Australian dollar heading for Parity – welcome news for local retailers!

Interesting piece in today’s Age Online by Malcolm Maiden showing that the Australian dollar has dropped to $1.01 vs the USD, and is on track towards parity – nearly a 7% drop since the start of March.

While this is bad news for customers shopping online, it’s good news for exporters, and it’s really good news for local retailers competing with offshore sellers.

According to last year’s Commonwealth Bank report into Australian Online Spending there are some sectors – eg Sporting & Outdoor – where as much as 90c in every dollar spent online is currently heading offshore.

Some of this is due to the lead overseas merchants have in developing compelling online presences – a great example being wiggle.co.uk, almost certainly the largest online bicycle retailer in the world, who began their journey from local bike shop to online giant just over 12 years ago and last year were sold to private equity group Bridgepoint for £180m!

The 10% gst levy, wider product choices, clever marketing and competitive international shipping are all factors too, but at this point, the largest competitive hurdle for local retailers is the current strength of the aussie dollar. Consider:

  • Within the last decade the AUD hit lows of USD0.47, GBP0.35 and EUR0.56
  • It currently trades at  USD1.01, GBP0.66 and EUR0.79

This dramatic appreciation in the value of the dollar is coincident with the boom in online trade, and means savvy shoppers have access to international goods at up to half of the cost in some cases they would have spent just a few years ago, due solely to currency exchange movement.

The ongoing commodity boom and global financial instability mean our “safe haven” local currency will likely retain its current trading strength for some time to come, so local retailers will keep dong it tough in the near term. It’s better news when you take a longer view though:

  • 22 year averages: USD0.75, GBP0.45
  • 12 year average: EUR0.62

Eventually the dollar will track back towards its long term norms, and smart retailers who adapt online strategies to get through these lean times are going to get a double benefit:

  • every 1% drop in the value of the AUD is both a corresponding increase in the cost of imported goods, and an equivalent drop in the cost of selling to international customers in those markets.
  • as Australia is less than 2% of the global economy, by gdp, these international markets are a vast source of potential future revenue.

It’s certainly a challenging time for retailers right now, but the future holds great promise for those who persist, and get the formula right.

In coming posts I’ll analyse the Wiggle story, and build a case study illustrating a best practice online model. I’ll also put together a package of lessons for local retailers to draw on to help succeed in their online selling journeys.

Stay tuned!