Home ground advantage: commerce and e-commerce

I was at a local chamber of commerce meeting tonight where the guest speakers from one of the major banks gave us a macro-economic view of exchange and interest rates. The conversation about the health of the economy suddenly got round to the internet and its effect on the shopping experience. One of the speakers wondered at what point “home ground advantage” was lost and people did their shopping online because it was cheaper. (photo: transcyberiano)

The tale was told of shops who charged their customers $50 just to try on the footwear. Many people were getting fitted out while getting expert advice then buying exactly the same gear for a fraction of the price online. The owners had a right to be miffed by a time investment not matched at the till, but their defensive measures in response was also short-sighted, the speaker argued. The internet is coming whether the skishop owner likes it or not.

A few minutes later, there was a worried question from the floor asking what this meant for commercial operations in Roma. The speaker reiterated the earlier point: it becomes a question of when home ground advantage is conceded. As another voice from the floor put it, “I like shopping”. The Internet will never fully replace the visceral appeal of commerce in real life.

Nevertheless it is pointless to ignore the truth. Cheaper online overheads and the convenience of clicking will eat seriously into the profits of the shops. People are spending a lot more time online too. A Nielsen Australian Online Computer Report released yesterday showed average internet usage has increased in 12 months from 17 hours 36 minutes in 2009 to 21 hours and 42 minutes in 2010. Usage has tripled in the last decade and with the prospect of high-speed broadband ahead, it is likely this trend has not yet reached saturation point. Australians will sooner or later spend a full day a week online.

Much of this usage is spent watching TV programs or surfing, but shopping online is also on the increase, though not as sharply. In 2008-09, 64 per cent of Internet users (pdf) aged 15 and over made online purchases, up 3 percent on 2006-07. This behaviour is concentrated in the young, which suggests it will increase. Three-quarters of people aged 25-34 bought over the Internet while less than half aged 65 and over made online purchases.

Businesses are going to lose business to the Net whether they like it or not. Rather than resisting change by charging $50 for the right to try things on, the bricks and mortar operations need to engage with the competition. That doesn’t just mean having a website to sell their wares. They also need to maximise other home ground advantages. While issues of security and shopping in person were important factors the most commonly reported reason for not making online purchases in 2008-09 was “a lack of need”. People shop in the real world when they don’t need to do it online. Understanding how to tap into this lack of need should be a holy grail for 21st century business.

Traders cannot rely on the GST loophole argument to equalise prices. There is a threshold below which it is too costly to collect taxes on goods privately imported. Keeping retail price below the cost of imports plus delivery is unlikely so shops should look to value added services to keep the tills ringing. Intangibles like goodwill, trust, a social media presence, an identification with their geography, and an honesty when dealing with customers may end up being decisive factors. If customers think there is a need to for online services - and they will – then they will find them. It’s up to business to find an ecological niche to avoid extinction. (photo seen outside a closing Borders store in the US)