Retail e-volution

Although e-tailing is set to become the fastest-growing retail sector over the next five years, it will not threaten the high street shop. By Elaine Cavanagh At one time, the prospect of shopping via the ether was considered to be pie in the sky. Today, “e-tailing” is for real – and the phenomenon is growing. A new report on electronic shopping by research consultancy Verdict highlights how much sales via the internet are escalating. In Electronic shopping 1999, Verdict predicts that e-tailing is set to become the fastest-growing retail sector over the next five years. It says that, out of the 7.1m people with internet access, 1m consumers shopped on-line during 1998. The value of on-line sales soared during 1998 from £290m to £406m. By 2003, the internet shopping market will be valued at £6.1bn, says Verdict. However, despite such staggering figures, it will still represent only a small slice of the retail cake. Today e-tailing takes 0.2% of retail sales – and the estimate for 2003 will take it up to just 2.5% of the total. Verdict is quick to counter any claims by scaremongers who might predict that the end of the high street is nigh. “Electronic shopping will be a boom sector that will prove highly lucrative for those that get it right,” says Verdict. “However, it will remain one of many retail channels of distribution and will not replace the high street.” Knight Frank’s Retail Review supports this view. Senior analyst Susannah SenGupta says: “Traditional high street sales grew faster than sales via home shopping. Although a growing number of retailers are testing the market with internet sites, mail order, digital TV and home delivery, these services are likely to remain complementary to the high street retail store.” According to Knight Frank, the overriding need for most consumers is to physically select goods. The combination of this factor with inherent problems in distribution and delivery of some types of on-line goods will ensure that requirements for high street retail space will continue. Vaughan Griffiths, head of retail at GVA Grimley, believes that there are still obstacles to be overcome with internet shopping – including concerns about security and trust and lack of the tactile “touchy feely” feature of shopping. “I would see the internet as being complementary to the store offer,” says Griffiths. Markets that could be most affected, he says, include travel agents and music and book retailers. But to counter even that, he says, take a look at these shops’ property activities. “Borders is acquiring 20,000 sq ft stores, HMV is busy acquiring space and Going Places is opening big superstore operations in places such as Bristol and Cardiff.” Superstore concept Another travel operator – a newcomer to the market – is Virgin Destinations, which is preparing to put its superstore concept on trial in a 1,394m2 (15,000 sq ft) unit at Warner Estate’s Waterfields shopping centre in Watford. “Retailers in these sectors are certainly not pulling in their horns,” stresses Griffiths. Knight Frank’s Charlie Palmer agrees. He says: “Certain retailers are going to be more adept at internet retailing than others, and book operators are certainly on the ball. Waterstone’s and Books etc have web sites and Ottakers is about to launch one. “But the perverse thing is that if you look at the high street, retailers like Borders are rolling out huge premises and encouraging customers to spend more time in their stores with coffee lounges and so on. “And they aren’t the only ones going big. Gap, H&M and Next have rewritten the fashion property market. These boys aren’t sniffing at anything less than 5,000 sq ft. “The high street remains king. It’s still the leisure-shopping experience. But there is a place for both the high street and internet.” Palmer believes that there is an opportunity for complementary merchandising – using the internet to free up space in the high street for higher-margin, sometimes bulkier, goods. Richard Ellis St Quintin’s latest UK Retail Bulletin looks, among other things, at who is most likely to use the internet. It shows that nearly two-thirds of households headed by a professional own a computer – four times more than households headed by an unskilled or manual employee. And, it says, official statistics show that lower-income households are less likely to be influenced by the internet. Household composition is also a factor – those including children are more likely than one-person households to own a computer. However, as the pace of technology hots up, so new innovations and more ways of electronic shopping are entering the arena – enabling an increasing number of people to shop on-line. Multi-coms television shopping Cable & Wireless will launch a new service later this year that will combine cable TV, telephone lines and the internet to enable the option of shopping directly via the television. “The question of ease of access to the internet is a key issue,” says GVA Grimley’s Griffiths. “The theory that you can sit in front of the television and use the channel hopper to hop into shopping means that access will really be opened up.” But, he says, it still begs the question: are people actually going to buy things? Angus McIntosh, head of research at Richard Ellis St Quintin, has also been looking at the potential effect of electronic shopping innovations. “The concept of home delivery is by no means new,” he says. “But what we have now is the ordering mechanism. There are no constraints now. You could be on the moon. You could be sitting on a train or a plane or in your sitting-room and be able to order goods. “Whether sitting on a plane or a train would inspire people to shop is another matter – I suspect it would not.” Griffiths is equally wary of such shopping opportunities: “I’m sure that there is some potential for such things, but I would think it is limited.” Whatever new avenues for on-line or mail-order shopping should emerge, Gary Deane of King Sturge in Manchester believes that the net effect will be to fuel the innovation and dynamism of the retail sector. The size of the cake will grow, he says, as retail and leisure become “inextricably linked”. This, however, is where the conventional shopping venue – typically comprising an M&S, trendy boutiques and increasing numbers of restaurants and leisure facilities – will continue to have the edge by attracting hoards of shoppers. Deane says that “e-tailers” will not be able to match this social experience. REStQ’s McIntosh also highlights the role of the town centre as a leisure destination. “They are increasingly becoming the place for restaurants. The growth of this market is quite staggering,” he says. “Meanwhile, shoppers looking for quality clothing will also head for their town centre. They won’t do that on the internet because shopping is a very tactile process. “This is where the role of the town centre is changing. It is attracting people for both quality shopping and quality leisure. I’m quite optimistic about the future of the town centre because those that are well managed and astute are playing the leisure game.” Personal electronic shopping spend in the UK 1997-2003 Electronic shopping is impacting on town centres Year Sales (£m) Growth (%) 1997 290 n/a 1998 406 40 1999 e 1,000 146 2000 e 2,100 110 2001 e 3,400 62 2002 e 4,800 41 2003 e 6,140 28 Source: Verdict Research e: estimate Ownership of a home computer Families are most likely to own a computer at home Type of household % of each group owning a computer 1986 1996-97 One person Aged 16-59 7 21 Aged 60 or over – 2 Two adults aged 16-59 12 30 Small family 35 39 Large family 40 44 Large adult household 23 44 All households 16 26 Source: Richard Ellis St Quintin The e-commerce debate Barry Gibson, group chief executive of Littlewoods and Mike PreFontaine, European head of retail and consumer products at Arthur Andersen, will discuss the effect of e-commerce during the BCSC annual conference in Manchester, 25-27 October.