By: Melinda Upton and Josephine Gardiner

When e-commerce initially established itself in the Australian marketplace, industry experts predicted the imminent death of brick and mortar – physical retail stores.

Online shopping offered appealing prices, a bigger range of products and further convenience for the customer. The two were deemed arch enemies, competing for the same marketspace. However, today we know this prophecy was never realized: brick and mortar stores remain at the heart of Australian shopping.

Due to the geographical location of Australia its absorption of the digital environment into the retail sector was slow and disjointed. Isolation from the rest of the world meant that delivery costs and wait periods were not as convenient as they were to other global markets. This protected Australia from global retail giants that slowly trickled into the retail sector. Unsurprisingly, most of these brands, including Zara, Sephora and Forever 21 acknowledge the importance of brick and mortar in Australia and have invested in flagship stores in Sydney’s central shopping area on Pitt Street, as well as additional stores throughout the country.

Today, online retail has embedded itself into the Australian marketplace, but its presence still remains smaller than brick and mortar. In-store sales still account for 90 percent of all retail transactions. Evidently physical stores remain at the core of the Australian shopping experience and the value of “touch and feel” remains a strong necessity for customers. Having said that, there is also no doubt that online sales are growing at a greater rate than in-store sales.

Recent reports have demonstrated that customers do not prefer one retail environment over the other, but rather prefer to use an amalgamation of both, making the path to purchase a much more complicated one for retailers. For example, many customers research a product online, examine the product in the store, research competitor prices, buy online and collect in-store. This process has been driven by the attitudes of today’s modern consumers. Gen Y customers are used to accessing information quickly and efficiently through their smartphones. They seek product information before purchasing not only in-store and online, but also by accessing third-party data, such as blog reviews and social media. Customers do not view online shopping as a rival to physical stores but rather as an extension of the same brand, and expect it to provide the same seamless level of service and quality.

Retailers are now finding themselves in a situation where they must operate in a marketing universe that constantly traverses physical, online, mobile and social channels all day, every day. This behaviour is commonly referred to as the omnichannel experience, a term that has become a buzzword within the retail sector, indicating a process of unison between both online and physical environments to provide customers with an individualised experience of optimal convenience.

This omnichannel experience can be convenient for retailers, as often the two environments support each other. For example, 40 percent of in-store visits were influenced by digital sources in Australia in 2015. Further, many once purely online retailers are establishing a brick and mortar presence, such as Shoes of Prey and Warby Parker. The benefit of using omnichannel services is also reflected in the disappointing figures for pure onlinebased brands. Surfstitch, for instance, reported a loss of AU$154.7 million and Temple & Webster reported a AU$44 million loss. However, this may not always be the case, as The Iconic, an Australian fashion online retailer, has demonstrated by refusing to succumb to brick and mortar pressure in Australia. They argue that their profit margin this year is a result of selling quality brands, offering free returns and competitive prices. This suggests that retailers should shift their focus from the selling channels available to them to the key priorities of the customer.

For the moment, retailers are adapting their business models in accordance with the changing retail landscape to ensure that they are neither exclusively online nor offline, but rather optimizing both channels. The customer-centric model offers several innovative services, including click and collect (buy online, pick up in person), buy now pay later (allows you to pay later for purchases), online returns across all channels, and offering a single inventory view. Some stores have gone further; for example, TopShop offers virtual dressing rooms and Sephora offers makeup tutorials so that you can apply virtual cosmetics to an image of your own face.

However, for the majority of retailers, trying to offer a seamless service over multiple channels has proved a difficult task. It can often produce dissonant multichannel services, with various mediums offering unnecessary services, which consequently clashes with the brand image of the physical store.

On the other hand, services which are successful, support and supplement the in-store experience, whereby customers save time and quickly access the information they are looking for.

What next for Australian retail?

The relationship between online and in-store retailers is still a controversial and unsettled area in Australia. Just last month, the Australian Competition and Consumer Commission (ACCC) announced severe measures regarding any merges or acquisitions between large retailers and online rivals. The reaction has been twofold. E-commerce entrepreneurs are displeased, given they will be unable to pursue partnerships or selling opportunities and the ACCC’s action removes exit options. On the other hand, the ACCC has said it will boost competition in the marketplace and prevent giant retailers from buying and eliminating startups. The ACCC confirmed that the online retailer would have to be of a “certain size” to trigger such a “crackdown”, which in effect punishes promising startups that reach a level of success.

What about the law?

Additionally, there are legal risks retailers must consider when navigating this complex “phygital” environment. This is an undeveloped area of the law. Currently, there is no legal concept of omnichannel nor multichannel; each purchase is to be treated as an individual contract. Retailers are therefore free to deal with each channel distinctly – e.g., offering different prices or different promotions in the store versus online. However, customers are channel agnostic, valuing brands first, and relegating sales channels, whether social media, website, or in-store, to a far second place. Customers do not expect a purchase online to be treated differently than one made in-store. Retailers should thus ensure their policies are synonymous over the various channels, which is a challenge in itself, given that the transactions occur over different mediums. For example, a refund policy for an in-store sale might include a return time period which cannot be matched online due to delivery timings.

While the law is struggling to keep up in a rapidly evolving technological world, retailers should ensure that all channels are complying with normal consumer protection regulations, such as the Australian Consumer Law and the Privacy Act 1988 (Cth). Retailers must therefore be proactive in their risk management of digital risks, such as cybersecurity, data protection, fraud, trademark infringement and copyright violations, or else ultimately face the unquantifiable risk of brand damage. As the digital shopping experience elbows its way into the heart of Australian shopping, retailers should always have a strong risk management framework to deal with the risks that will emerge along the way.