Bricks and mortar stores are fighting back against online retailers, says Context's Adam Simon.
The media narrative usually attached to e-commerce has Amazon as the fastest growing player in the market.
The disruptive online retail giant and its kind have even been blamed in some quarters for hastening the demise of the High Street. However, the latest figures we’ve been looking at tell a more nuanced picture, with one or two surprises.
First up, it is not Amazon but the online businesses of traditional retailers Macy’s and Nordstrom which are growing fastest in the US right now. Earlier this year Nordstrom unveiled plans to invest $1bn in its e-commerce capabilities over the next five years, while Macy’s beat Amazon into second as the fastest growing brand on Interbrand’s recently released Best Retail Brands report.
Yes, rumours of the High Street’s death have been greatly exaggerated: the fight back has already begun in earnest.
One big advantage bricks and mortar stores have over their online-only rivals is physical collection points where customers can pick up the goods they have purchased on the web. It was always thus, but it seems that shoppers’ expectations have risen to a point today where they’re no longer satisfied with the delivery times offered by Amazon and co. for certain purchases.
According to recent Context research, 80 per cent of all consumables are still purchased through the retail channel, while for PCs the number is lower at around 40-50 per cent. What this points to is that when it comes to impulse buys, many shoppers just don’t think their item will be delivered in time if they buy from an online-only retailer. Even the incredibly low prices on offer are in many cases not enough of a draw.
The trend appears to have stung Amazon into action. The online giant has already begun building distribution centres across the US in a bid to get closer to the customer and I’d wager that others will follow suit. We’ll see these firms get increasingly creative too, turning all sorts of locations into distribution points. eBay, meanwhile, has rolled out a service tied to its new eBay Now app which claims to be able to deliver to the user wherever they are within the hour.
We’ll see similar trends taking shape in the UK as online-online retailers try to better compete with their bricks and mortar rivals, which are themselves increasingly publicising “Click & Collect” options. Asda recently announced 20 stores would allow click and collect for non-food purchases, for example, while in France, Darty is allowing customers to buy 9,800 end-of-range items online and pick up in-store.
Despite the High Street fight back, however, the fact remains that competing with low, low internet prices is a constant challenge, so bricks and mortar stores will also have to find ways of enhancing the shopping experience. Retail is no longer about the simple distribution of products, it’s also about selling an experience – shoppers want to shop in environments which are memorable. At the moment, I’ve been struck by just how little creativity and innovation there is out there, particularly in the consumer electronics sector.
Bricks and mortar retailers will also need to think harder about exactly how they balance the online and offline parts of their business. Tesco CEO Philip Clarke announced recently that the retail giant would not be expanding the square footage of any of its stores, despite owning a huge quantity of landbanks, and that it would actually be devoting less space to consumer electronics in store. This points to the retail giant – one of Europe’s largest e-commerce firms – pushing more products online. It’s more than likely that its rivals will follow suit.
Tesco’s decision not to build on the vast amount of land it has amassed over the years can also be seen in light of the uncertainty facing many retailers today – unsure if consumer spending will ever return to pre-2007 levels. It’s an uncertainty reflected in the markets. Shares in French retailer Groupe Fnac priced at €22 were trading at a discount of 10 per cent soon after the group began trading following its spin off from Kering. Given the retailer’s decent pedigree, this lack of confidence is disappointing but understandable given the continued turbulence in the industry.
The market still hasn’t worked out exactly how to deal with the huge price discounts offered by many major online stores. J Sainsbury CEO Justin King has even called for an online sales tax to level a playing field which many think gives the online-only merchants an unfair advantage. While politicians will certainly not want to be held responsible for hastening the demise of the High Street, my hunch is that they’ll probably let the market decide rather than opt for business-unfriendly penalties. As to when that’ll finally happen, well that’s anyone’s guess.
About the author
Adam Simon is Global MD of Retail Research at UK analyst firm Context.