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Online retailers hit by postage increase

Traditional retailers may be cheering a move by Australia Post, which has seen prepaid packages rise by up to 30%, as Australia’s postal service seeks to take advantage of the online shopping boom.

The rise comes into effect today, according to The Sydney Morning Herald (SMH), and includes a rise in getting a signature on delivery from $1 to $2.95. Online retailers say the changes are a direct hit on their business, and will have no option but to pass the charges onto customers.

Australia Post has defended the rises, stating that it operates in a challenging business environment, with rising costs. The traditional physical letters business has been declining as more customers use digital means to keep in touch. For the first time, most of Australia post’s earnings comes from parcels rather than letters, and 70% of parcels are from online transactions.

Until today it was cheaper for online retailers to use Australia Post and the signature service than their own packaging and stamps. The SMH reports that many were only told of the increase last week, and have had no time to adjust their prices. More than 1,000 online sellers have signed a petition to protest against the changes.

For traditional bricks-and-mortar stores like David Jones Limited (ASX: DJS), Myer Holdings (ASX: MYR), JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings (ASX: HVN), the changes may mean more customers visiting their stores as online prices come into line with price available in physical stores.

According to National Australia Bank data, the online retail market has grown by $2 billion in just one year and is now worth $13 billion. Australia Post is trying to capture some of that growth as its traditional business declines, and recently paid $408 million to Qantas to gain full ownership of freight provider StarTrack Express.

Foolish takeaway

Myer boss Bernie Brookes boasted some time ago that traditional retailers would make up the majority of the top 10 online sites in the future. With traditional retailers cutting prices, and online retailers faced with rising delivery costs, the line between the two is rapidly converging.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in David Jones and JB Hi-Fi.

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