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This covers the same merchandise categories as used in the retail sales statistics published by the Australian Bureau of Statistics and Statistics New Zealand, and therefore online sales can be directly compared with total retail sales. The study excludes online purchasing of services such as travel & accommodation, event ticketing, financial services products and media downloads, as these categories are not included in the retail sales statistics.

Researchers of items from online auction sites (such as eBay) are also excluded, but purchases of fixedness items from sites such as eBay are included in the analysis. Online shopping is defined as occasions where a transaction is made online (generally with the payment being made at the time of the transaction) and excludes online browsing or research with the transaction subsequently Ewing made in a physical store or via the telephone or another channel. All business-to-business (BIB) online purchasing is also excluded.

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The report is based on a comprehensive survey of 1 ,200 consumers (1 ,OHO in Australia and 200 in New Zealand) between the ages of 15 and 65 who have shopped online in the past 12 months, with online shoppers being asked to record their online shopping behavior in terms of total online shopping expenditure, both overall and by merchandise category, the reasons that they shop online and how they shop online (in terms of access, purchasing behavior, payment methods and so on).

The survey was conducted in May 2012. Similar surveys were undertaken in 2010 and 201 1 . Where appropriate, we have made year- on-year comparisons to illustrate market trends. Survey findings have been supplemented with data from Frost & Sullivan Australian Mobile Device usage Trends Survey, conducted in June 2012, which surveyed all Australian consumers aged between 15 and 65 that currently use the Internet.

Additionally we undertook 30 interviews with retailers (both online only and traditional bricks and mortar) and other industry observers, supplemented by a comprehensive review of secondary data sources. We believe that this is one of the most comprehensive analyses of online shopping in Australia and New Zealand undertaken to date. Data in this report is for calendar years, unless otherwise stated. Dollar values quoted relate to Australian dollars, again unless otherwise stated.

Digital media research 2012 | 4 Executive summary Digital media research 2012 | 5 of Australians who shop online currently make purchases from overseas sites Online shopping has continued to attract considerable attention over the past year, with its development widely believed to be at least partly contributing to he challenging conditions experienced by much of the retail sector in Australia and New Zealand.

Whilst online shopping is not a new phenomena, its take up has grown significantly in recent years, driven by factors such as the greater variety/ choice of goods on offer from an increasing number of online retailers both locally and internationally, widespread usage of mobile devices by consumers to access the internet, the strength of the Australian and New Zealand dollars (which has made purchasing from overseas websites more attractive) and an increasing level of comfort amongst consumers towards the online shopping process.

Improved search engine functionality, price comparison tools and sites, and a rising penetration of smartness and tablet PC’s, which allow any time/any location accessibility as well as barricade scanning, are all increasing pricing transparency. As in recent years, lower prices is the key driver for shopping online – 55% of online shoppers in Australia and 51% in New Zealand indicate that lower prices than in physical stores is the most important reason why they shop online.

In response, many Australian and New Zealand based retailers have launched or reinvigorated their online strategies over recent years, but they still generally gag many of their overseas peers in terms of the volume of sales through the online channel. Shopping via mobile devices, both smartness and tablet PC’s, is becoming increasingly popular as it provides consumers both with another channel to shop and a tool to assist them in the overall shopping process. This is stimulating growth in online expenditure.

The development of new channels such as brands selling direct to the consumer, often facilitated by social media channels such as Faceable, is also driving further growth in online shopping. Over the past decade, the reliability and timeliness of liveries following an online purchase has been a significant barrier to take up by many consumers. However, there has been significant recent improvements in delivery processes, which is instilling greater confidence amongst consumers in making an online purchase.

The extent of shopping by Australians and New Slanderer on overseas websites is indicated by the fact that 75% of Australians and 58% of New Slanderer who shop online currently make purchases from overseas sites. By far the main reason that online Online shopping has continued to shoppers use overseas sites is to obtain challenge the traditional retail model. It lower prices than are available locally. Has allowed product manufacturers or 59% of online shoppers in Australia brand owners to sell direct to and 36% in New Zealand rank this as consumers, bypassing traditional the main reason.

The unavailability of retailers. Online only (“pure play”) some goods on local sites, and the retailers have also emerged and greater variety of goods available on overseas based online retailers have overseas sites are the next most increasingly targeted the Australian and significant reasons. New Zealand markets. These factors have combined to challenge the traditional retail sector in Australia and New Zealand. Digital media research 2012 6 The Australian online shopping market continues to lag the USA and ILK markets, although it is on a par with New Zealand.

The general lack of an online presence by the large retail chains in Australia over the last decade is the most significant reason for this. During this period, many of the major overseas multi-channel retailers in the USA and I-J have been working continually to improve the customer experience, functionality and profitability of their online stores. A number of Australian retail chains are now following this path, but many are still only in the early stages of developing an online tragedy.

Social networking is an important contributor to online shopping. 29% of all online shoppers in Australia currently follow an online shopping site on Faceable, and 21 % have received a message or recommendation from a friend in the prior year on Faceable, whilst 14% have made a recommendation. Retail marketers are increasingly using social media platforms such as Faceable and Youth as additional channels to complement existing channels such as e-newsletters and websites.

7% Of Australian online shoppers have increased their level of spending over the last 12 months via mobile devices Mobile shopping has already seen significant uptake in Australia and New Zealand, and there has been significant Over the next 12 months the vast growth during the prior 12 months. Majority of online shoppers in Australia 34% of Australians that have shopped will maintain or increase their online online during the prior 12 months have expenditure, with almost 90% of online done so via a mobile phone or shoppers in Australia expecting to smartened.

Shopping on a tablet PC increase or at least maintain their such as the pad is at still at an earlier online spending. The proportion of stage, but there has been a notable ate shoppers who plan to increase their of uptake compared to the year prior. online spend has increased compared The principal driver for recent strong to 2011 , indicating that there is solid growth in shopping based activities via momentum in online shopping uptake.

Mobile devices has been the strong adoption rates of both smartness and Looking further ahead, we expect tablet PC’s. Intended growth over the next five years. Australian online shopping 57% of Australian online shoppers have expenditure is predicted to grow from increased their level of spending over $16. 0 billion in 201 2 to $26. Billion by the last 12 months via mobile devices. 2016, with a Compound Annual Growth Smartness have already become an Rate (CARR) of 14. 1%. This growth is integral part of the overall shopping likely to be stimulated by a number of process for many smartened users.

Actors including the entry of more 50% of all Australian online shoppers online retailers, and product and who currently own a smartened have service expansion by current online used their smartened to find a nearby retailers. Currently around 45% of store and 36% have used it to compare online expenditure in Australia is on prices before shopping before shopping overseas sites. Although this may drop for items. Over the long term as domestic retailers in Australia strengthen their online offerings, in the short term the faster growth rate of overseas retailers is expected to continue.

Both the clothing and footwear and jewelry and fashion accessories categories are predicted to display the strongest growth over the next five years, as more specialist online stores open up and traditional bricks and mortar retailers improve their online offerings. $16. B Total online expenditure 201 2 Digital media research 2012 | 7 Research findings Market trends Overall online shopper behavior Australia New Zealand Digital media research 2012 | 8 Market drivers and restraints What is driving the continual growth of online shopping?

A number of factors are driving usage of the online channel for retail purchases by consumers in Australia and New Zealand: ; Consumers looking to for additional value to the stretch their buying power in a two speed environment; Improved search engine functionality, price comparison tools and sites and a rising penetration of smartness and mobile devices are all increasing pricing transparency. Shopping via mobile devices is becoming increasingly popular as it provides consumers both with another channel to shop and a tool to assist them in the overall shopping process. This is stimulating growth in online expenditure.

Over the longer term other factors such as a greater focus on value, changing demographics and improvements in product imagery are also contributing to the gradual migration from offline to online shopping. Whilst all age groups are now adopting online shopping younger generations who have grown up with a higher level exposure to the internet and mobile channels are more easily adopting them as part of their everyday lives. The fact that consumers are not able touch or feel a product, or recreate the fun and often social experience associated with shopping at physical stores, has been a long standing inhibitor to online shopping.

However this barrier is gradually being overcome with technology improvements. High resolution imagery is now available that allows shoppers to view products such as shoes from every angle and also zoom in on features such as stitching and leather grain. They can be supported by detailed descriptions, product recommendations and reviews. In the future we are likely to see the development of three dimensional holographic creations of shopping malls.

Clothes will be tried on virtually and cameras will take precise body measurements to assist in choosing the correct size. The development Of new channels such as brands selling direct to the Continued strength in the consumer, often facilitated by social Australian dollar, and to a lesser media channels such as Faceable, is extent the New Zealand dollar, driving further growth in online which increases the purchasing shopping. Social media is now being power of local consumers on widely used as part of the online overseas sites; strategy of most online tillers in A greater variety/choice of goods on Australia and New Zealand.

Smaller offer from an increasing number of retailers in particular are finding success with social media in generating online retailers both locally and brand awareness, and subsequently internationally; raising their profile in the market Technology changes including against larger players. Group buying greater penetration of mobile sites have also had significant growth in devices such as smartness and Australia and New Zealand over the tablet PC’s, which enable consumers past two years. To securely shop online whilst on the

Over the past decade, the reliability and move; and timeliness of deliveries following an An increasing level of comfort and online purchase has been a significant sophistication amongst consumers barrier to take up by many consumers. Towards the online shopping However, there has been significant process, including reduced concerns recent improvement in delivery over security and higher levels of processes, which is instilling greater confidence in the delivery process, confidence amongst consumers.

Purred on by more activity from Logistics providers such as TNT and local retail chains and increased DHAL have widened their online media coverage of online shopping. Shopping delivery activities and Australia Post has also taken significant steps to improve its process. In March 201 2, Australia Post announced plans to rollover 30 superstores across the nation that will offer vending machines, parcel lockers and self-service terminals. It will also offer every Australian a free digital mailbox.

Digital media research 2012 | 9 What is restraining online shopping? One of the key reasons for the lag in local online shopping when compared to other countries has been a lack of online presence by many of the larger detail chains in Australia and New Zealand. Due to Australia and New Zealand relatively small populations and geographic isolation, local retail market competition is not as intense. The number of competitors in each industry vertical is often lower, and vertical markets are often dominated by duopolies.

Greater competition in larger overseas markets has driven greater market innovation and the development of successful multi channel strategies, with an integrated online strategy. Also, Australian retailers were protected by the tyranny of distance from international retailers due the the verbal lack of global price transparency and global supply chains. A successful strategy takes many years of evolution and refinement to develop. Traditional SIS retailers such as Best Buy and Walter, and KICK retailers such as Tests and M&S have had active online strategies in place for well over five years.

Consequently the multi channel strategies of Australian and New Zealand retailers typically lag that of larger overseas developed countries such as the UK and ASSAI, although with increased recent focus on their online channels, many local retailers are beginning to catch up. Due to the global/ orderlies nature of online shopping, the smaller population bases of Australia and New Zealand relative to larger markets such as the USA and UK reduce market opportunities for locally based internet retailers.

Smaller markets such as Australia can expect to have a higher proportion of online shoppers who look to larger overseas markets, where economies of scale can often enable both lower prices and a wider variety of goods. As well as the global online retail powerhouses such as Amazon and eBay, local online retailers must compete against global manufacturers selling directly to nonusers online, and an increasing number of overseas e-tailors such as SASS are targeting the Australian and New Zealand markets.

However there are still opportunities for local online retailers to start up and expand their operations in underdeveloped sections of the market. Although overall population density is low, Australia and to a lesser extent New Zealand, have highly urbanites populations with a high proportion of residents living in metropolitan/urban areas which are well served by shopping centre and retail outlets, despite the large distances that separate the population centre. Easy access to physical stores tends to reduce the attractiveness of online shopping as an alternative.

There are over 1 ,300 shopping centre in Australia and these facilitate the Shopping day Dutton as a form of recreation, with a wide range of retail outlets in centre along with food courts, cinemas and restaurants. 1 88% of the Australian population and 72% of the New Zealand population live in urban areas (source: statistics departments) Digital media research 2012 | 10 Online shopper behavior Why do people shop online? Lower prices is the key driver for shopping online. 55% of online shoppers in

Australia and 51% in New Zealand indicate that lower prices than in physical stores is the most important reason why they shop online. The importance of lower prices as the main reason for online shopping has increased significantly over the past 12 months. With greater consumer caution over spending, the attractiveness of the online channel has therefore increased significantly. The convenience offered by online shopping is the second most important factor that causes consumers to shop online.

The other factor of significance is that online shopping offers the ability to access a more unimpressive range of products than can be found in a physical store. The convenience element of online shopping (convene mince of shopping at home, easier to locate products, can shop when stores are closed) is of higher importance to mature aged shoppers. Table 1 – Most important reason for shopping online – 201 1-2012 What is the most important reason that you purchase physical goods online instead of purchasing in a physical store?

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