Australian retail is at a pivotal crossroads. While the imperative to digitally transform is clear, the journey is fraught with a critical challenge: profitability. As e-commerce and omnichannel operations become central to retail strategy, many Australian retailers are grappling with the stark reality that digital channels often deliver lower margins than traditional in-store business. This profitability gap is especially pronounced in sectors like grocery and specialty retail, where operational complexity and consumer expectations are at their peak.
Recent research from Publicis Sapient and Ipsos underscores the urgency of this issue. Over half of Australian retail decision-makers report that their e-commerce business is not currently profitable, and 46% say e-commerce is less profitable than their in-store operations. In grocery, the challenge is even more acute, with 54% of grocers stating that digital channels underperform on profit compared to brick-and-mortar. Despite strong expectations for e-commerce revenue growth, only 61% of grocery leaders anticipate any improvement in digital profitability this year.
Several factors contribute to the profitability challenge in Australian e-commerce and omnichannel retail:
Grocery retailers face the dual challenge of low margins and high operational complexity. The vast majority of grocery transactions still occur in-store, but digital is growing fast. Investments in robotics for in-store cleaning and inventory management, as well as AI-driven demand forecasting and micro-fulfillment centers, are helping to streamline operations. Yet, only 61% of grocers expect digital profitability to improve, and 54% say e-commerce is less profitable than in-store.
Specialty retailers, meanwhile, must differentiate through unique products and experiences while managing high return rates and the need for hyper-personalization. They are investing heavily in omnichannel commerce, digital customer experience, and supply chain modernization, but the path to profitable growth remains challenging.
Despite these headwinds, there are clear, actionable strategies that Australian retailers can deploy to improve digital margins and build a sustainable, profitable omnichannel business.
Modernizing the supply chain is a top priority for boosting e-commerce profitability. AI-powered inventory management, real-time data visibility, and automated fulfillment solutions can reduce waste, optimize stock levels, and ensure product availability across channels. For example, Woolworths’ investment in AI-driven stock management reduced stock discrepancies by 40% and drove a 55% increase in click-and-collect orders, demonstrating the value of hybrid fulfillment models.
Returns are a major drain on e-commerce profitability, particularly in specialty retail. Retailers can mitigate these costs by:
Retailers are sitting on a goldmine of first-party data. By building retail media networks and leveraging customer insights, they can create new revenue streams through targeted advertising and personalized offers. Specialty and big box retailers are already seeing up to 17% revenue growth by deploying AI-driven personalization and retail media solutions.
Breaking down silos between digital and physical channels is essential. Unified commerce platforms, real-time inventory tracking, and integrated loyalty programs enable seamless customer journeys and operational efficiencies. Kmart’s holistic approach to omnichannel, with a single provider building integrated experiences, is helping bridge the digital-physical divide and deliver on rising consumer expectations.
Physical stores remain a cornerstone of Australian retail, accounting for over 80% of sales. Digitizing the store environment—through robotics, digital shelf labels, mobile POS, and empowered associates—drives operational efficiency and enhances the customer experience. In grocery, 36% of retailers are already investing in robotics for in-store cleaning and inventory management.
Australian retail is being reshaped by economic uncertainty, evolving consumer expectations, and the relentless advance of technology. The winners will be those who act boldly—investing in omnichannel excellence, embedding sustainability, and harnessing the power of AI and automation to deliver truly customer-centric experiences. Publicis Sapient stands ready to help retailers in every sector turn these challenges into opportunities, leveraging deep expertise and proven methodologies to unlock the next chapter of growth and innovation.
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