With the age of the virtual wardrobe almost upon us, Madeleine Ross finds out what the future has in store for retail
Clueless (1995). Precocious Beverly Hills princess, Cher Horowitz, sits down at her computer to select an outfit for school. Using a touch screen far too advanced for the era, she flicks through combinations of outrageous tops, skirts, pants and dresses until she settles on a hideous yellow tartan suit.
Instead of her trying it on, the suit moulds to her figure virtually using software that was beyond belief in the 90s. A screen shot of Cher in her underwear transforms into an image of her clothed. She nods, satisfied with how it looks, and skips off to find the suit from her closet. And there you have the birth of the virtual wardrobe.
Fast forward almost 20 years and that technology is nearly within our grasp. According to Australia's biggest online fashion retailer, The Iconic, Cher's visionary computer program holds the potential to radicalise the world of online shopping, overcoming a critical challenge faced by the sector: the inability for customers to try clothes on before purchase.
"We are working on a similar technology," says Finn Age Haensel, managing director and co-founder of The Iconic. "These technologies will become more and more important moving forward because they give people less reason to buy in bricks and mortar."
Developments like this are hints of the ways online retailers are trying to innovate the online shopping experience. The land-grab, so to speak, is finished. Although there are independent e-tailers popping up everywhere, in the last 12 months the leaders have been established and almost all the big bricks and mortar department stores have made the leap to online.
Last year saw the introduction of pureplay e-tailers ASOS and The Iconic into the Australian market. And department store David Jones launched its online store in November.
"Two years ago we were still educating retailers about online selling, trying to justify why they should be doing it," says Peter Noble, CEO of digital agency Citrus, which has developed the online retail presences for Witchery, Wittner Shoes, Scanlan and Theodore, Cotton On and Sportsgirl. "If you look at the last 12 months, brands and e-tailers are now looking to consolidate what they've got and start driving more qualified shoppers to their sites."
Now the focus has turned to improving online customer service, mining data to make the virtual shopping experience more personal, creating seamless shopping experiences across mobile and desktop devices, and fostering a complementary relationship between in-store and online.
Let's break it down.
According to NAB's Online Retail Sales Index, online retail sales in Australia rose to an estimated $13bn in the year to January 2013 and are now equivalent to 5.8% of traditional bricks and mortar sales (excluding food).
Growth remains strong, up 27% year-on-year in January 2013, even though January is typically a weaker month for the online sector.
According to Forrester, online retail in Australia is set to reach $33bn in 2015, which is almost double the $16.9bn recorded back in 2009.
According to Nielsen, 87% of online Australians aged 16 and over purchased an item online in the past year.
Close to nine in 10 Australians purchase online every six months, and 16% make an online purchase at least once a week.
"We still have double digit growth every month. We're growing much faster than the average retailer in Australia"
– Finn Age Haensel, co-founder, The Iconic
Travel is the most popular product purchased online, followed by accommodation, books, fashion and tickets. Those aged in their 30s and 40s remain the key demographic for online spending,
Furthermore, domestic sales increased by 28% year-on-year in January, compared with 25% year-on-year for international retailers.
"In the first year we had double digit growth every week," says The Iconic's Age Haensel. "It's not as fast any more but we still have double digit growth every month. We are growing much faster than the average retailer in Australia."
In Australia, The Iconic is now head-to-head with UK online retail giant ASOS.
Conversion rates are almost exactly the same, although Age Haensel claims his site has greater traffic. Its customers are split 50/50 between those who are regular online shoppers, and those who have never shopped online before, so Age Haensel knows the site is stealing business from bricks and mortar retailers.
The benefits of online retail for consumers are obvious for the most part.
Perks include convenience, access to a huge range of products, and competitive pricing. Furthermore, delivery and returns policies are increasingly better than the policies in place for bricks and mortar.
Using delivery services like Want It Now, local delivery can be as little as three hours, while returns policies are often more than 100 days. That's very different to the seven days offered by many stores.
For vendors the benefits are also numerous. E-tailing gives vendors the ability to reach a global market and a broad range of consumers.
It also offers reduced overhead costs and the chance to gain in-depth customer insights including web analytics on acquisition channels, customer engagement and product conversion rates.
"Data collected online can be used to create a truly personal relationship with customers to better communicate and increase repeat sales," says Jodie Sangster, CEO at the Association for Data-driven Marketing and Advertising. "With the right tools and expertise, online retailers can easily establish a one-to-one relationship that delivers to customer preferences in real time."
You'd think bricks and mortar would be a hands-down superior customer service experience, but online retailers are working hard to make e-tailing better.
"When we started eBags we wanted a better shopping experience than bricks and mortar," says Peter Cobb, co-founder of US luggage e-tailer, eBags. "Stores are cutting back on sales assistants here and you're really on your own. And most sales assistants don't know much about the products they are selling."
How's eBags doing that? Lots of product images, zoom capabilities, video demonstrations, full fact sheets, 24-hour live chat with an eBags sales representative and the ablity for consumers to leave virtual Post-it notes on every product they purchase, giving feedback about the quality of the product and service. The Post-its are displayed as reviews on the website. Free shipping nationally and 60 days free returns also seal the deal.
Similarly, The Iconic has live chat on the website, which gives fashion advice and answers questions. It is also launching an "intelligent chat" service where it proactively looks for people having problems on the website.
The mobile revolution
Online shopping is fast becoming device agnostic. Mobile phones provide the opportunity to check prices, availability and reviews on the go, and, in some cases, facilitate purchase, while tablets are increasingly used for the latter.
"What we've seen in the last 12 months with the retailers we work with is that up to 45% of all their traffic is now coming from a mobile device," says Citrus Media's Noble. "The growth in mobile traffic has been exponential and the demands of the consumer have changed so much in the last year."
Online retailers are responding to the changing preferences by embracing mobile functionality. According to Forrester Research, more than 50% of retailers are now selling through mobile, versus 16% in 2010.
Furthermore, mobile phones were involved in around $5.6bn worth of retail purchases in 2012 according to research from PayPal and eBay. This figure is up from just $155m in 2010, showing the speed at which mobile technology is penetrating in Australia, according to the Secure Insight: Customer Discovery report.
Australia is one of PayPal's leading markets when it comes to mobile payments. This has been driven by high smartphone penetration locally, which GfK recently put at 63%.
This means that the brand experience must be seamless across all devices. "The only thing that stops people buying through their mobile is that the user experience is pretty shit for most retailers," says Bernie Johnson, director at Adrenalin Media. "Online shopping needs to be omni-channel. You need to be available to your consumer wherever and whenever they want something. You need to align the different parts of your e-commerce ecosystem – the desktop site, the tablet site, the mobile site – convenience is key."
Near Field Communication (NFC) is one of the ways that the mobile and in-store experiences have the potential to work together, but there is still uncertainty from retailers around investing in mobile payment systems.
The iPhone5 still has no NFC and it's hard to predict whether the next one will.
Nevertheless, Ross Bark, e-commerce principal consultant at Salmat Digital, believes mobile payment options are a huge growth area.
"The ability to tap or swipe to confirm a payment in-store, or make payments directly from your phone for online will continue to increase. This is the next growth area for retailers, particularly for their loyalty card schemes," he says.
The mobile shift has created some of the biggest challenges for online shopping.
According to Brian Donn, senior vice president and general manager APAC at KANA Software: "One of the main inhibitors for online retailers is often associated with how effectively they align their online channels.
"As the industry moves towards an omni-channel approach to customer service, disconnected channels are no longer acceptable."
Customers now channel surf and expect a connected experience. Johnson says the main challenge for online retailers is that the user experience is "still pretty horrible on most Australian retail websites, especially when jumping between mobile tablet and desktop."
Online retailers must also be aware of keeping their prices competitive. While online retail was once perceived purely as a discount channel, that's changed, especially with convenience perks like three-hour delivery filling the value void.
But, according to Johnson, pureplay e-tailers must be careful to keep their prices below those of traditional retailers if they want to stay in the game.
The trend of "showrooming", where a customer looks in-store and buys online, will only continue if prices from pureplay e-tailers are cheaper.
"Everyone loves instant gratification. The preference of most consumers would be to walk away with the goods there and then. The only reason a customer will view in-store and buy online is that they get a better deal online," he says.
On the technical side, another major challenge is dealing with peak loads.
Jeff Findlay, senior solution architect at software company APJ, says: "It doesn't matter how much you've spent on creating a superior web experience. Even the most usable website or mobile application can be rendered useless if the back end infrastructure can't handle the volume of traffic during peak times.
"It's critical that businesses understand how to properly performance-test both their web and mobile applications."
When it comes to tickets, appliances, luggage and travel, consumers know what they're getting when they buy online. But apparel and footwear are a different story, with consumers still preferring to try things on before purchase.
This, says The Iconic's Finn Haensel, is the biggest roadblock for online shopping right now.
"That's probably a challenge that's not 100% solved yet. Our 100-day returns policy motivates people to order all three sizes of the product, try them on at home and then return them for free within 100 days."
The virtual wardrobe technology, depending on its quality, might change things here too.
We'll wait and see.
Traditional players lagging online
According to Johnson, all the big Australian retailers now have "passable" online offerings, including Harvey Norman, DJs, Myer and BigW.
"When I say passable, their websites are by no means groundbreaking, but at least there's not as much clear air between local and overseas as there has been in recent years," he says.
"The trouble is these guys don't have the agility of the pureplay businesses so the process of fundamentally transforming their business models will take some time."
While pureplays have had the benefit of implementing completely new online offerings, the traditional retail giants are stuck with legacy systems created a decade ago.
Updating these to facilitate smooth and efficient online retail is difficult, time-consuming and resource-intensive.
According to ADMA's Sangster: "Transforming an existing legacy business is often much harder than starting from scratch. The benefit that ASOS, The Iconic and Amazon have had is that they have started as an online business and been set up in that way."
Citrus' Noble agrees: "It doesn't matter if you are a Myer or a DJs or a smaller network, if you've invested in a point of sale system eight to 10 years ago, it's from a different age.
"The pace of change has been so great. They look, feel and act very old very quickly and they aren't future-proofed. We're talking about things like their back-end warehousing systems and their distribution systems."
According to Salmat Digital's Bark, Woolworths is one traditional retailer which is keeping up.
Notably, Woolies has focused on improving the logistics associate with its supply chain, meaning a faster turnaround for online orders.
In this vein, Johnson believes the traditional retailers will start to win back lost share as the years progress.
The notion is perhaps surprising given the current momentum around the pureplays.
"I think at some point in the next 18 months we'll reach an equilibrium between the traditional retailers and the pureplays with the former starting to dominate," he says.
"The technology gap is growing smaller every day but the marketing grunt the traditional retailers have to throw at their brands will always be much higher than the pureplays."
Online and traditional working together
Pureplays vs the online offerings of traditional retailers is one thing. We'll see how that unfolds in the coming years.
But the issue of bricks and mortar shopping versus online altogether, is another.
Almost every interviewee stresses the continued importance of in-store offerings. According to the vast majority, online will never overtake bricks and mortar but rather will learn how to better work with it.
This is the focus of Westfield as it moves its online offering forward.
"With the ever-changing landscape of commerce, Westfield is dedicated to using technology to better integrate our physical and digital environments in order to create great experiences for our customers," says Westfield marketing director, John Batistich.
"The majority of our customers still browse and purchase in our centres.
"The fastest growing proportion is browsing online via tablet, PC or mobile, but is still purchasing in centre.
"Westfield is focused on our technologies for this growing shopper base, including enhancing our mobile apps, launching indoor Google maps at all 39 centres and focusing on the opportunities offered by smartphones to connect shoppers with retailers in-centre."
Ideally, online and mobile offerings will complement the in-store experience, with digital fast becoming part of the traditional retailing experience rather than existing as an exclusive or separate channel.
"NFC, peer-to-peer and tap-and-go payments, QR codes, image-searching – these are all technologies which are complementing the in-store shopping experience, rather than cannibalising it," says Johnson.
What looks likely moving forward is that consumers will become agnostic in terms of where they interact with brands and retailers, whether they be online or in-store.
What digital creates – what the convergence of mobile, social, big data, and geo-location technologies create – are opportunities for deeper engagement and personalised experiences with today's connected consumers.
The era of converged shopping is upon us.
Box out 1: Geoblocking
Geo-blocking refers to technological measures put in place by online retailers to artificially carve up their market depending on location.
For example, if you log in to iTunes from Australia, you'll be sent to the Australian iTunes site because of your Australian IP address, and here you'll see prices adjusted for an Australian audience.
Protection measures go beyond that, though. Even if you make it to the US version of a website, the vendor will often require you to pay with a US credit card and use an American delivery address.
"We see this on a variety of different websites, from clothing retailers to computer companies and it's a way of retailers sustaining artificially high prices in places like Australia," says Matthew Levey from Choice.
It's an issue which has attracted much attention in recent months with Apple, Adobe and Microsoft coming under fire from the Australian government for doing just this.
"We think consumers should have the right to access products in an international market at the most competitive prices possible," says Levey. "Suppliers are trying to build an artificial wall around the Australian market in order to sustain a higher price here. It's anti-competitive, it's bad for consumers and it's out of date in the international market that we live in."
The digital industry isn't a supporter of the practice either. "It's a Band-Aid solution which will never work. Unfortunately the internet has no borders so trying to block access to sites or not delivering to certain regions is a pretty porous long term solution."
What IP detection is good for, though, is offering personalised experiences to Australian consumers.