The rise of omni-channel retailing has been much talked about, but what type of retail model is best placed to succeed in the ever changing UK consumer landscape?
Online retail in the UK now makes up almost 10% of overall retail sales, and this proportion is set to increase to 15% by 2016. Over 90% of expected growth in retail sales in the UK, Germany and France to 2016 will be online, according to some sources. Most retailers have long recognised the importance of the online channel and have spent considerable resources on bulking up their online presence. Nowhere has this shift been felt so strongly as in Britain, which has been a world leader in the adoption of online shopping due to a high level of broadband connectivity and being a densely populated country which makes for easier distribution. Online-only fashion retailers such as Asos and Boohoo.com, for example, have been beneficiaries of this trend and have grown rapidly.
What does this mean for bricks-and-mortar retail? Vacancy rates have risen fivefold in 5 years since the start of the downturn, and a further 20% of the UK’s high street shops are likely to close over the next 5 years. Yet it is not all doom and gloom: a number of high-street retailers are enjoying impressive growth. Primark sells exclusively through its 257 stores and recently reported an expected annual sales increase of over 20%. It recently partnered with Asos to sell via its website, but does not have an online store of its own. Dixons Retail, which has more than 500 UK stores, saw its share price hit a four-year high in August.
While pure e-commerce models avoid the fixed costs of shops and staff, they often have to pay more to acquire customers through digital marketing as well as facing the added costs of shipping and returns. As a result, many are now shifting towards an ‘omni-channel’ retail strategy, as successfully deployed by the likes of Apple, where shops are effectively showrooms used to lure in new customers, allowing others to test products and present cross-selling and bundling opportunities. Even established pure-play e-commerce businesses are experimenting with an omni-channel approach: eBay has introduced pop-up stores to increase consumer engagement and give the brand a physical presence, while Amazon has rolled out new lockers to offer click-and-collect purchases.
Without doubt, successfully navigating the transition to online is essential for most retail businesses as they battle against high rents and diminishing footfall on UK high streets. They will also continue to close less profitable stores and invest in technology to improve customers’ web experience. At ECI, we have successfully invested in both online and offline retailers and believe that both will continue to have success, although more and more will be present across a combination of these channels. We look to invest in retail businesses with good growth potential, based around a compelling product range and a retail strategy that ensures the consumer can engage with those products as easily and effectively as possible. The key is delivering the product and service that the consumer demands; they care less about the channel and more about their needs being met. While this might be purely through online or offline channels, increasingly it is most appropriate to engage across a combination of the two.
Please contact George Moss for further information.