The Australian and New Zealand retail sectors are several years into what was supposed to be a comprehensive transformation toward seamless omnichannel experiences where customers move effortlessly between online and physical stores. The reality is messier, with winners and losers and many retailers still struggling to get the fundamentals right.

Online retail penetration in Australia sits around 16-17% of total retail sales, up from approximately 12% pre-pandemic. New Zealand is similar at 15-16%. These figures are well below markets like the UK (around 27%) but above the US (around 15%). The pandemic accelerated adoption, but growth has since moderated as physical retail recovered.

The big department stores show divergent outcomes. Myer and David Jones both invested heavily in digital transformation but face ongoing profitability challenges. Their online channels are operational but the economics remain challenging—fulfillment costs for online orders often exceed margins on sales. Both retailers are closing underperforming physical stores while maintaining online presence, creating hybrid networks that are smaller than historic physical footprints but broader than pure physical retail.

Specialty fashion retail is where the most dramatic restructuring is occurring. Dozens of fashion chains have collapsed, closed stores, or dramatically reduced footprints over the past five years. The survivors are typically those who either established strong online presence early (like The Iconic) or maintained tight control over inventory and operations (like Zara’s parent company Inditex). Mid-market fashion retailers with large store networks and slow digital adoption have been hit hardest.

Supermarket chains have executed their omnichannel strategies more successfully. Woolworths, Coles, and in New Zealand, Foodstuffs and Woolworths NZ (formerly Countdown) all operate online ordering with store pickup and home delivery. The economics work better for groceries than fashion—customers order more items per transaction and purchase frequency is higher. These capabilities came into sharp focus during COVID lockdowns and have largely been maintained since.

Click-and-collect represents the sweet spot for many retailers. Customers order online and pick up from physical stores, combining convenience with elimination of delivery costs. Retailers save on last-mile delivery while still capturing online demand. The execution varies dramatically—some retailers have dedicated parking and efficient pickup areas, while others clearly bolted click-and-collect onto stores never designed for it.

Returns and exchanges represent the persistent friction point. Buying online and returning to physical store sounds simple but requires integrated inventory and point-of-sale systems. Many retailers still can’t execute this properly—customers face situations where online returns can’t be processed in-store, or store staff can’t see online purchase history. After years of talking about omnichannel, these basic integration failures remain embarrassingly common.

Inventory visibility is another area where execution lags ambition. True omnichannel requires knowing what inventory is available across all stores and distribution centers in real-time, so customers can see if products are available nearby. Implementing this requires systems integration, accurate inventory counting, and fulfillment processes to get products from wherever they are to wherever customers want them. Many retailers have attempted this but few execute it reliably.

The fulfillment economics are challenging. Delivering individual online orders to residential addresses costs substantially more than shipping bulk quantities to stores. Most retailers lose money on free delivery for individual items but offer it anyway due to competitive pressure. The companies making online retail work are those who’ve achieved scale in delivery networks or those focusing on high-margin products where delivery costs are small relative to item values.

Marketplace models are emerging as an alternative to pure retail. Amazon’s Australian marketplace has grown substantially, while local marketplaces like Catch and Kogan serve different segments. Traditional retailers are now adding marketplace capabilities—selling other brands’ products through their platforms. This generates revenue with less inventory risk but reduces gross margins and complicates brand positioning.

Physical retail isn’t dead, but its role is changing. Stores are increasingly becoming showrooms and brand experiences rather than pure transaction points. Apple stores pioneered this approach; others are following. The challenge is that experiential retail requires higher operating costs per square meter while generating fewer immediate sales conversions. The business model math is difficult.

New Zealand’s smaller market creates different dynamics. The scale required to run efficient distribution networks and technology platforms is harder to achieve. This partly explains why Amazon took years to launch in New Zealand and still offers limited service compared to Australia. Local New Zealand retailers face the challenge of investing in digital capabilities for a smaller potential return.

Social commerce is emerging but hasn’t transformed retail in Australia and New Zealand the way it has in some Asian markets. Instagram and Facebook shops exist but represent small portions of total online retail. The behavior of Australian and New Zealand consumers—less inclined toward live streaming shopping and social media purchasing than Chinese consumers—limits social commerce growth.

Buy online pickup in store (BOPIS) experienced massive growth during COVID and remains popular. It solves last-mile delivery costs, provides immediacy, and can drive additional in-store purchases. The retailers executing this well see it as a traffic driver to physical stores rather than a substitute for physical retail.

Subscription models are gaining traction in specific categories. Pet food, vitamins, coffee, and meal kits all have subscription services operating across both countries. The customer acquisition costs remain high and retention is challenging, but successful subscription models create predictable revenue and customer relationships.

The technology investment required for effective omnichannel is substantial. Point-of-sale systems, inventory management, customer data platforms, e-commerce platforms, order management systems, and fulfillment systems all need to be integrated. Many retailers are running on legacy systems patched together with middleware—it functions but is expensive to maintain and hard to evolve.

Smaller retailers face particular challenges. The independent boutique can’t afford the technology platforms that large chains can deploy. But local independent retailers have advantages in personal service, curated product selection, and community connection that online channels struggle to replicate. The ones succeeding are those using simple technology appropriately rather than trying to match big retail capabilities.

Looking ahead, the retail transformation will continue but probably won’t follow the smooth trajectory that consultants’ PowerPoint presentations suggest. Some retailers will execute omnichannel effectively and thrive. Others will continue operating primarily physical stores in niches where that works. Many will muddle through with partial digital capabilities. The idea that all retail converges to a single omnichannel model is probably wrong—different retailers will serve different customer segments with different approaches.

For consumers, the transformation creates more choice and convenience where it works well, but also frustration where execution is poor. The gap between what customers expect based on best-in-class experiences and what many retailers actually deliver remains substantial.