ASK THE EXPERTS
CLARE GUNN, INVESTMENT DIRECTOR AT RATHBONE INVESTMENT MANAGEMENT LIMITED, ON THE RISE OF ONLINE SHOPPING.
DOES THE RISE OF ONLINE SHOPPING SPELL THE END OF STORE-BASED RETAILERS?
ANSWER: These days, we’re spending a lot more time shopping through our phones and laptops, rather than braving multi-storey carparks and crowded high streets. In-store sales have taken a hit, but there are still valuable benefits to having a physical presence.
To attract customers and remain competitive, online-only retailers have offered increasingly advantageous terms. We now expect free delivery, free returns and ever-shortening delivery times; a strategy which succeeded in pushing up order volumes as online retailers basked in their first-mover advantage.
Yet traditional retailers are intent on keeping up and can afford to invest heavily in their online propositions. A race to the bottom for the lowest delivery costs and times has ensued, closing the gap between them and their online rivals. The playing field has now levelled somewhat.
Today’s consumers ask retailers to do considerably more, but they are no longer being charged a premium for it. The hefty investment of building an online platform aside, there is also the cost of storing products, picking them up from these warehouses, then transporting and delivering them at the right time to the right postcode. We are also encouraged to over-order, knowing we can easily return; an extra delivery cost for retailers to absorb. All in all, this new environment is eroding profit margins made online.
Traditional retailers can avoid a lot of these extra costs by utilising their store footprint and offering ‘click and collect’. It hasn’t taken the online competition long to come up with an alternative: pick-up lockers, but these lockers lack the brand interaction and spur-ofthe-moment purchase opportunities that shops offer.
Pure-play online models are perhaps not the future-proof solution they were once considered. Providing they are not over-spaced, there is light at the end of the tunnel for some bricks and mortar retailers; but not all will survive. We believe the winners will be those who invest in their online platforms and still make sure that customers have a reason to pop into their stores. We will keep a close eye on this changing landscape.