness
and prevalence of technology, along with
an increased awareness among older
Australians of the benefits of shopping
online, will drive the expansion of the
potential consumer base.

Industry growth will begin to abate
over the next five years. Once the
majority of Australians are actively
shopping online, growth opportunities
will be found in increasing the average
spend per customer, rather than luring
new customers to the medium.
Growth potential
Technological change will continue to be

central to the industry. Mobile devices
are one of the largest potential growth
areas for online shopping. Smartphones
and tablet computers are already
changing the way individuals shop. An
increased prevalence of these devices will
lead to a greater number of consumers
accessing online stores via mobile
phones. Shopping via mobile phones is
set to boost impulse buying and provide
consumers with greater search
capabilities.
Shopping via mobile text messages, a
system used in the United States, has the
potential to infiltrate the Australian
market. The system enables consumers to
send the barcode of items they wish to
purchase, eliminating the need to visit
stores or go online. Text orders are then
charged to the consumers nominated
credit card. Consumers are required to
establish an account, specify a delivery
address and provide credit card details

before they can begin to place orders.
While this process has the ability to be
replicated across the Australian market,
implementation is only likely to proceed
after significant consumer demand for
the technology. Other technology that is
currently being developed includes the
use of geolocating social media, to offer
special limited deals to nearby
consumers, which allow customers to
purchase online while in the store.
Another potential growth area for the
industry is the establishment of online
shopping malls. Integrating online
shopping with social networking, the
malls offer consumers access to
numerous retailers. Consumers are able
to read reviews from shoppers and have
access to discount coupons and
promotional deals. In 2011, Westfield, the
worlds largest shopping centre operator,
opened an online shopping mall.
11
The rise in store numbers is characteristic of an
industry in the growth phase of its life cycle
Life Cycle Stage
The range of products and services

on offer is expanding
Advances in technology have
improved website functionality
% Growth in share of economy
Industry value added is expected to grow at

a faster rate than the overall economy
20
Maturity
Quality Growth
Company
consolidation;
level of economic
importance stable
Key Features of a Growth Industry
High growth in economic

importance; weaker companies
close down; developed
technology and markets
Revenue grows faster than the economy

Many new companies enter the market
Rapid technology & process change
Growing customer acceptance of product
Rapid introduction of products & brands
15
Online Shopping
10
Quantity Growth
Many new companies;

minor growth in economic
importance; substantial
technology change
Liquor Retailing
Courier Pick-up and Delivery Services
Supermarkets and Grocery Stores
Houseware Retailing
Domestic Appliance Retailing
Decline
-5
Shrinking economic
importance
-10
-10
-5
10
15
20
% Growth in number of establishments

12
Industry Life Cycle

This
industry
is G
rowing
The Online Shopping industry is in the

growth stage of its life cycle. Over the 10
years through 2018-19, industry value
added is expected to increase by an
annualised 15.7%, compared with real
GDP growth of 2.5% annualised over the
same period. This suggests that the
industry is growing at a significantly
faster rate than the Australian economy.
Strong consumer demand and an
increase in the number of goods available
online have characterised the growth
phase of the industry. The relatively
untapped potential of online retailing has
encouraged a large number of new
entrants, with the number of online
stores increasing by an annualised 16.7%
over the past five years. Contributing to
growth in store numbers has been an
increase in the number of traditional
retailers who have developed
multichannel retailing strategies by
setting up online operations to
complement their existing sales.
Technology used by operators has

driven the growth life cycle for the
industry. In terms of technology, the
industry has undergone a period of
continuous change over the past five
years. Developments in website and
software functionality have improved
searching and payment processes, and
made it easier for consumers to navigate
online stores. In addition, technology
advancements have improved security
systems, ensuring safe transaction
processing and providing consumers with
peace of mind.
The market for goods purchased
online has changed considerably over
the past five years. Increasingly, online
shopping is an everyday activity
undertaken by people of all ages, income
levels and locations. In years gone by,
the computer skills, information and
willingness needed to shop online were
confined to a smaller segment of the
community.
13
Products & Markets
Supply Chain | Products & Services | Demand Determinants

Major Markets | International Trade | Business Locations
Supply Chain
KEY BUYING INDUSTRIES

Z9901
Consumers in Australia
Australian consumers represent the major market for online retailers.
KEY SELLING INDUSTRIES

C Manufacturing
Manufacturers produce a wide variety of consumer goods, which are either sold to wholesalers
or direct to online retailers.
Products & Services
Wholesale Trade
Wholesalers supply a range of merchandise including food, wine, clothing, computers, sporting
equipment and cosmetics, all of which may be purchased via the internet.
I5102
Courier Pick-up and Delivery Services in Australia

Online retailers use pick-up and delivery services to transport goods to customers.
J5911
Internet Service Providers in Australia

Operators in this industry supply internet services to businesses, a vital component for online
retailers.
The range of products and services

available for purchase from online retailers
has grown robustly over the past decade.
Driven by strong consumer demand and
the entry of new players, the industry
offers an expanding range of goods and
services that rivals the range offered in
traditional bricks-and-mortar stores.
Clothing, footwear and
personal accessories
Clothing, footwear and personal
accessories, such as jewellery and
handbags, account for 20.6% of industry
revenue. The jewellery and fashion
accessories product segment has grown
steadily, as Australian consumers focus

on the little luxuries. These goods are
perfectly suited to online retail as they
are often lightweight and easy to ship.
Online sales of clothing has stemmed
from consumers comparing online prices
in search of a discount or bargain. The
apparel sub-segment has grown steadily
for online retailers. However, many
Australians are heading to foreign sites to
pick up the latest fashions. The clothing
sub-segment highlights the differences
between Australian online retailers and
the rest of the world. Sites like the
UK-based Topshop offer a much larger
range than many Australian sites.
Products and services segmentation (2013-14)
6.5%
1.2%
Other goods
20.6%
11.7%
Clothing, footwear and personal accessories
Recreational goods
12.2%
18.3%
13.1%
Total $12.4bn
16.4%
Computers, software and electronic goods

14
Products & Markets
Products & Services

continued
This segment is expected to grow

steadily as consumers become more
accustomed to shopping online. In order
to draw in consumers, operators are
increasingly offering simple return
policies for clothing and footwear, which
is further enhancing consumer
confidence in online shopping. Australian
online retailer, The Iconic, offers free
delivery and free returns. This is setting a
new benchmark for online retailers.
account for 18.3% of revenue. Although
online demand for these products was
initially slow, the segment has taken off,
particularly with the emergence of
retailers such as Appliances Online and
Kitchenware Direct. Due to the size of
some of the items sold in this segment,
the ability to order online and have these
items delivered and installed has
provided consumers with greater
convenience. The increasing trend
towards consumers renovating their
homes has further contributed to growth
in this segment.
Computers, software and
electronic goods
This product segment accounts for 16.4%
of industry revenue and includes
computer hardware, software, mobile
apps and electronic goods such as TVs
and DVD players. This segment has
grown as a share of revenue over the past
five years for a number of reasons.
Advances in product design and
technology have fuelled demand for
computer-related goods. Several years
ago, this product segment was dominated
by the sale of computer equipment to the
tech-savvy younger age groups. However,
this has changed substantially as more
retailers get on board, and older age
groups become more familiar with
technology and comfortable shopping
online. Retailers such as JB Hi-Fi have
contributed to the expansion of this
segment by offering free shipping via
their websites. Another significant player
in this market is Kogan, which sells
home-labelled electronics.
Demand for TVs, DVD players and
other electronic goods has been strong
over the past five years, as new models
are released frequently. Many households
in Australia have more than one TV,
therefore leading to repeat purchases. A
large number of consumers are choosing
to purchase these products online due to
the growing reputation of many online
retailers in this segment.
Software and apps are also included in
this segment. There has been significant
growth in the sale of apps for smartphones
and tablets as the number of consumers
owning these devices increases. Software
purchases are generally for game consoles,
handheld gaming devices and PCs, and
antivirus software.
Groceries and liquor account for an
estimated 13.1% of goods sold by the
industry and have grown as a share of
revenue over the past five years as
consumer demand strengthens. An
increase in the number of women
returning to the workforce, busy workhome lifestyles and time constraints have
led consumers to adopt alternative means
of grocery shopping. This segment also
includes the sale of wine and vitamin
supplements. The sale of wine through
sites like Grays Online and Catchoftheday
has proven both popular with consumers
seeking a bargain and suppliers looking
to clear excess stock. The sale of dietary
supplements has boomed as older
Australians look to boost vitamin intake
and Australians seek new ways to lose
weight. The vitamin and supplement
market is highly fragmented, with dozens
of websites offering discounted vitamins.
Published media accounts for 12.2% of
revenue and includes books, magazines,
music, ringtones and videos. This product
segment has grown solidly over the past
five years, with consumers in younger age
groups accounting for a significant
proportion of sales. Apple has become a
major operator in the segment through its
15
Products & Markets
Products & Services

continued
Demand
Determinants
iTunes store. Demand has been driven by

the popularity of these goods at key selling
periods such as Christmas.
IBISWorld expects this segment to
decline as a share of total online sales
over the next five years, while other
product segments grow. Consumer
demand for published media will
increase, but the way Australians
purchase and interact with content is
expected to change. Music streaming
websites are becoming more prevalent in
Australia. The video and broadcasting
industries have been developing and
rolling out video-streaming sites such as
ABC iView, iTunes movies and Telstras
T-Hub. As Australians switch to renting,
rather than purchasing, online content,
this segments revenue will decline.

Cosmetics, fragrances and toiletries are a
small product segment for the industry,
but it has been growing steadily. This
segment is well suited to online sales of
standardised products. For example, a
bottle of Chanel No. 5 from one store is
identical to a bottle of Chanel No. 5 from
another. Furthermore, consumers tend to
have a favourite product or brand,
making repeat purchases of the same
product. One downside for the segment is
that this also applies to international
sites, which increases competition for
operators. Online sales of cosmetics
represent just 6.5% of all cosmetics sales
in Australia. As such, there is substantial
room for online retailers to increase their
market share in this segment.
Recreational goods
Toys, games, sporting equipment and
hobby items account for 11.7% of industry
sales. This segment has grown strongly
over the past five years as consumers
become more confident with purchasing
these goods online. For consumers who
lead busy lives, the convenience of
purchasing these products online and
having them delivered, has facilitated
demand within this segment.
Other goods
Other products include furniture,
flowers, hardware, plants, building
materials, office equipment, stationery,
automotive parts, aviation parts and art.
The sale of flowers is the oldest subsegment, with consumers able to log on
to florist websites to order flowers for
many years. Because of its maturity, this
sub-segment is growing slower than
other goods in the segment.
Demand for goods purchased online is

influenced by a range of factors such as
price, discretionary spending,
reputation, consumer sentiment, product
range and the availability of substitutes
from other retail channels. Following the
global financial crisis, consumers became
more value-conscious and bargain
hunting became increasingly prevalent.
Demand for online goods grew
significantly as consumers compared
prices and products across different
websites. Although weak consumer
sentiment and reduced discretionary
spending have affected traditional
retailers, online stores have benefited
from this change in consumer behaviour.
Convenience and price have been the

largest factors driving consumer
demand for goods purchased online.
The ability to purchase goods without
the restrictions of traditional stores (e.g.
trading hours and shopping queues) has
empowered consumers with a new sense
of freedom. Following initial fears
regarding the safety of ordering goods
online, the medium has been well
received by consumers owing to an
increase in efficiency, reliability,
turnaround time and resolution of
refunds. Growth in the range of
products and services on offer by
retailers has also boosted demand over
the past five years.
16
Products & Markets
Demand
Determinants
continued
Online stores compete with

traditional bricks-and-mortar retailers
such as department stores and
specialised retailers. In addition,
consumers may also choose to purchase
goods from foreign operators that offer
competitive prices and wider product
ranges, representing a leakage of
revenue for the industry. This is
particularly prevalent when the value of
the Australian dollar is high, because
international products will be relatively

cheaper to domestic consumers.
Demand for industry products is also
affected by seasonal trends. Research
indicates that the largest percentage of
online sales occurs from late October to
late December each year. This suggests
that a growing number of consumers are
shopping online in the lead up to
Christmas to avoid queues at major
shopping centres.
Major Markets
The major market for online retailers is

households. Households can be broken
down into segments based on age groups.
The level of online shopping is influenced
by a range of factors, including internet
literacy, convenience, price, confidence,
experience with online shopping and
security concerns. As such, age groups
that have the greatest exposure to online
activity for work and leisure are most
likely to shop online.
mobile devices to make online purchases is

highly prevalent in this market segment.
Exposure to advertising through social
media websites will encourage sales from
these consumers. Despite overall lower
discretionary incomes compared with
older age groups, the volume of goods sold
to this market offsets the generally lower
purchase prices. This markets
contribution to revenue has increased over
the past five years.
People aged 15 to 24 years

Consumers aged 15 to 24 years account
for 17.0% of the market. This market
segment is highly responsive to
marketing on social media sites and these
consumers will often look for bargains
online. The majority of purchases made
by these individuals are on fashion items,
such as clothing, footwear and personal
accessories. As such, this age group
represents the largest market for online
apparel retailers and has grown as a
share of revenue over the past five years.
However, while this market has
effectively grown up with computers and
the internet, they generally lack the
financial resources to account for a
significant share of sales.

This age group represents 22.8% of the
industry. Convenience is a leading
reason for this age group to shop online.
Consumers in this age bracket tend to
have less time available for shopping at
physical stores due to work and family
commitments. Professionals in this age
group will typically have well-established
careers and will therefore have higher
discretionary income than other market
segments. As a result of higher
discretionary income, average spend per
person is also higher. Despite this, this
markets share of revenue has contracted
over the past five years, as this age group
has scaled back discretionary
expenditure in response to uncertain
economic conditions.

As the largest market to the industry, this
age group accounts for 23.4% of revenue,
with about 80.0% of people aged 25 to 34
years using the internet to shop online.
Consumers in this age group have
significant exposure to the internet and are
regarded as highly tech savvy. The use of

Accounting for 19.1% of industry sales,
people aged 45 to 54 years will generally
have a high average discretionary
income. However, concerns over internet
security restrict the number of purchases
made online by this age group.
17
Products & Markets
Major Markets
continued
Individuals in this market segment are

generally more concerned with
convenience than price when it comes to
online shopping. The majority of
purchases are on homewares and
domestic appliances, indicating a trend in
this age group to update their homes.
Over the past five years, this age groups
contribution to revenue has fallen due to
reduced discretionary expenditure.
People aged 55 years and over
Over the age of 55 years, the propensity
to shop online falls, with sales made to
this age group representing 17.7% of

revenue. The level of internet literacy
and fears over quality and fraud act as
barriers to many older Australians
shopping online. However, this market
has the potential to grow as Australias
population continues to age. Many
consumers in this group will use the
internet to purchase food and liquor,
due to increased convenience.
Australias ageing population has
resulted in an expansion this
marketsshare of revenue over the
pastfive years.
Major market segmentation (2013-14)
23.4%
17.0%
17.7%
People aged 55 years and over
22.8%
Total $12.4bn
International Trade
19.1%
The level of international trade in the

industry is low because imports and
exports of online goods are accounted for
at the manufacturing level. While not
included in the industry, a large
proportion of products sold by retailers
are sourced from overseas companies.
Domestic online retailers are affected by
growing demand for goods sold by
foreign websites.
The GST exemption for purchases
under $1,000 from overseas websites is
perceived to place domestic online stores
at a disadvantage to their international
counterparts. The Federal Government
commissioned an enquiry into the costs,
benefits and effects of the current
arrangement. One concern is that the taxfree status of the majority of online
purchases imported into Australia is

assisting offshore retailers. While the
high value of the Australian dollar has
made a big difference to the price
competitiveness of online retailers
overseas, the 10% tax exemption has
further underlined the price advantages
that can be gained overseas via the
internet. A decision on whether the GST
threshold will be lowered will be
announced in March 2014.
With the Australian dollar reaching
record levels during the past five-year
period, it is expected that this set of
conditions will not remain indefinitely.
A fall in the value of the currency during
the next five years will increase the
competitiveness of domestic retailers
against their foreign counterparts
18
Products & Markets
International Trade
continued
seeking to sell to Australians. This will

also create improved circumstances for
Australian online retailers to export to
overseas customers. Major Australian
retailers have lagged Europe and North
America in terms of embracing online

retail, and it is expected that the volume
of online retail exports from Australia
will increase as major retailers become
more involved.
19
Products & Markets

Business Locations 2013-14
NT
1.2
QLD
19.3
WA
11.5
SA
6.8
NSW
33.2
ACT
2.1
VIC
23.6
Revenue (%)
Cold Zone (<10)
<25
<50
Hot Zone (<100)
Not applicable
TAS
2.3
20
Products & Markets
Distribution of revenue vs. population

40
30
20
10
WA
VIC
TAS
SA
QLD
NT
NSW
0
ACT
Unlike other retail industries, the

geographic spread of this industry is not
linked to the location of operators but
rather the location of consumers who
purchase goods online. As a result,
IBISWorld estimates the geographic
segmentation for the industry is based on
population distribution and linked to the
proportion of households with internet
access. It is estimated that those states
with a greater share of total population
have a greater share of consumers with
internet access who are actively involved
in online shopping. Hence, demand for
online shopping is led by New South
Wales, which has the largest national
population base, followed by Victoria and
Queensland. Demand for online shopping
in rural areas has, in some instances,
been hindered by a lack of sufficient
internet infrastructure.
Despite accounting for a smaller
share of revenue, the Australian
Capital Territory has the highest
average per capita spend, at an
estimated $676.50. This reflects the
higher average incomes in this state.
Percentage
Business Locations
Revenue
Population
This is followed by the Northern

Territory and Western Australia with
per capita expenditure of $618.80 and
$564.20 respectively. The relative
isolation of many consumers in these
states from shopping centres has led to
strong demand for online retailers.
21
Competitive Landscape
Market Share Concentration | Key Success Factors | Cost Structure Benchmarks

Basis of Competition | Barriers to Entry | Industry Globalisation
Market Share
Concentration
Level
Concentration
in
this industry is L ow
Key Success Factors

IBISWorld
identifies
250 Key Success
Factors for a
business. The most
important for this
industry are:
Cost Structure
Benchmarks
The Online Shopping industry is

characterised by a low level of market
share concentration with the top four
players accounting for approximately
20% of revenue. Major players, such as
Wesfarmers and Woolworths, have
significant influence over the market
and a large customer base. However, the
industry also consists of a large number
of smaller, independent operators.
Although these larger companies have
been expanding their online presence
rapidly over the past five years,
substantial market share gains have
been offset by the multitude of new

operators entering the industry.
Concentration is set to strengthen
over the next five years, as retailers
consolidate their operations in
response to intensifying competition.
Major companies are expected to
grow their market shares as they
continue to significantly grow their
online offering. The industry is likely
to undergo mergers and acquisitions
as a growing number of businesses
recognise the growth potential of
online enterprises.
Ability to control stock on hand

By maintaining adequate stock
controls, retailers are able to monitor
key selling items and ensure a
sufficient supply of popular products
are on hand to meet demand during
key selling periods (e.g. Christmas,
Valentines Day and Easter).
A clear market position

Retailers should ensure their website
projects a clear picture of the companys
target market, products and pricing,
delivery costs and returns policy.
Ability to quickly adopt new technology

Due to the nature of this industry, it is
imperative that operators are able to
adopt and implement advances in
technology efficiently to minimise
disruptions to consumers and maximise
sales revenue.
The industry consists of a diverse range

of retailers operating across different
segments such as groceries, electronics,
fashion and media. Therefore, cost
structures vary significantly between
industry participants, depending on the
type and price level of products sold and
the size of online retail operations.
Profit
Over the past five years, industry profit
margins have been relatively steady,
representing 3.9% of revenue in 2013-14.
Despite the surge in demand for online
retail, profitability has been kept low by
fierce price-based competition and high
development costs. Online operators
A loyal customer base

Retailers benefit from establishing a loyal
customer base through the quality of
their product, efficient delivery and
exceptional customer service.
Provision of superior after-sales service
Retailers should address all after-sales
issues in a prompt and efficient manner
to build a loyal customer base.
typically generate lower profit margins

than traditional retailers. This is largely
due to the high initial costs of setting up
an online website and the potential costs
associated with mistakes in web design
and functionality. In addition, online
retailers will generally attract consumer
demand by offering competitive prices
and this can erode profitability. As a
result, many large bricks-and-mortar
retailers have been reluctant to enter the
online space because of lower margins.
Industry profitability is anticipated to
rise over the next five years, as operators
become more efficient at managing
overhead costs and streamlining supply
chain processes.
22
Purchases
Similar to bricks-and-mortar retailing,
purchases represent the largest expense
for the industry, accounting for 61.4% of
revenue in 2013-14. Online retailers
purchase goods from wholesalers or
direct from manufacturers, and then sell
these products to consumers. Large
companies are able to use their size and
economies of scale to secure competitive
contracts with suppliers. Over the past
five years, purchase costs have been
declining, largely due to an increasing
amount of stock that is being sourced
from low-cost factories in countries such
as China and India. A significant
proportion of industry players have
established links with overseas suppliers
and the strength of the Australian dollar
has led to lower import prices, further
reducing purchase costs.
content, process transactions and

distribute goods to consumers.
Employees in the industry must have
sufficient knowledge for the business to
be successful. For example, skills are
required in information technology,
supply chain logistics and marketing. As
a result, employees will typically demand
higher wages than those in traditional
retailing. However, the number of staff
hired by online stores is usually
substantially less than bricks-and-mortar
stores. Once a website is operational,
employees are only necessary for
administration and maintenance duties.
Advancements in technology are
expected to decrease the industrys
reliance on labour through the
automation of manual tasks, which will
lead to a reduction in wage costs over the
next five years.
Wages
Wages are the second-largest expense for
online retailers, accounting for 20.5% of
industry revenue in 2013-14. Staff are
required to set-up and maintain web
Rent
Representing 2.5% of industry revenue,
rent costs have increased moderately
over the past five years due to the
natural rise in prices and continued
Sector vs. Industry Costs

Average Costs of
all Industries in
sector (2013-14)
100
4.4
1.2
80
Percentage of revenue
Cost Structure
Benchmarks
continued
5.0
8.4
11.3
Industry Costs
(2013-14)
1.1
2.5
3.9
2.6
7.8
20.5
60
40
68.5
1.3
Profit
Rent
Utilities
Depreciation
Other
Wages
Purchases
61.4
20
0
23
Cost Structure
Benchmarks
continued
demand for prime locations. As opposed

to traditional bricks-and-mortar
retailers, industry operators generally do
not require a physical shopfront from
which to operate. Nonetheless, players
do require premises that are large
enough to serve as warehouses to store
merchandise that is sold via shopping
websites. Industry players typically
compete for locations that are near
distribution facilities, such as couriers,

mail or freight transportation.
Basis of Competition
The Online Shopping industry faces a

high level of competition. Industry
participants compete based on price,
product range, marketing, size of
operations and reputation. In many
instances, there are hundreds of different
online retailers stocking the same or
similar products, enabling vast customer
choice. The industry is also subject to
external competition from foreign online
retailers and traditional bricks-andmortar retailers.
security and customer support. In order

to build a strong reputation and brand
name, industry players will often invest
significantly in advertising.
Level & Trend

ompetition
C
in
this industry is
Highand the trend
is I ncreasing
Barriers to Entry
Level & Trend
arriers to Entry
B
in this industry are

Lowand S
teady
Other costs
Other costs include advertising,
depreciation, insurance, administration,
accounting and transportation
expenses. Other costs are estimated to
account for 7.8% of industry revenue
in2013-14.
Internal
The ease of price comparison between
retailers offering similar products has
meant price competitiveness is arguably
the key battleground online. Consumers
will typically search online for the best
value and retailers that are able to offer
lower prices will attract increased
demand. In addition, retailers that offer
free delivery will have an advantage over
those that charge for shipping.
The more abstract nature of online
retailing means the reputation of the
seller is also very important. Companies
compete based on the prominence of
their branding, warranties, after-sales
service, delivery times, transaction
External
The industry faces external competition
from traditional bricks-and-mortar
retailers. Although online stores are able
to boast lower prices and 24/7 shopping,
shopfront retailings advantages, such as
the ability for customers to physically
inspect products, face-to-face customer
service, higher perceived security and the
capacity to instantly acquire products,
are the major points upon which
traditional retailers compete with their
online counterparts.
As consumers continue to search for
bargains online, many individuals may
choose to purchase from overseas
websites. Large international retailers
typically enjoy price and efficiency
advantages due to economies of scale. As
a result, foreign online operators are
generally able to offer lower prices than
domestic retailers and the strong
Australian dollar over the past five years
has further encouraged consumers to
shop on overseas websites.
The difficulties involved in entering the

industry vary according to the type and
scale of retailing intended. Niche retailers
are able to commence trading with very
little outlay, particularly if they are
already connected to an audience. Online
auction platforms such as eBay enable
companies to sell online without actually

having a website or transaction system of
their own, paying commission for eBay to
act as a host for classifieds or auction
transactions. New entrants that wish to go
head to head with existing major online
retailers will need to be better prepared,
24
Barriers to Entry
continued
Industry
Globalisation
Level & Trend
lobalisation
G
in
this industry is
Mediumand the
trend is I ncreasing
with extensive stock levels, marketing

budgets and a sophisticated website.
New online retailers can often struggle
to establish brand recognition in the
marketplace, which makes it difficult to
build trust. Additional challenges exist
for online retailers that seek to do
business in a product that has not been
commonly sold online in the past.
Customer attitudes and habits will
need to be changed. There is a chance
that if a product has gone this long
without being commonly sold online, it is
because there is either a highly dominant
shopfront retailer, or the nature of the
product does not lend itself well to
individual courier delivery (such as
frozen food, highly fragile products or
very heavy products).
The leading barrier inhibiting
consumers from purchasing online is
mistrust or fear of credit card fraud or
The Online Shopping industry is

characterised by a moderate level of
globalisation. Although international trade
in the industry is negligible as imports and
exports are accounted for at the relevant
manufacturing level, Australian consumers
have been increasingly willing to purchase
from foreign websites and this has added
to the overall globalisation of the industry.
The concept of national borders is less
significant for online retailing than other
industries, due to the convenience and
instantaneousness of transactions.
Barriers to Entry checklist

Competition
Concentration
Life Cycle Stage
Capital Intensity
Technology Change
Regulation & Policy
Industry Assistance
Level
High
Low
Growth
Medium
Medium
Medium
Low
the goods not being of the specified

quality. This has, however, declined
sharply as Australians have become more
experienced with internet transactions
and have found reliable online retailers.
Despite this, another leading reason
discouraging Australians from shopping
online is that they generally prefer the
social aspect associated with traditional
bricks-and-mortar stores.
The majority of companies in the

industry are Australian-owned, however
the reluctance of many of Australias
largest retailers to enter the online
retailing space has resulted in an
increasing number of international
retailers that are specifically targeting
the Australian market. For example, in
2011-12, UK-based fashion retailer
ASOS, launched a new website
dedicated to Australian consumers,
offering a wide range of products and
shorter delivery times.
25
Major Companies
Wesfarmers Limited | Woolworths Ltd | Other Companies
Major players
(Market share)
Woolworths Ltd 8.7%
81.4%
Other
Wesfarmers Limited 9.9%
Player Performance
Wesfarmers Limited
Market share: 9.9%
Industry Brand Names
Coles
Kmart
Officeworks
Target
Liquorland
Vintage Cellars
First Choice Liquor
Founded in 1914, Wesfarmers has grown

to become one of Australias largest
companies. The company has a highly
diverse spread of businesses across the
supermarkets, department stores, home
improvement, office supplies, resources,
insurance and energy industries.
Wesfarmers employs over 200,000
people across the country. The group has
only recently made its foray into the
online retail space. Within the industry,
the company has made strong inroads
with its flagship retail websites, such as
Coles, Liquorland, Officeworks, Target
and Kmart, which offer multichannel
purchase options.
Financial performance
Outpacing the overall industry, the
company has posted strong growth in its
online segment. In the five years through
2013-14, segment revenue is estimated to
grow at an annualised 53.9% to reach
$1.2 billion.
Traditionally, groceries and liquor
were not perceived as products that could
be sold online, largely because of
consumer preference for physical contact
prior to purchase. A decade ago,
consumers were generally reluctant to
make transactions online largely due to
lack of experience and trust, combined
with a gross shortage of compelling
e-commerce websites from the countrys
largest retailers. While Coles has had an
online presence since 1999, in July 2008,
Coles relaunched its grocery store
website with a view to make online
purchases easier for customers. This has
assisted the companys online revenue
Wesfarmers Limited industry

segment performance*
Year
Revenue
($ million)
(% change)
2008-09
142.2
N/C
2009-10
223.9
57.5
2010-11
426.5
90.5
2011-12
697.4
63.5
2012-13
984.7
41.2
2013-14
1,227.9
24.7
*Estimate
SOURCE: IBISWORLD
growth and profitability, as labour costs

are lower for online operations. Coles
online is now available to over 90.0% of
the Australian population and operates
264 delivery vans.
Another important factor driving
Wesfarmers industry-specific revenue
has been the expansion of the companys
online offerings, particularly from Coles,
Kmart, Target and Officeworks. For
example, the number of products sold
online by Target has increased from
6,000 in 2010-11 to over 58,000 in
2012-13. Prices have been paramount in
driving sales revenue, with online sales
providing the additional advantage of
convenience. The Coles smartphone
application furthered the companys
entry into multichannel electronic
retailing. Through this application,
consumers have been able to purchase
their groceries anywhere and have them
delivered within one to two days.
26
Major Companies
Player Performance
Woolworths Ltd
Market share: 8.7%
Industry Brand Names
Big W
Woolworths
Dan Murphys
Cellarmasters
Masters Home
Improvement
Woolworths is one of Australias largest

retailers, spanning a highly diverse set of
industries ranging from groceries to
electronics. The company has been one of
Australias early online innovators,
particularly with the online offerings of
Big W, Dan Murphys, Cellarmasters,
Masters Home Improvement and
Woolworths. In line with the overall
industry, the companys online sales have
grown dramatically over the past decade.
Dan Murphys and Big W have led the
way, with the former becoming the most
visited liquor website in Australia. Online
sales are forecast to account for nearly
1.5% of total company revenue.
Financial performance
Over the five years through 2013-14,
Woolworths online sales are expected
to grow by an annualised 55.3% to total
$1.1 billion, a significant growth result
compared with the overall industry.
Factors contributing to this strong
increase in revenue include the launch
of the companys online websites over
this period. For example, in 2011-12,
Woolworths launched the countrys
first online home improvement store
with the Masters transactional website,
which receives over 25,000 visitors a
day. The Dan Murphys retail website
was opened in 2010-11, and in 200910, the online store for Big W was
launched. The company has also
successfully launched smartphone
applications across the group,
attracting more than 3.2 million
downloads. More than 13.0% of Big
Ws sales come from mobile devices.
In 2011-12, the company reported an
increase of 95.0% in total online sales,
largely driven by the acquisition of
Cellarmasters in May 2011, which
contributed 47.0% to growth. The
purchase of this online-only liquor
retailer has greatly enhanced the
companys multichannel offer.
Woolworths online grocery store,
which was originally opened in the late
1990s, currently has the capacity to reach
Woolworths Ltd industry segment

performance*
Year
Revenue
($ million)
(% change)
2008-09
118.8
N/C
2009-10
188.9
59.0
2010-11
307.9
63.0
2011-12
600.4
95.0
2012-13
852.6
42.0
2013-14
1,074.3
26.0
*Estimate
SOURCE: ANNUAL REPORT AND IBISWORLD
over 90.0% of Australia households and

has launched various marketing
programs across social media platforms
to engage with the younger demographic,
who are more comfortable making
transactions on the internet. Woolworths
prominence in the Supermarkets and
Grocery Stores industry provides a strong
base for online operations.
Big W has achieved exceptional growth
in online sales since the launch of its
website. The retailer has focused on
delivering a profitable range online,
introducing apparel to its offering in
January 2013. The number of stockkeeping units sold by BIG W online grew
from 9,500 in 2010-11 to 30,000 in
2012-13. The company has been
innovative in integrating social
networking with its online offer to
promote deals and attract demand.
Woolworths has implemented clickand-collect options across the majority of
its businesses, which allow customers to
purchase goods online and then collect
from their nearest store when
convenient. As a result of the companys
continued focus on its multichannel
strategy, Dan Murphys was awarded
Online Retailer of the Year in 2012-13
and Masters was awarded Best New
Online Retailer. Masters has grown
rapidly since the launch of its website,
now offering 30,000 products online.
27
Major Companies
Other Companies
The industry supports a multitude of

product-specific operators, including
greengrocers, music retailers, computer
and software retailers, clothing retailers,
toys and sporting equipment retailers,
real estate operators and travel and
accommodation operators. Listed below
are the prominent players within their
respective niches. However, due to the
size and intense fragmentation of the
industry, these players do not account for
a significant share of the market.
Catchoftheday.com.au
Estimated market share: 1.2%

Catchoftheday.com.au was established in
2006 and is a daily deal website offering
heavily discounted goods on a limitedoffer basis. Catchoftheday, like its
sister-site Scoopon, is owned by a
consortium that includes Daily Deals.
Daily Deals also owns Deals Direct and is
a part of Ourdeals.com.au. In early 2011,
James Packer invested an estimated $40
million in the company, followed by a
$10 million investment in Deals Direct.
Booktopia
Estimated market share: Less than 1.0%

Booktopia is one of the countrys largest
online retailers of books, DVDs and
e-books. Having only entered the market
in 2004, the company has grown
dramatically to become one of the
countrys largest online retailers. Similar
to Amazons business model, the
company operates warehouses from
which it ships its listed products.
iTunes

Owned and operated by Apple Inc.,
iTunes is a free application for download
that enables consumers to organise and
play music from their computer or
mobile device. iTunes includes the iTunes
Store, which is an online store where
consumers can purchase music, TV
shows, games, e-books and movies.
iTunes revenue is expected to decline
as the trend towards online media
streaming grows. Services such as
Spotify allow consumers to stream
music, creating intense competition for
iTunes, which charges consumers per
song or album. In an attempt to combat
this new threat, iTunes has plans to
release its own streaming service,
iTunes Radio.
Wishlist.com.au

The wishlist.com.au website is owned by
Wishlist Holdings Limited and was
launched in July 1999. In addition to
operating wishlist.com.au, the company
operates evoucher.com.au. Wishlist.com.
au has a reported 250,000 members
worldwide. Industry research indicates
the website is particularly popular with
consumers during the Christmas trading
period. Products offered by the website
include baby and childrens goods, beauty
products and fragrances, books,
corporate gifts, electrical goods, flowers,
food, wine, home and garden goods, and
travel and gadget accessories.
Online Shopping in AustraliaJanuary 2014 28
Operating Conditions
Capital Intensity | Technology & Systems | Revenue Volatility

Regulation & Policy | Industry Assistance
Capital Intensity
Level
The level
of capital
intensity is M
edium
The Online Shopping industry exhibits a

moderate level of capital intensity.
IBISWorld estimates that for every dollar
spent on depreciation, $7.88 is spent on
wages. The capital and labour costs of
running a retail business online differ from
the traditional retail method. Real estate
costs are generally lower for online
businesses, but significant investment is
required to create and maintain a highquality website. Heavy investment in
e-commerce technology and innovation in
the online trading market is expected to
contribute to increased depreciation costs.
The technical expertise required to
undertake online retailing generally calls
for employees with non-traditional skill
sets, some of which can command high
wages. Employees are required to process
transactions, maintain web content and
perform warehouse functions.
As businesses become more
established within the market and
Capital intensity
Capital units per labour unit

0.5
0.4
0.3
0.2
0.1
0.0
Economy
Retail Trade Online Shopping
Dotted line shows a high level of capital intensity

develop successful websites, it is likely

that capital expenses will decrease.
However, new technology will automate a
large number of tasks, reducing the
industrys reliance on labour. As a result,
capital intensity is expected to remain at
a moderate level over the next five years.
Tools of the Trade: Growth Strategies for Success

Investment Economy
Recreation, Personal Services,

Health and Education. Firms
benefit from personal wealth so
stable macroeconomic conditions
are imperative. Brand awareness
and niche labour skills are key to
product differentiation.
Information, Communications,
Mining, Finance and Real
Estate. To increase revenue
firms need superior debt
management, a stable
macroeconomic environment
and a sound investment plan.
Capital Intensive
Labour Intensive
New Age Economy
Online Shopping
Courier Pick-up and
Delivery Services
Houseware Retailing
Traditional Service Economy
Wholesale and Retail. Reliant

on labour rather than capital
to sell goods. Functions cannot
be outsourced therefore firms
must use new technology
or improve staff training to
increase revenue growth.
Liquor Retailing
Supermarkets and Grocery Stores
Domestic Appliance Retailing
Change in Share of the Economy
Old Economy
Agriculture and Manufacturing.
Traded goods can be produced
using cheap labour abroad.
To expand firms must merge
or acquire others to exploit
economies of scale, or specialise
in niche, high-value products.
Technology & Systems The Online Shopping industry has

of
Technology Change
is M
edium
Revenue Volatility
Level
The level
of
Volatility is H
igh
consumers have become increasingly

comfortable and confident with
shopping online.
The rising penetration of social media
and smartphones in society has enabled
online retailers to reach new customers
and broaden the way in which consumers
make purchases. Mobile applications for
smartphones and tablets have been
implemented by some industry players,
allowing customers to purchase products
online anytime and anywhere.
Other technological changes that have
affected the industry include the
implementation of wireless computer
chips called radio frequency
identification (RFID) tags. The system,
which uses radio signals to identify
individual products, can log and track
goods through the supply chain. The
technology enables better management of
inventory levels, increases efficiency and
allows retailers to better forecast trends.
The Online Shopping industry has

displayed a high level of revenue
volatility over the past five years.
Movements in revenue are typically
associated with changes in consumer
sentiment, discretionary income and
computing literacy. Although the
traditional retail environment has
suffered from weak consumer sentiment
and subdued discretionary spending
over the past five years, these factors

have not substantially affected online
retailers. The main reason for this is
that during economic downturns, many
consumers will scale back overall
expenditure on discretionary items and
instead purchase cheaper alternatives
online. Online stores have gained
market share through their ability to
offer competitive prices, and this has
A higher level of revenue

volatility implies greater
industry risk. Volatility can
negatively affect long-term
strategic decisions, such as
the time frame for capital
investment.
When a firm makes poor
investment decisions it
may face underutilised
capacity if demand
suddenly falls, or capacity
constraints if it rises
quickly.
Volatility vs Growth
1000
Revenue volatility* (%)
Level
The level
exhibited a moderate level of

technological change over the past five
years. Online retail sales during the early
days were hindered by concerns about
the security of doing business with a
credit card, privacy of information
divulged on the internet, difficulty
navigating websites, high delivery costs
and inconvenient delivery times. In
addition to these issues, many consumers
were concerned about the lack of ability
to track the progress of their goods from
ordering time to delivery time.
However, over the past five years,
developments in computer software
programs have enhanced website
functionality, making it easier for
customers to navigate online stores. In
addition, advancements in technology
have improved security systems and
payment processes, ensuring safe and
efficient transactions. As a result,
Hazardous
Rollercoaster
100
Online Shopping
10
1
0.1
Stagnant
30
10
Blue Chip
10
30
50
70
Five year annualised revenue growth (%)

* Axis is in logarithmic scale
Revenue Volatility
continued
protected the industry from adverse

economic conditions.
Growth in the technological literacy of
the Australian population influences the
demand for goods online. In general, an
overall rise in computing literacy of the
Australian population bodes well for the
industry, with more consumers willing to

purchase goods online. Australian
consumers have largely become more
comfortable with using online shopping
websites over the past five years,
supporting the steady rise in industry
revenue over this period.
Regulation & Policy
The industry is subject to a moderate

level of regulation. The main areas of
legislation affecting online retailers are
similar to that of traditional retailers,
however unlike bricks-and-mortar stores,
industry players are not subject to
regulations concerning trading hours or
tenancy issues. Despite this, online
operators are still bound by the
Competition and Consumer Act 2010,
which applies to every aspect of business,
from advertising to price setting and
customer transactions, and seeks to
promote competition, fair trading and
protection for consumers.
The Australian Communications and
Media Authority (ACMA) is a statutory
authority that is responsible for the
regulation of online content in Australia.
This includes the enforcement of
Australias anti-spam law. The ACMAs
main roles include encouraging the
development of codes of practice for
online retailers, informing the public
about internet safety issues and investing
complaints regarding online content.
The other major contentious

regulation relating to online retail in
Australia is the enforcement of tax and
duties on goods purchased offshore and
posted to Australians. Currently, the
GST exemption on goods valued under
$1,000 that are purchased from
overseas retailers has prompted many
Australian retailers to question its
influence on consumer demand and
industry revenue. As many foreign
online operators already offer lower
prices, the discrepancy caused by this
tax rule has further exacerbated
competition.
A consortium of Australian retailers
have campaigned for the GST threshold
to be lowered or removed completely.
However, recommendations arising from
a Productivity Commission enquiry into
the issue in 2011 stated that the GSTthreshold should not be lowered unless
proven that it is cost effective to do so,
with the costs of collecting the tax
potentially outweighing the amount of
revenue raised.
Protection is not applicable to the

industry, and it does not receive any
major government subsidies or grants.
However, assistance provided to
upstream manufacturing industries can
indirectly affect online retailers. Tariffs
are applicable to a number of products
traded by the industry, including toys,
household appliances and cameras,
however imports are accounted for at the
relevant manufacturing level.
The National Online Retailers
Association (NORA) is the main body
representing the industry and is the first
industry association to address the issues

faced by online retailers. Recognising the
opportunities available in multichannel
retailing, NORA believes that by
improving relationships and
communication, the Australian online
retail environment will flourish.
Currently, there is a GST exemption for
goods valued under $1,000 that are
purchased from foreign-based online
retailers. This tax rule effectively makes
the playing field uneven, by creating a
price discrepancy between domestic and
overseas online retailers. The Australian
Level & Trend

he level of
T
Regulation is
Mediumand the
trend is S
teady
Industry Assistance
Level & Trend
he level of
T
Industry Assistance
is L owand the
trend is S
teady
Industry Assistance
continued
Government has maintained that

removing or lowering this threshold would
be prohibitively expensive, with the cost of
collecting the tax exceeding the amount of
revenue raised. Australian online retailers,
in addition to bricks-and-mortar retailers,
have protested against this taxation
arrangement, which can be viewed as a
form of reverse assistance. However, a
push from state and territory governments
in late 2013 has led the Federal
Government to reconsider lowering the
GST threshold. A decision is expected to be
made by the end of March 2014.
The National Broadband Network

currently under construction is
primarily funded by public money.
While this does not constitute direct
assistance to online retailers, an
infrastructure investment of this scale
is certain to strengthen the competitive
position of online retailers against
other retailing methods. Faster
connection speeds for the majority of
Australians will allow for richer
website content, faster browsing and,
in the case of fibre-optic infrastructure,
improved reliability.
32
Key Statistics
Industry Data
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
Sector Rank
Economy Rank
Revenue
($m)
1,843.2
2,376.9
2,979.9
3,492.3
4,193.2
5,982.5
7,785.0
9,091.2
11,097.6
12,350.0
13,988.0
15,550.0
16,975.0
18,220.0
19,832.2
10/17
105/688
Annual Change
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
Sector Rank
Economy Rank
Revenue
(%)
29.0
25.4
17.2
20.1
42.7
30.1
16.8
22.1
11.3
13.3
11.2
9.2
7.3
8.8
2/17
32/688
Industry
Value Added
($m)
Establishments
577.3
9,402
712.1
11,290
893.1
14,141
1,036.2
16,409
1,216.0
19,994
1,773.2
26,277
2,195.4
32,329
2,526.4
37,055
2,946.6
40,687
3,334.5
43,225
3,655.4
47,898
4,120.8
49,760
4,428.8
53,283
4,702.6
55,645
5,229.8
62,802
10/17
7/17
107/688
26/688
Enterprises
8,659
10,420
12,967
15,111
18,177
23,888
29,125
33,085
36,655
38,594
42,388
44,429
47,153
49,243
55,089
5/17
15/687
Employment
11,344
13,546
16,987
20,400
24,720
32,249
39,610
44,996
50,950
53,259
58,495
62,200
66,014
69,433
77,125
10/17
75/688
Exports
---------------N/A
N/A
Imports
---------------N/A
N/A
Wages
($m)
462.6
560.9
706.2
806.7
943.5
1,370.0
1,697.1
1,927.3
2,238.5
2,531.8
2,751.8
3,125.6
3,327.1
3,516.5
3,926.8
10/17
83/688
Domestic
Demand
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Industry
Value Added Establishments
(%)
(%)
23.4
20.1
25.4
25.3
16.0
16.0
17.4
21.8
45.8
31.4
23.8
23.0
15.1
14.6
16.6
9.8
13.2
6.2
9.6
10.8
12.7
3.9
7.5
7.1
6.2
4.4
11.2
12.9
1/17
2/17
32/688
37/688
Enterprises
(%)
20.3
24.4
16.5
20.3
31.4
21.9
13.6
10.8
5.3
9.8
4.8
6.1
4.4
11.9
3/17
45/687
Employment
(%)
19.4
25.4
20.1
21.2
30.5
22.8
13.6
13.2
4.5
9.8
6.3
6.1
5.2
11.1
4/17
77/688
Exports
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Imports
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Wages
(%)
21.2
25.9
14.2
17.0
45.2
23.9
13.6
16.1
13.1
8.7
13.6
6.4
5.7
11.7
1/17
19/688
Domestic
Demand
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Key Ratios
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
Sector Rank
Economy Rank
IVA/Revenue
(%)
31.32
29.96
29.97
29.67
29.00
29.64
28.20
27.79
26.55
27.00
26.13
26.50
26.09
25.81
26.37
13/17
448/688
Imports/Demand Exports/Revenue
(%)
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Figures are inflation-adjusted 2014 dollars. Rank refers to 2014 data.
Revenue per
Employee
($000)
162.48
175.47
175.42
171.19
169.63
185.51
196.54
202.04
217.81
231.89
239.13
250.00
257.14
262.41
257.14
10/17
432/688
Wages/Revenue
(%)
25.10
23.60
23.70
23.10
22.50
22.90
21.80
21.20
20.17
20.50
19.67
20.10
19.60
19.30
19.80
10/17
302/688
Employees
per Est.
1.21
1.20
1.20
1.24
1.24
1.23
1.23
1.21
1.25
1.23
1.22
1.25
1.24
1.25
1.23
16/17
661/688
Average Wage
($)
40,779.27
41,407.06
41,572.97
39,544.12
38,167.48
42,481.94
42,845.24
42,832.70
43,935.23
47,537.51
47,043.34
50,250.80
50,399.92
50,645.95
50,914.75
10/17
474/688
Share of the
Economy
(%)
0.05
0.06
0.07
0.08
0.09
0.13
0.16
0.17
0.20
0.22
0.23
0.25
0.26
0.28
0.30
10/17
107/688
33
Jargon & Glossary
Industry Jargon
E-COMMERCECommerce transactions made over the

internet.
NBNNational Broadband Network.
IBISWorld Glossary
BARRIERS TO ENTRYHigh barriers to entry mean that

new companies struggle to enter an industry, while low
barriers mean it is easy for new companies to enter an
industry.
CAPITAL INTENSITYCompares the amount of money
spent on capital (plant, machinery and equipment) with
that spent on labour. IBISWorld uses the ratio of
depreciation to wages as a proxy for capital intensity.
High capital intensity is more than $0.333 of capital to
$1 of labour; medium is $0.125 to $0.333 of capital to
$1 of labour; low is less than $0.125 of capital for every
$1 of labour.
CONSTANT PRICESThe dollar figures in the Key
Statistics table, including forecasts, are adjusted for
inflation using the current year (i.e. year published) as
the base year. This removes the impact of changes in
the purchasing power of the dollar, leaving only the
real growth or decline in industry metrics. The inflation
adjustments in IBISWorlds reports are made using the
Australian Bureau of Statistics implicit GDP price
deflator.
SMARTPHONEA mobile phone that offers moreadvanced connectivity and computing functions than
traditional mobile phones.
INDUSTRY REVENUEThe total sales of industry goods

and services (exclusive of excise and sales tax); subsidies
on production; all other operating income from outside
the firm (such as commission income, repair and service
income, and rent, leasing and hiring income); and
capital work done by rental or lease. Receipts from
interest royalties, dividends and the sale of fixed
tangible assets are excluded.
INDUSTRY VALUE ADDED (IVA)The market value of
goods and services produced by the industry minus the
cost of goods and services used in production. IVA is
also described as the industrys contribution to GDP, or
profit plus wages and depreciation.
INTERNATIONAL TRADEThe level of international
trade is determined by ratios of exports to revenue and
imports to domestic demand. For exports/revenue: low is
less than 5%; medium is 5% to 20%; and high is more
than 20%. Imports/domestic demand: low is less than
5%; medium is 5% to 35%; and high is more than
35%.
EMPLOYMENTThe number of permanent, part-time,

temporary and casual employees, working proprietors,
partners, managers and executives within the industry.
LIFE CYCLEAll industries go through periods of growth,

maturity and decline. IBISWorld determines an
industrys life cycle by considering its growth rate
(measured by IVA) compared with GDP; the growth rate
of the number of establishments; the amount of change
the industrys products are undergoing; the rate of
technological change; and the level of customer
acceptance of industry products and services.
ENTERPRISEA division that is separately managed and

keeps management accounts. Each enterprise consists
of one or more establishments that are under common
ownership or control.
NONEMPLOYING ESTABLISHMENTBusinesses with

no paid employment or payroll, also known as
nonemployers. These are mostly set up by self-employed
individuals.
ESTABLISHMENTThe smallest type of accounting unit

within an enterprise, an establishment is a single
physical location where business is conducted or where
services or industrial operations are performed. Multiple
establishments under common control make up an
enterprise.
PROFITIBISWorld uses earnings before interest and tax

(EBIT) as an indicator of a companys profitability. It is
calculated as revenue minus expenses, excluding
interest and tax.
DOMESTIC DEMANDSpending on industry goods and

services within Australia, regardless of their country of
origin. It is derived by adding imports to industry
revenue, and then subtracting exports.
EXPORTSTotal value of industry goods and services sold

by Australian companies to customers abroad.
IMPORTSTotal value of industry goods and services
brought in from foreign countries to be sold in Australia.
INDUSTRY CONCENTRATIONAn indicator of the
dominance of the top four players in an industry.
Concentration is considered high if the top players
account for more than 70% of industry revenue.
Medium is 40% to 70% of industry revenue. Low is less
than 40%.
VOLATILITYThe level of volatility is determined by

averaging the absolute change in revenue in each of the
past five years. Volatility levels: very high is more than
20%; high volatility is 10% to 20%; moderate
volatility is 3% to 10%; and low volatility is less than
3%.
WAGESThe gross total wages and salaries of all
employees in the industry. Benefits and on-costs are
included in this figure.
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Net appeal: Technological innovations and

increased consumer confidence boost demand

Online Shopping in Australia

2 About this Industry

21 Market Share Concentration

21 Key Success Factors

21 Cost Structure Benchmarks

33 Jargon & Glossary

Key External Drivers

11 Industry Life Cycle

13 Products & Markets

30 Regulation & Policy

13 Products & Services

www.ibisworld.com.au | (03) 9655 3881 | info@ibisworld.com

Online Shopping in Australia January 2014

About this Industry

Retailers in this industry operate

The primary activities of this industry are

retailers or bricks-and-mortar stores

Clothing, footwear and personal-accessory retailing

The major products and services in this industry are

G4123 Liquor Retailing in Australia

Online Shopping in Australia January 2014

About this Industry

G4111 Supermarkets and Grocery Stores in Australia

For additional information on this industry

writes over 500 Australian

Online Shopping in Australia January 2014

Annual Growth 09-14

Annual Growth 14-19

Revenue vs. employment growth

Key External Drivers

Life Cycle Stage

Online Shopping in Australia January 2014

Executive Summary | Key External Drivers | Current Performance

Online retailing has changed the face of

the industry. However, for small

Key External Drivers

Real household discretionary income

Online Shopping in Australia January 2014

Key External Drivers

a notable effect on demand for

revenue is forecast to increase marginally

Over the past five years, online shopping

and services at competitive prices.

Online Shopping in Australia January 2014

While international retailers have been

segment is not only growing faster, but

Steady sales growth

Until recently, it was unclear how big

provide a clear comparison with

Over the five years through 2013-14,

not as labour intensive as the rest of the

Online Shopping in Australia January 2014

A key advantage offered by online

Other online spending The industry includes the sale of goods

Consumers are increasingly

online by companies that take ownership

retailers and receive a commission for the

Online shopping can only be undertaken

Together with the rapidly increasing

Online Shopping in Australia January 2014

The Online Shopping industry is forecast

revenue is forecast to grow by an