E-commerce Profitability in the Australian Retail Sector: Navigating Omnichannel, AI, and Consumer Expectations

Introduction: The Australian Retail Crossroads

Australia’s retail sector stands at a pivotal moment. While e-commerce continues to grow, the majority of sales—over 80%—still occur in physical stores. Yet, the digital acceleration triggered by the pandemic, the rise of global marketplaces, and rapidly evolving consumer expectations have fundamentally reshaped the landscape. Australian retailers now face a dual challenge: how to drive e-commerce profitability in a market where physical retail remains dominant, and how to deliver seamless, personalized experiences that meet the demands of today’s connected consumer.

The Profitability Challenge: Local Dynamics and Global Pressures

Australian retailers are acutely aware of the profitability gap in e-commerce. Compared to their global peers, they are more likely to report that their online channels are less profitable than brick-and-mortar operations. In fact, over half of Australian retail decision-makers say their e-commerce business is not currently profitable, and 60% struggle to make the necessary investments to improve profitability. This is compounded by:

The dominance of physical retail: Despite digital growth, 86% of sales still happen in-store, making it essential to integrate digital and physical experiences.
Marketplace disruption: Platforms like Amazon and Temu are capturing market share with aggressive pricing, vast assortments, and frictionless logistics, raising the bar for local players.
Consumer expectations: Shoppers now demand “everything connected, available and personal, every time”—from real-time inventory visibility to AI-powered recommendations and seamless loyalty programs.

Omnichannel Innovation: Bridging Digital and Physical Retail

Australian consumers no longer see a divide between online and offline—they expect a unified journey. The most successful retailers are those who:

Enable end-to-end integration: Allowing customers to research online, check in-store availability, and complete purchases without disruption.
Deliver cross-channel fluidity: Shoppers want to move between websites, apps, and stores without repeating steps or losing context.
Personalize engagement: AI-driven recommendations based on browsing and purchase history are now expected, not optional.
Streamline fulfillment: Real-time tracking, flexible pick-up and delivery, and hassle-free returns are table stakes.

Case Study: Woolworths
Woolworths has set a benchmark for omnichannel excellence in Australia. By integrating AI-powered stock management, mobile engagement, and real-time fulfillment, they have reduced stock discrepancies by 40% and seen a 55% increase in click-and-collect orders. Their app delivers personalized promotions, digital receipts, and custom shopping lists, creating a seamless bridge between digital and physical shopping.

Best Practices for Omnichannel Success:

Invest in real-time inventory tracking to avoid customer frustration.
Implement digital kiosks, mobile POS, and wayfinding in-store.
Allow customers to start purchases online and finish in-store (or vice versa).
Use AI to deliver targeted offers and recommendations across all touchpoints.

AI and Automation: The New Competitive Advantage

AI is no longer a future aspiration—it’s a present-day necessity for Australian retailers seeking profitability. Key applications include:

Personalization: 63% of shoppers expect AI-powered recommendations. Retailers like Coles have used AI to increase loyalty-driven purchases by 29% through real-time, targeted offers.
Supply chain optimization: AI-driven stock management, demand forecasting, and automated fulfillment reduce costs and improve availability. Micro-fulfillment centers and cognitive order management are emerging as critical investments.
Customer service: AI-powered chatbots and self-service tools resolve routine inquiries, freeing staff for higher-value interactions and reducing operational costs.

Actionable Steps:

Use AI to analyze customer data and deliver 1:1 personalization in both marketing and service.
Deploy AI in supply chain operations to optimize inventory, reduce waste, and improve last-mile delivery.
Ensure transparency and ethical use of AI to build consumer trust, especially around data privacy.

Loyalty and Personalization: Building Emotional Connections

Traditional points-based loyalty programs are no longer enough. Australian consumers want:

Personalized rewards and exclusive experiences: Everyday Rewards and Flybuys dominate, but tailored discounts and VIP perks drive deeper engagement.
Omnichannel integration: Loyalty must be accessible and consistent across online, in-store, and app-based platforms.
Transparency and value: Clear communication of reward structures and savings is essential, especially for older demographics.

Case Study: Coles
Coles has reinvented its Flybuys program using AI-powered insights, driving a 29% increase in loyalty-driven purchases and higher engagement through personalized promotions based on past purchases.

Best Practices:

Use data analytics to segment and target loyalty offers.
Expand member benefits with early access, VIP events, and tailored experiences.
Integrate loyalty seamlessly across all channels.

The Role of Marketplaces: Compete or Collaborate?

Marketplaces are both a threat and an opportunity. Australian consumers cite lower prices, convenience, and product variety as reasons for shopping with online-only retailers. However, local retailers can differentiate by:

Offering curated, unique assortments and in-store experiences.
Leveraging data to personalize the journey and build trust.
Exploring partnerships with marketplaces to expand reach while maintaining brand control.

Supply Chain and Sustainability: The Next Frontier

Consumers increasingly expect ethical sourcing, carbon-neutral logistics, and eco-friendly packaging. AI-powered inventory and logistics systems can reduce waste and emissions, while transparent communication about sustainability efforts builds trust and loyalty.

Actionable Recommendations for Australian Retailers

Maximize physical retail investment: Reimagine stores as experiential hubs, not just points of sale. Integrate digital tools to enhance in-store engagement.
Master omnichannel excellence: Break down silos between digital and physical, ensuring seamless transitions and consistent data across all touchpoints.
Leverage AI and automation: Prioritize investments in personalization, supply chain optimization, and customer service automation.
Redefine loyalty: Move beyond points to emotional engagement, gamification, and exclusive experiences.
Embrace sustainability: Use AI to optimize supply chains and communicate ethical practices transparently.

Conclusion: Adapt, Innovate, or Be Left Behind

The future of Australian retail is already here. Consumers demand seamless omnichannel experiences, hyper-personalization, rapid fulfillment, and sustainability. Retailers who fail to meet these expectations risk irrelevance. The imperative is clear: invest boldly in technology, data, and customer-centric innovation—or risk being left behind in a rapidly evolving market.

Ready to transform your retail business for the Australian market? Publicis Sapient partners with leading retailers to deliver profitable, future-ready digital transformation. Contact us to start your journey.