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

The Australian retail sector stands at a pivotal crossroads. While global e-commerce continues its rapid ascent, Australia’s retail landscape is uniquely defined by the enduring dominance of physical stores, evolving consumer expectations, and the accelerating adoption of AI and automation. For Australian retailers, the challenge is not just about growing digital sales—it’s about achieving sustainable e-commerce profitability in a market where 86% of sales still occur in-store, and where consumers demand seamless, personalized, and connected experiences across every channel.

The Australian Context: Distinct Challenges and Opportunities

Australian retailers face a set of market dynamics that set them apart from their global peers:

Physical retail remains king: Over 80% of retail sales in Australia still happen in brick-and-mortar stores, making the physical footprint a critical asset.
Omnichannel expectations: Shoppers expect to move effortlessly between digital and physical touchpoints—researching online, checking in-store availability, and completing purchases wherever is most convenient.
AI and automation on the rise: Retailers are rapidly investing in AI-powered personalization, inventory management, and supply chain optimization to meet consumer demands for speed, relevance, and convenience.
Profitability pressures: Despite digital growth, Australian retailers over-index on e-commerce profitability challenges, with more than half reporting that their online channels are not currently profitable.

The Profitability Imperative: Insights from Publicis Sapient Research

Recent research from Publicis Sapient highlights the urgency for Australian retailers to move beyond incremental digital improvements and embrace holistic transformation:

Profitability gap: 62% of Australian retail decision-makers say their e-commerce business is less profitable than in-store, and 52% report it is not currently profitable—significantly higher than global averages.
Investment barriers: While 90% of leaders know what’s needed to improve e-commerce profitability, 60% struggle to make the necessary investments, often due to legacy systems, siloed data, and resource constraints.
Where to invest: The areas with the highest potential to boost profitability are digital customer experience (53%), omnichannel commerce (50%), and supply chain modernization (43%).

Omnichannel Innovation: Bridging Digital and Physical Retail

Australian consumers no longer see a divide between online and offline—they expect a unified, data-driven retail experience. Key consumer expectations include:

End-to-end integration: The ability to research products online, check in-store availability, and complete purchases without disruption.
Cross-channel fluidity: Seamless movement between websites, mobile apps, and physical stores.
Personalized engagement: AI-driven recommendations based on past purchases and browsing behavior.
Efficient fulfillment: Real-time tracking, flexible pick-up and delivery options, and hassle-free returns.

Case Study: Woolworths

AI-powered stock management has reduced stock discrepancies by 40%, ensuring product availability across channels.
Click-and-collect orders via Direct to Boot surged by 55% in 2023, reflecting strong demand for hybrid fulfillment.
The Woolworths app delivers real-time promotions, digital receipts, and custom shopping lists, powered by AI personalization.

Actionable Strategies:

Enable real-time inventory tracking to avoid customer frustration.
Leverage AI for targeted offers and recommendations.
Streamline cross-channel transactions, allowing customers to start online and finish in-store.
Invest in in-store technology—digital kiosks, mobile POS, and wayfinding—to enhance convenience.

AI and Automation: The New Competitive Advantage

AI and automation are transforming every facet of Australian retail, from customer engagement to back-end operations:

Personalization at scale: 63% of shoppers expect AI-powered recommendations to improve their experience. Retailers like Coles have reinvented loyalty programs using AI, driving a 29% increase in loyalty-driven purchases through real-time, targeted offers.
Supply chain optimization: AI-driven inventory and logistics systems are reducing waste, improving efficiency, and enabling faster, more reliable fulfillment. Micro-fulfillment centers and automated picking are emerging as key investments.
Operational efficiency: Automation in returns management, fraud detection, and customer service (e.g., chatbots) is helping retailers reduce costs and improve satisfaction.

Actionable Strategies:

Use AI to unify data across channels—social, inventory, purchase history—to deliver hyper-personalized experiences.
Invest in predictive inventory and demand planning to optimize stock and reduce out-of-stocks or overstocking.
Automate routine customer service and fulfillment tasks to free up staff for higher-value interactions.

Loyalty and Personalization: Building Deeper Customer Relationships

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

Personalized rewards and offers: 74% favor programs with tailored discounts; lack of customization is a key reason for disengagement.
Omnichannel integration: Rewards must be accessible and consistent across online, in-store, and app-based platforms.
Exclusive experiences: Younger shoppers seek VIP access and unique perks, while older consumers prioritize practical savings.

Case Study: Coles Flybuys

Real-time, targeted offers have increased loyalty-driven purchases by 29%.
Personalization based on past purchases has improved engagement rates and customer satisfaction.

Actionable Strategies:

Implement AI-driven personalization to deliver relevant offers and product recommendations.
Expand exclusive member benefits—early access, VIP events, tailored experiences.
Clearly communicate reward structures and value to improve engagement across demographics.

Supply Chain Resilience: Meeting Expectations for Speed and Sustainability

Australian consumers are highly sensitive to price, convenience, and product availability. Online-only competitors win on lower prices (83%), fast shipping (79%), and broader selection (75%). To compete, retailers must:

Modernize supply chains: Invest in AI-driven logistics, real-time inventory visibility, and flexible fulfillment options (e.g., click-and-collect, express delivery).
Embed sustainability: Consumers increasingly expect ethical sourcing, carbon-neutral logistics, and eco-friendly packaging. AI can help optimize last-mile delivery and reduce waste.

Case Study: Woolworths and Coles

Both retailers have invested in AI-powered inventory and logistics, reducing stockouts and improving fulfillment speed. Woolworths’ Direct to Boot and Coles’ enhanced Flybuys are examples of how digital and physical investments can drive both customer satisfaction and profitability.

The Path Forward: Five Steps to E-commerce Profitability in Australia

Maximize physical retail investment: Physical stores remain a critical part of the ecosystem—optimize them with digital enhancements and experiential retail.
Master omnichannel excellence: Integrate digital and physical channels to deliver seamless, connected experiences.
Leverage AI and automation: Use technology to personalize engagement, streamline operations, and enhance fulfillment.
Redefine loyalty: Move beyond generic rewards to hyper-personalized, omnichannel programs that build emotional connections.
Embed sustainability: Make ethical sourcing, eco-friendly logistics, and transparent communication core to your brand.

Conclusion: Adapt, Innovate, or Be Left Behind

The future of Australian retail is already here. Consumers expect seamless omnichannel experiences, hyper-personalization, rapid fulfillment, and sustainability-driven practices. Retailers who fail to meet these demands risk irrelevance. The time for incremental change is over—profitable growth will belong to those who act boldly, invest in digital transformation, and put the connected Australian consumer at the center of every decision.

Ready to transform your retail business for the next era of e-commerce profitability?

Publicis Sapient partners with Australia’s leading retailers to bridge digital and physical, unlock the power of AI, and deliver the experiences today’s consumers demand. Contact us to start your omnichannel transformation journey.