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Retailers lagging other sectors in getting to grips with the Internet

01 Apr 14

New Zealand retailers are falling behind other sectors of the economy in their use of the internet to drive sales and business management, says a major new study funded by Internet NZ and the global internet search engine, Google.

The "Value of Internet Services to New Zealand Businesses" report, issued this morning, says firms using the internet well are between 6 percent and 11 percent more productive than their competitors in the same field.

Best practice users were as much as 73 percent more productive than average businesses in their industry.

The report suggests if all businesses were using the internet to its full potential, New Zealand's economy - currently worth around $210 billion of output annually - could get a $34 billion efficiency and productivity boost.

The research was conducted by the economic research consultancy Sapere and used data from 5,589 businesses in the Statistics New Zealand Business Operations Survey.

It excluded firms in the information technology sector, which were presumed to be high internet users and interviews with 76 businesses were conducted in the tourism, retail, dairy/agriculture, and professional services sectors.

The report says while internet speed and connectivity were once the major issue, that is no longer so. The use to which the internet is put is the larger issue for most firms.

In the retail sector, where the common complaint is that e-commerce is robbing traditional shops of sales, the survey found retailers were "slightly lower users of Internet services than businesses as a whole."

"They are less likely to have a website, less likely to have most of their staff online, and less likely to use fibre, with bigger firms generally higher users than smaller firms.

"On our numbers, it is highly unusual for retailers to be selling a lot online at this point, with only 3 percent of firms reporting that more than a quarter of their sales are made online, although retailers are heavy online purchasers."

Across all sectors covered, online sales accounted for only 6 percent of sales.

"We are in the very early stages of e-commerce and businesses are still experimenting with how this new tool can be harnessed," the report says.

"One major chain thought that, despite extensive effort and very large investments, they were still only 1-2 percent of the way towards the frontier of what was possible," the report says.

It reports one service provider as saying no more than one in 12 New Zealand retailers was doing a good job of integrating online and offline stores.

"The others are just online by default or because they think they have to be, but it is costing them a lot, and it brings new hassles, they have to do it all themselves, and they are not sure whether it will work at all," the interviewee said.

The report identifies acquiring relevant skills, navigating fragmented provision of internet services and accessing good quality advice on internet service execution as major issues for firms wishing to make better use of digital technology.

In the tourism sector, another facing a major increase in competition from internet-enabled businesses, the report found greater website presence, especially for online booking and swift response to customer inquiries.

One tourism operator suggested older tourism business owners were less inclined to embrace new technologies, although others argued the barriers were more to do with interest levels and "how competitive and business-oriented the firm is."

Other businesses noted limitations to the use of online services because of impediments either in their supply chains, because their customers still preferred phone or face to face contact or, in the case of businesses such as law firms, because their systems remained highly paper-based.

Other professional service providers were not always able to use sophisticated online tools because regulatory agencies and clients were unable to access them.

The report argues better use of the internet is an area of untapped potential for New Zealand businesses, which have shown sluggish improvements in productivity performance.

"With labour productivity growth averaging 1.5 percent a year in recent times, we can say that businesses that use internet services more extensively are four years ahead in terms of business competitiveness.

"The impacts seem particularly strong for businesses making substantial sales online, having a proportion of staff online, or using a fibre broadband connection."

The report also found the internet was having a profound impact on farming practice, with much greater data collection and interest in aggregating information to get a whole-of-farm view, even though farms had lower numbers of total staff with internet access, owing to the nature of farm work.

By Pattrick Smellie - BusinessDesk

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