Shoppers still sit in traffic, not at computer

Having grown his London entertainment website into a magnet for 1.4 million users a month, ViewLondon co-founder Ben De Haan decided to head across the world early last year to set up a similar site in Auckland.

But De Haan describes his New Zealand online business experience so far as frustrating. Not because his local site hasn't taken off (eight months after its launch, ViewAuckland is attracting 30,000 unique visitors a month) but because advertisers are shunning the concept.

He says New Zealand businesses have been too slow to realise the potential of the internet as a trading and advertising tool, despite overall internet usage being higher here than in Britain.

"Obviously the take-up of broadband is a bit slower, but at least the internet is a well-known medium," he says.

The problem, De Haan says, is New Zealand businesses have been stung by "fly-by-night" website operators making unrealistic promises about what their entertainment listing sites will deliver to advertisers.

"It's not a trust issue with the internet as a whole, it's the fact that our competitors have burned them before. Our competitors haven't delivered on promises made," he says.

"They [website developers] have to produce trustworthy websites and business opportunities that actually work for these businesses to go online. They can't complain about businesses having this lethargy around spending money with them if they're not able to meet the promises they've made."

Certainly some advertisers are spending online. According to figures compiled by the Advertising Standards Authority, $44 million was spent online last year. While that was only a paltry 2 per cent of the $2.2 billion total advertising spend, it was up significantly from the $15 million, or 0.7 per cent spent in 2004.

But the paucity of local e-commerce cuts even deeper than a reluctance to advertise.

Adding an e-commerce capability to an existing retail brand would seem like a no-brainer in terms of boosting business productivity.

So when the country's largest retailer, The Warehouse, declares on its website: "This site does not have online shopping," you know e-tailing in New Zealand is lagging.

Spokeswoman Cynthia Church says The Warehouse is presently focused on developing its network of physical stores "but that's not to say we won't look at it [online trading] in the future".

This statement was made last week when The Warehouse opened a massive new store at Auckland's latest massive bricks-and-mortar shopping centre, Sylvia Park. And given that the crush of shoppers heading for Sylvia Park caused hours of traffic chaos on at least two days last week, it seems The Warehouse has no need yet to bother enticing customers online given they seem so eager to flock to physical stores.

Even the country's dominant internet player admits the online shopping situation is pretty woeful.

Ralph Brayham, general manager of Ferrit, the shopping site Telecom launched late last year, says best estimates are that e-commerce accounts for about 0.4 per cent of New Zealand's total annual retail spend.

In Europe and the US, the comparative percentage of online spend is between 5 and 10 per cent, he says.

"It's expensive, on a per capita basis, to invest in online capability, and that's basically the problem," says Brayham.

"New Zealand's a very small place. The businesses that have done online - the Noel Leemings, the Mitre 10s and the Dick Smiths - have done it very well. They're as good as anyone in the world, but there are not enough of them and the economy's simply not big enough for any one organisation to market their way to success."

That is why Telecom's approach has been to position Ferrit as an online mall rather than an e-tailer. It makes its money by directing online shoppers to the sites of its 138-member retailers.

That model will change, and become more effective, says Brayham, when Ferrit launches its own "shopping cart" facility this year, enabling Ferrit browsers to buy a range of goods from across member online stores in one transaction.

Brayham says he has "no doubt" that with the shopping cart function, Ferrit will swell to 600 retailers within a year.

He says the site is currently getting 80,000 unique visitors a month but admits the site's founders assumed it would be easier to attract shoppers online than it has been.

"We need to go right back to very basic reinforcing messages about how we're an online shopping mall, all the things you can get at St Lukes or on Queen Street you can get at Ferrit."

But De Haan says Ferrit misses the point because it is not offering shoppers cheaper prices like e-tail sites overseas.

"What's the point of having a comprehensive [online] shopping mall if you can't compare prices? The whole idea of these sites should be to compare price - to drive people to getting the cheapest products," he says.

"It's not doing enough to appeal to the New Zealand sensibility that you need to get a bargain. That's why Trade Me is so successful, because Kiwis love a bargain."

But Brayham disagrees, saying online shopping is about selling convenience.

"Online is about a percentage of people who don't want to go to the mall. It's not about a percentage of people who absolutely have to find the best price."

IDC analyst Chris Loh agrees with Brayham that price is not the focus and that e-tailing is about using the potential of broadband to showcase products while "not having to walk around a mall for hours".

Loh says that although Ferrit has yet to generate the revenue it is after "it's certainly paved the way for them to drive a thin wedge of a potentially large revenue component into Telecom's business profile".

So why has e-commerce been so slow to take off in New Zealand and why is there not, for example, a home-grown version of e-tail giant Amazon?

One theory is that an early attempt, Flying Pig, flopped when the dot-com bubble burst in 2000, tarnishing the image of e-tailing.

But De Haan's theory is that e-commerce is overshadowed by New Zealand's single dominant site.

"I think it all comes down to Trade Me which gets 55 to 60 per cent of all internet traffic in New Zealand. New Zealanders are so obsessed with Trade Me that they don't have any other time to look elsewhere and buy other things, because they're busy buying and selling their own stuff," he says.

Another theory, from Yellow Pages general manager Dudley Enoka, is that the small business operators who account for the bulk of the country's economic activity are too busy to concern themselves with e-commerce.

"Corporates tend to have people who specialise in technology but people running small and medium enterprises are really relying on suppliers to help them with that stuff," Enoka says.

Either that or perhaps they're stuck in the traffic outside Sylvia Park.

THE SERIES

Connect@Work is investigating New Zealand's lagging economic productivity with a month-long series looking at how businesses can improve through better investment in and use of information and communications technology.

Last week
* The macroeconomic issue - where NZ stands among its peers, and what is the best way forward.

Today
* Leveraging the internet - why businesses have thus far failed to transform themselves, and how they can use online capabilities to change into leaner and meaner operations.

Next week

* Hardware and software - why businesses are going for the cheapest option, or not using their existing technology to its full advantage.