How many of us have ordered something online during lockdowns last year?
E-commerce, the buying and selling of goods and services over the internet, has accelerated through COVID, growing at 57% over the last year alone!
Supported by adoption and improvements in e-commerce services and technologies such as Shopify and Afterpay, Australia has seen a further shift online by traditional retailers, growth in online marketplaces as well as emergence of digitally-native, direct to consumer (“D2C”) brands. Concepts such as same-day delivery, that were once unheard of in Australia, are now commonplace thanks to improvements in delivery and logistics infrastructure and systems.
Whilst the growth is impressive, Australian e-commerce activity is currently only ~16% of overall retail, compared to 20% of total retail in the US market. Here at Equitise, we predict that we will continue to see a shift online, fuelling fundraising activity in online-only startups, as well as complementary businesses such as packaging, payments or supply chain technologies.
This convenience of online shopping has had a tremendous impact on the way we shop. Focus on the customer experience, distinctive branding and a subscription revenue model all create customer loyalty. Whilst COVID accelerated this trend, the real winners in the long term are those with an evergreen customer base and strong unit economics.
E-Commerce has also been fuelled by the proliferation of online content across all media platforms such as Youtube, Instagram and TikTok, or the growth of the “creator economy”. This has accentuated a new form of marketing and selling products or services online, in a way that engages a ‘fan-base’ of customers.
As e-commerce continues to dominate global markets fuelled by the COVID pandemic, it is time to take a look at why online and in particular, D2C businesses have boomed, and the key trends we look out for.
The Australian E-Commerce Landscape
As we emerge into a future led by spending more time at home, more and more Australians have shopped online than ever before in 2021.
E-commerce has taken off in Australia with total revenue from the online shopping industry valued at $44 billion, as of the end of 2021. As Australian consumers have had no choice but to change their online spending habits, this has driven a dramatic shift in online shopping behaviour. As a result of the COVID-19 pandemic, this trend highlighted total online sales to have grown by 12%, as of June 2021, where businesses are rapidly ramping up digital sales capabilities.
Despite the common trend towards rising e-commerce penetration globally, online spending in Australia has remained consistently below most international markets. But, as international players have entered the Australian market this past year, penetration has doubled in the last 5 years due to the impacts of COVID, reaching 13%, as of the beginning of 2021.
We explore the key players:
Hybrid Model: Existing retail brands transitioning to online.
Driven by enforced lockdowns and a shift in consumer buying habits, many well-known Australian retailers have accelerated their online expansion. Technology has allowed established retailers to leverage their physical stores and distribution networks to meet customer expectations by offering “click-and-collect” services and home deliveries.
For example, Woolworths is one of Australia’s earliest online innovators, particularly with the online offerings of Big W, Dan Murphy's, Cellarmasters and Woolworths. Holding a c.10% market share in online shopping in Australia, Woolworths have successfully expanded and streamlined its delivery options and click-and-collect services during the pandemic. To further cater for online demand, Woolworths launched an online marketplace, ‘Everyday Market’, in September 2021, a one-stop-shop for all everyday essentials, ranging from Health & Beauty to Pet Needs.
Other retailers such as Bunnings, Myer, BWS, Coles, David Jones, Freedom and Harvey Norman are also transitioning to provide more efficient services online.
Online Marketplaces: Aussie Home Grown Successes
Australia has also had its own share of home grown e-commerce success stories, ranging from B2B and B2C marketplaces across fashion, homewares and trade supplies. These include Catch.com (founded 2011), The Iconic (founded 2011), Adore Beauty (founded 1999), Grays.com (current format founded 2000) and Kogan (founded 2006).
These have evolved the Australian buying experience, disrupting traditional business models and taking increasing market share from bricks and mortar retailers. COVID accelerated this disruption, as retail stores had to close and shoppers had to look online.
"We're definitely seeing a transformation in terms of how people shop.. E-commerce in Australia has advanced several years in the space of a few months…We will continue to take more market share. People are shifting because they see how easy it is. They don't have to find a parking spot and deal with a pushy sales assistant.
People have changed the way they shop. We are seeing it across the board.''
Ruslan Kogan, quoted in the AFR
Online retailers are continuingly tapping into a range of features such as managing delivery options (click-and-collect or home delivery), customer email services, and personalised apps and website experiences, to consistently engage with their growing online customer base.
Alongside the home grown ecommerce platforms, Australia has also seen the entry of global ecommerce powerhouses, including eBay and Amazon.
eBay entered the Australian market in 1999, and alone is used by 12 million Australians on a monthly basis to shop and sell goods online. Amazon, entered later in 2017, but has already hit $1.2 billion sales (as of Dec 2021), and is forecasted to account for approximately 25% of the Australian online retail sales. They remain a strong competitive force in the Australian market, providing the consumer with more options to shop online.
Digitally Native & Subscription Brands
Another category is online-only platforms that focus on a specific category or product and drastically disrupt the buying experience for the customer. Given the relative nascency of e-commerce in Australia, this often includes categories disrupted in more mature markets and then approached here in Australia.
Koala was one of the early movers in the Australian direct-to-consumer movement, targeting the outdated and user-unfriendly experience of buying mattresses and furniture. Taking this a step further, for more perishable goods such as groceries, toiletries and toilet paper, D2C brands can operate on a subscription basis. This creates recurring revenue and customer loyalty for business and increased convenience, personalisation and improved experience for the customer. Some examples include:
- Lyka, subscription premium dog food (raised $6.5m in July 2021)
- Who Gives a Crap, toilet paper with purpose (raised $41.5m in September 2021)
- Eucalyptus, subscription telehealth/ healthcare products (Series B raise of $30.0m in July 2021)
D2C and subscription businesses are becoming increasingly competitive with increasing costs of marketing and customer acquisition as consumers have more choice. Focus is therefore on increasing customer LTV and growing and keeping a strong user base. This comes down to building a strong community of fans around a brand and superior customer experience.
The Supporting Acts: Complementary service & technologies.
Supporting the boom in online retail is a breadth of players covering the full infrastructure chain from funding of ecommerce business models, cloud services, payments technology (such as Shopify), logistics/supply chain management and packaging & last mile delivery.
On top of this there are also technologies driving the customer experience including digital and behavioral marketing and customer insight companies.
These are seeing huge growth, a range of examples from the past 18 months:
- Sendle, delivery and logistics for SMEs (raised $20m in Jan 2019)
- Carted, application programming interface (API) tool for online businesses (raised $13m in May 2021)
- Clearco, revenue-based financing for E-Commerce brands, raised $215m through a growth equity round, in July 2021
- Particular Audience, an Aussie E-Commerce startup, that focuses on machine learning technology, raised $7.5 million in Series A funding in November 2021
Here, at Equitise, we are seeing some great investment opportunities in this space, for example, Hero Packaging, which is launching a fundraise in March 2022.
Finally there are also complementary services for consumers. For example, one of Australia’s latest tech unicorns (and current target of a huge acquisition from Square), Afterpay, is an installment payment service provider that enables its customers to buy products on a ‘buy now, pay later’ basis.
Most Interesting Trends in Australian E-Commerce
As more and more Aussies resort to online shopping measures, the growth of e-commerce has propagated across both metropolitan and regional areas in Australia. Spending more time at home than ever before, we continue to see phenomenal growth in the e-commerce industry.
Here, we will discuss key trends that have been witnessed this past year.
Lockdown habits are here to stay.
COVID-19 has changed the way Aussies approach the online marketplace. Due to the convenience of browsing products online and efficiency of home-deliveries, the e-commerce market will see sustained growth, even after the pandemic. In the ABS Household Impacts of COVID-19 Survey, one-third of respondents indicated they prefer to shop online now more than they did before the pandemic.
So, how is Australia’s e-commerce increasingly catering to new online shoppers?
In 2021, 1.36 million Aussie households made an online purchase for the first time. With COVID-19 restrictions closing non-essential services, Aussies took to shopping online, surging sales for online retailers. More importantly, these restrictions had a significant impact on how often Australians shop online. According to Australian Post’s eCommerce Industry Report 2022, those who made a purchase less than four times between March and December in 2020, 52% shopped online more frequently in 2021.
Bricks and mortar retail is not done yet!
During the pandemic, an increasingly familiar experience for many Australians included visiting different online and physical stores, browsing and comparing competitive prices online, and choosing the most convenient way to get the products they need and want. This resulted in Australian omni-channel online expenditure to grow by 71.6% from 2019 to 2020.
Omni-channel retail involves consumers combining physical and online channels, often within the same purchase journey. For example, a customer may search for a product in-store (physically or online), pay for it online but pick it up at a store (including through ‘click and collect’ or ‘curbside pickup’), buy online or buy through a peer-to-peer or social media platform and have it delivered to their home. As a result, businesses must consider their omni-channel strategy to deliver a convenient shopping experience across channels.
Buying online still means buying local.
According to a study conducted by Shopify, 47% of consumers value the local presence of brands from which they shop from. The ‘buy local’ trend gathered momentum during the height of the lockdown, further perpetuated by Australia’s natural disasters and economic upheaval, to show support for local Aussie businesses in remote areas. With the help of social media campaigns urging Australians to shop in local communities, attention turned to these communities to reinvigorate the local economy.
#ClickforVic was a powerful campaign launched by the State Government, designed to support local businesses. During the height of the Victorian lockdown, this hashtag received traction through 31,000 posts! Other such hashtags included:
This noticeable uptake in social media campaigning allowed regional businesses to promote their businesses for free via these campaigns, allowing Aussies to support the local businesses they wanted to see encouraged.
Crowdfunding and E-Commerce
Equity crowdfunding allows startups to raise significant funds from a wide range of investors instead of relying on an angel investor or other restrictive investment channels whilst building a community of brand advocates. This in turn helps these startups build brand awareness and loyalty which is key to the success of any business.
We have recently been working with some exciting ecommerce brands, such as Tint (D2C Paints and Interiors) and tbh Skincare (D2C Skincare) as they look to scale in Australia and internationally.
In 2022, we predict more fundraising in activity in sectors supporting the e-commerce infrastructure, such as Hero Packaging, which creates sustainability.
The Australian e-commerce landscape is constantly evolving, adapting to new consumer preferences and behaviours that have been forever changed, even as we look beyond COVID. As e-commerce continues to grow, we predict Australian penetration to increase to levels seen in the US or UK.
The role of supporting infrastructure, what we call ‘picks-and-shovels’ businesses, such as packaging companies to online website development platforms, will become more vital than ever in supporting e-commerce businesses. To reach this growing base of online consumers, equity crowdfunding becomes a great way to connect retail investors with the consumer brands they buy from or use.
Feel free to reach out and get involved!
- If you are a D2C brand and are considering fundraising in 2022, reach out to the Equitise team and we can walk you through how a process might look like.
- Equally, if you are an investor looking to own a share in our next D2C, e-commerce raise, reach out to us and keep an eye on your emails!