Posting the Future

Online retail is the future of the Australia Post business, Anna Game-Lopata writes

Posting the Future
Posting the Future

April 28, 2011

Gone are the days when Australia Post just meant letters and parcels in your letterbox.

Jo-Ann Murphy is one of a group of visionary executives at Australia Post making the transformational waves that have been taking the business forward to become a cutting-edge supply chain organisation over the past several years.

Murphy has well observed the need to embrace rapid changes in the market if the company is to step up to the next level.
She told the industry at a recent NG Supply Chain Forum that online retail is here to stay.

"The convenience of retailing online is opening markets that have traditionally been inaccessible to all but the global travellers," she says. "Savvy shoppers are purchasing products online for value and convenience."

Murphy points to a report from Forrester Research which forecasts that online purchasing in Australia will hit almost $37 billion by 2013.

"This is up from $26.86 billion in 2010," Murphy says. "Last year, online retail consumer spending in Australia accounted for approximately 5 percent of total retail sales."

Current statistics also show that 40 percent of all Australian online purchases are made from overseas sites, with a 25 percent spike following the strengthening of the Australian dollar over the last six months.

"Buying offshore has been embraced by the market and global players are now competing for a share of the Australian consumer spend," Murphy says. "Five years ago, China represented 10 percent of Australia’s imports — this share has more than doubled and is growing at 20 to 25 percent a year."

In the US, which has a strong catalogue culture, and Europe, the figures are equally mind-boggling.

"Amid a global financial crisis, US online retail still managed to grow 11 percent in 2009 to reach $155.2 billion," Murphy says. "With a 10 percent compound annual growth rate, US online retail sales are expected to reach $248.7 billion by 2014."

Murphy says growth in online retail sales will continue to outpace growth in offline retail sales, as low prices, convenience and selection drive more shoppers to the web.

With the top product categories including computer hardware, software and peripherals, apparel, accessories, footwear and consumer electronics, online retailing is also one of the fastest-growing markets in Europe.

"Worth EUR44.7 billion in 2003, online retailing in Europe grew by 221 percent to EUR143.7 last year," Murphy says. "E-commerce sales continued to perform strongly in 2009, growing by 22 percent and representing 4.7 percent of total retail sales across Europe.

"The European online market has been growing faster than its counterpart in the US for the last three years, and this trend is set to continue."


The question for Australian retailers and businesses that support them, such as Australia Post, is how to get access to this online market potential.

"Patterns seen in both the US and Europe are similar to those in Australia, so we must find a way to learn from these and leverage the opportunities for Australian retailers," Murphy says.

Murphy argues changing market conditions and routes to market continue to challenge the industry.

"A strong Australian dollar, weak demand due to soft retail markets and the continued push for cost down are all having significant impact on the market," she observes.

"We have also seen a consolidation in competitors resulting in a few large players and a number of smaller niche players all targeting the same market."

Over the past few years, Murphy says Australia Post has been focusing on providing global supply chain solutions, particularly in China.

"Our attention has been mainly centred on achieving operational excellence," she says.

"We want to ensure that the total cost to market is kept to a minimum and product is reaching the consumer or retail outlet at the right time, at the right cost, both financially and environmentally.

"We are currently concentrating on building robust supply chain solutions for specific industry requirements with the main focus being the retail industry," she says.

Murphy tells SupplyChain Review her key philosophy about supply chain excellence revolves around understanding customer drivers, the market conditions they are working in and how Australia Post can support them proactively.

"The cost of capital is expensive, speed to market is essential and global market access is now more prevalent than ever before," she says. "All of which is making major impacts on the way our customers need to react and manage their supply chains.

"We therefore aim to assist our clients to take touch points out of the supply chain. We enable them to reach the end consumer globally in the most cost-effective, sustainable and reliable manner.

"Sustainable supply chains are no longer just a ‘nice to have’ but are becoming a ‘must-have’ through legislation, such as mobile muster and packing regulations in Europe," Murphy adds.

"Taking the most direct route to market directly is a good way to improve sustainability. Carbon emissions are reduced as kilometres are taken out of the supply chain and there is less redundant stock in the process."


Jo-Ann Murphy also maintains the perception that items can be purchased more cheaply online is compressing the historic two-season sales cycle.

"There is now an expectation that new products will be online or in store every week, which has an immediate effect on the supply chain," she says.

"With product lifecycle shortening, as can be seen with fashion and technology, it is imperative the supply chain is kept lean. This is both on the outbound delivery together with returns management — as a relatively high percentage of all online purchases are returned."

Given these trends, Murphy predicts a clear role and market advantage for Australia Post as online purchasing provides retailers with opportunities to streamline their supply chains.

"The need for visibility, delivering as promised and instant gratification with purchases often precludes the use of ocean freight from overseas countries," she explains.

"This results in the vast majority of global online purchases moving using commercial airfreight, courier or mail services, such as those provided by Australia Post.

"Overseas retailers are often able to sell product to Australian consumers at a lower cost due to lower total supply chain costs," she says.

"Products are able to be shipped using the most direct route to market by passing multiple distribution centres and touch points along with way, resulting in reduction in overall supply chain costs.

Together with utilising mail and commercial Self Assessed Clearance (SAC) entry processes, global players have a jump on local retailers pricing. The global retailer can often supply the goods for up to 40 percent less without eating into their margin at all."

In addition, an opportunity exists in terms of returns — a pain point for all retailers.

"More effective returns processes have encouraged consumers to purchase products online that perhaps they would not have in the past," Murphy says.

"Shoes are a good example, with some online retailers providing the option of sending multiple sizes to a consumer and the consumer returning the ones that don’t fit. It’s all as simple as dropping the return into to the local post office."

Murphy says Australia Post sees its future direction as increasingly tied to the online retail sector; however she says there is still some way to go to achieve the desired customer experience in Australia.

"Whether they utilise global or country-specific hubs, essential decisions include how much inventory to hold, where it needs to be and when, whether it should be centralised or decentralised and the best way to access to global markets," she says.

"It makes sense for Australian retailers to avoid importing products only to ship them out again, and to remember that our seasons run counter to others in the US and Europe."

"This also relates to how these costs are managed within the business, for example often warehouses are not set up for products going directly to consumers," she says.

"You don’t want your store staff distracted from walk-in customers by online orders that need to be processed."

"In terms of visibility, track and trace supported by proactive customer notification is the way to go. "Consumers want to know that their order has been received, dispatched, is in transit and out for delivery. Australia Post provides total back end supply chain support so that our customers can concentrate on what they do best, selling their product."

According to Murphy, online retailers and their providers must be dynamic and have the ability to keep up with market trends. "They must avoid complacency and continually challenge the status quo," she says.

"For example, consumers don’t want to go through more than three screens for full payment and shipping details and will often abandon carts if this process is to cumbersome.

"Equally, they don’t want to pay for delivery. If I go to the local shop and pay $10 for something, why would I buy online if I have pay an additional $18 delivery cost?"

When it comes to delivery Murphy says there are more than a thousand delivery providers in the Australian market but few get the true business-to-customer (B2C) experience right.


"The presentation and performance of the driver making the final delivery to the customer is just as important as the presentation of a retail sales assistant," she says.

"This is the only human interaction that an online customer will have with a brand and at Australia Post we take that responsibility seriously."

"There’s a certain illusion to be maintained using local service providers. If a consumer is purchasing from a global site they know the product will come from offshore. But if they are buying locally it’s often a branding decision. If they are purchasing a local Australian iconic brand, they may want the local delivery feel."

Murphy says Australian consumers generally want to support the local economy and Australian brands.

"But how much cost and inconvenience are they willing to bear? Keeping customers waiting at home for a delivery will mean certain business death," she says.

"In Australia there is no need for that. Our postal network with more than 400 retail outlets allows consumers to collect their product at a time and location that is convenient."

Deep, collaborative relationships with supply chain partners and customers is the key to success.

"A good supply chain partner can help Australian retailers leverage the opportunities as well as cost-effectively accessing global markets.

"We are no longer in a market of ‘build it and they will come’ or that we need to own every step in the supply chain," Murphy says.

"Australia Post sees one of its main advantages as the ability to leverage wholly-owned assets and partnerships with Star Track, AaE and Sai Cheng. These together with other strategic global alliances allow the delivery of cost-competitive leading-edge supply chain solutions."

Murphy predicts a falling dollar will leave Australian shoppers accustomed to buying online, with less opportunity to access ‘cheap’ US dollar products.

"A falling Aussie dollar will also present global online shoppers with access to ‘cheap’ Australian items," she says. "We at Post Logistics intend to be well-positioned to leverage our business for retail customers when this happens." ||

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