We all know that the internet is killing retail, at least the traditional world of high street shops and bricks-and-mortar stores. We all know it, and we all know it’s true. Why? Because we keep hearing it so often that it must be true.
According to the UK’s Office for National Statistics (ONS), 82% of all retail spending still takes place in-store. Total retail spending in the UK so far this year is around £366m, which is almost 5% higher than the same point last year. However, it’s not an even spread of growth across the sector. Pureplay online-only retailers saw their sales grow by 15.9% to reach almost £60bn, the ONS says. In-store sales were up 2.3%, totalling £306bn.
The blame game
If you’re surprised that in-store proportion is as high as 82%, you’re not alone. No one I spoke to while writing this column guessed it would be anything remotely close to that. And yet, we’ve seen closure after closure, collapse after collapse in the UK retail sector. In the first eight months of 2018, 28 retail businesses shut up shop, leading to the closure of 2,085 stores, with almost 40,000 employees affected. So, what on earth is going on?
Not all of those collapses made the news, but several did. And of those that did, there was one common cause that kept being offered as an explanation for these hard times on the high street.
The internet. You knew that though, right?
And more often than not it wasn’t just ecommerce that was blamed, the finger was pointed at Amazon. Regular readers of Taking Stock will know I’ve touched on this before. But the bottom line here is that, in my opinion, blame is an easy game to play, favoured by the lazy.
Figuring out what the cause might be requires you to stop treating retail spending as though it’s a single amorphous blob. It’s nuanced, complex, and occasionally contradictory – which isn’t surprising really, as it’s the financial manifestation of a range of human wants and needs. And humans are nuanced, complex, and occasionally contradictory creatures, after all.
Internet sales increased by 14.2% (by value) in August 2018 when compared with August 2017, with all sectors showing strong year-on-year growth. But not all etailers are created equal. Pureplays saw the fastest growth of all, reaching 12.8% of sales (by volume). Sales of household goods by ecommerce pureplays was up 14.4%, accounting for an astonishing 78% (by value).
It’s been a grim couple of years for department stores. But, and you may need to read this twice, department stores “continued to show strong online sales on the year, with an increase of 26.1%, resulting in a new record proportion of online retailing at 18.4%,” according to the ONS.
So far this year, Debenhams has been in and out of the news over speculation that it might be about to sell off assets or close stores, or following news of job losses at head office and the downgrading of its credit rating. House of Fraser, as discussed in this column last month, collapsed into administration and was snapped up by Sports Direct. And even John Lewis, that shining city on the retail hill, has been dragged down – a 99% decline in profit has been attributed to constant discounting as part of its pledge to price-match.
I doubt 2018 will be remembered fondly by the department store sector. Although no one knows what 2019 will bring.
Despite that 26.1% uplift, no one could seriously argue the rot hasn’t set in where department stores are concerned. Increased sales are a natural consequence of heavy discounting; everyone loves a bargain. But there are some things you can cut your way of – a jungle, perhaps – and some things you can’t cut your way out of – such as a downward financial spiral. Kissing goodbye to short-term profitability to counter a single problem is one thing. But if it becomes your modus operandi, you can’t hope to survive unless the rest of your business has been structured around very low operating margins. When you’re a nationwide chain of department stores, with a footprint in some of the most expensive retail locations in the country, you cannot act like a discounter. Nor like an ecommerce pureplay.
Who are you?
People still spend heavily in stores. Why? People are more loyal to some stores than others. Why?
Answers to questions such as these will most likely include some or all of the following:
- Product range
- Knowledge and expertise of the staff
- High levels of customer service
- Other in-store amenities (restaurants, etc)
- The social dimension (going shopping with friends and family)
- The opportunity to get hands-on with the merchandise
You are not Amazon. So don’t try to be Amazon. But do compare yourself with Amazon. Shoppers frequently cite the customer service from Amazon as something they like. That’s an odd one considering most people have no contact with Amazon outside of placing an order. But the whole end-to-end process tends to meet shopper expectations; it’s consistent, predictable, and reliable. There are no real bells and whistles, and no one expects there to be any.
Amazon is really good at being Amazon and doing what it does really well.
Not everyone in retail could say that about themselves, and it shows. The cause of much of the strife on the high street isn’t that brick-and-mortar retailers are being out-competed by the internet. It’s that they aren’t keeping the promises they make to the customer, they aren’t excelling at what they offer, and they are losing their identity.
If you don’t know what you stand for don’t be surprised if customers get confused too. And if in their confusion, they start to shop elsewhere I’m afraid you’ll have to shoulder some of the blame.