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Comment: Trading into Australia

There are a number of compelling reasons for UK retailers to trade into Australia – shared language, large ex-pat community, solid economy growth, high purchasing power among shoppers – but one obvious reason that can act as a barrier: distance.

Nevertheless, Australia remains a popular market for UK retailers and many are already trading there successfully – with eMarketer projecting ecommerce sales in the region will reach AUD $32.6 billion by 2017.

Below we outline some of the key factors you should consider when building your strategy for market entry.

Pushing against an open door?

While it may be quite literally on the other side of the planet, this actually works in the favour of international retailers – precisely because of its geography and the limited size of the domestic market, the Australian business environment is very open to global trade in order to ensure shoppers benefit from having access to competition.

On top of this, Australian shoppers have embraced cross-border shopping with enthusiasm – with Citigroup reporting that 35-40% of online sales in Australia are made through foreign retailers. The most popular overseas markets for purchasing are UK and US, with China, Hong Kong and Canada also ranking high in the list.

UK retailers are also building on a solid foundation due to the high number of British-born ex-pats living in Australia, as many of these are already well familiar with British brands.

Legal framework

Largely due to the long historical relationship with Britain, the Australian legal system is similar in many areas to the British system and would be familiar to western lawyers in that respect,  particularly in relation to consumer rights and data protection legislation.

That said, there are clearly differences with other markets and it is strongly advisable to get local advice on this area before launching there in earnest.

There has been a debate around a tax loophole that currently works in favour of foreign retailers. The rules state goods worth less than AUD $1,000 are exempt from a 10% goods and services tax (GST) – but local retailers claim that the high wholesale prices they have to pay put them at a disadvantage to international competition and are calling for a change to the rules for foreign websites, so they are not exempt from paying this 10% GST on goods under AUD $1,000 in order to level the playing field and bring them into line with local retail prices.

The exemption was seen as a particular issue when the Australian dollar was above parity with the US dollar – which made prices on overseas websites more attractive to Australian shoppers. However, research has found that convenience and access to global brands are big drivers of interest in cross-border alongside price.

Logistics

Australia is a huge country, with major cities spread out and some areas very remote from the main population centres – and this geographical split of delivery locations provides one of the biggest challenges to efficient fulfilment in Australia.

In terms of geography and population density, the Northern Territories, Tasmania, Queensland and Western Australia represent specific challenges. The below chart illustrates the percentage share of total online spend in 2014 according to the National Australia Bank:

Traditionally, most individual deliveries into the country were made through postal routes using Aus Post as the local delivery link, or the big global integrators (TNT, UPS, DHL, Fed Ex). In recent years direct access solutions have also emerged that work by consolidating orders from multiple retailers in the country of origin and flown in bulk to the country of destination before being handed to a local delivery partner for the ‘final leg’.

Payments

PayPal is by far the most popular payment method in Australia, although credit and debit cards are also used widely online.

The below graph shows the preferred payment methods for cross-border transactions in Australia (from a 2013 Nielsen survey commissioned by PayPal):

One point of note is Australia has one of the highest smartphone penetrations in the world (76%) – which is greater than that of the UK, US and most of western Europe. This has led to an increase in the use of bank-to-bank and overlay payment services.

To find out more about the Australian ecommerce market, download your free copy of IMRG's Australia Cross-Border Trading Report 2015, published in association with wnDirect.

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