A new threat has emerged for retailers such as Kogan, Amazon, JB Hi Fi and Harvey Norman, with two cheap Chinese online retailers now stripping billions away from their online sales.
In the online market CE retailers including the likes of Kogan JB Hi Fi, Harvey Norman and Amazon are now facing increased price pressure from What is being described as the “Phenomenal rise of ultra cheap retail platforms Shein and Temu – who now have more than 2 million Australian customers shopping on their sites every month.
The surprising rise of multicategory online Chinese retailers Shein and Temu is creating a new market for ultra cheap, low quality, throw-away goods that few could have predicted would gain traction in Australia.
Products such as golf view finders that sell in Australia for between $500 and $795 are selling on Temu for $132.
CE Accessories for notebooks TV’s and sound gear are selling for up to 75% off what mainstream retailers are selling the same product for.
Roy Morgan Retail data shows more than that close to 800,000 Australians buy from Shein every month, resulting in an estimated $1.09 $1 billion in annual sales, and a staggering 1.26 million people are buying products from Temu each month over the Oct-Dec 2023 quarter, putting it on track to hit around $1.49 $1.3 billion in an annual sale should those current customer numbers hold.
While these platforms have redefined the very concept of ‘cheap’ with scores of consumer electronics household items under $20, the longevity of such businesses built on aggressive loss-making customer acquisition remains unknown.
What is critical for retailers such as JB Hi Fi, The Good Guys, Bing Lee and Harvey Norman is brand trust with the bulk of JB Hi Fi visitors going straight to their site according to SemRush research because they are a trusted brand. The same applies to Bunnings and The Good Guys.
Temu has gone from just 440,000 downloads when it launched in September 2022, using the catchphrase ‘shop like a billionaire’ – to their app being downloaded over 30 million times in Australia and New Zealand, according to Statista.
Temu’s array of products ship directly from Chinese manufacturers to customers worldwide, with the company’s Australian site – which passed 9.2 million Australian users just two months after its launch – recently highlighting best sellers including a $20 wireless doorbell camera, $12 leather bag, $26 massage gun, $24 phone charging station and a $85 smartphone.
Shifting trust in Retail
Bricks and mortar retail is still the most trusted sector according Roy Morgan’s 2023, Most Trusted Brand Awards.
However, in recent months a shift is underway, with distrust rising as consumers struggling with the cost of living ask questions about the role of big retail, particularly supermarkets such as Woolworths who have developed a ‘Woke’ culture and stand accused of price gouging.
Consumers see them as driving inflation amid publicity of high profits, growing government scrutiny and media coverage of the sudden departure of Woolworths’ CEO.
As a result, careful monitoring of distrust – and managing it – will be critical in 2024.
Roy Morgan preliminary forecast for retail sales growth is 1.2% for 2024.
They claim that a continued flattening of retail sales is forecast for the next 12 months.
The first ABS retail sales figures available for the year, January 2024, show retail sales up 1.1% on January 2023, and up 1.1% month, already kicking off the flattening trend.
In line with the usual seasonal trend, an uptick of $20 billion is forecast for the second half of the year which is driven by Christmas sales and now Black Friday sales in November.
However, the second half of the year could see further growth due in part to new products being rolled out that were not launched in 2023 because of shipping and manufacturing problems that were still around last year.
Roy Morgan claims that there are several factors that could potentially boost the spending power of consumers.
These include a continued drop in inflation, likely stage 3 tax cuts and a drop in electricity prices (thanks to the 50% drop in the wholesale cost of energy finally flowing down to retail prices from July).
They warn that one of the key factors to look out for in 2024 as consumers continue to deal with high interest rates and lingering inflation is that spending growth on the Food category (which comprises about 40% of total monthly retail sales and is regarded as non-discretionary spending) is set to grow at twice the rate of the Non-Food categories (discretionary spending) during 2024.
