If you are one of those retailers who have been chugging along quite comfortably in the belief that there was infinite growth in the physical retail model, here’s your wake up call. This year planned retail expansion in the UK has fallen by 17.5%! Yes, the traditional retail model has finally run out of road! Now what are you going to do?
You won’t be the only face in this particular retail cul-de-sac of course. You’ll have (the supermarket group) Morrisons to keep you company and doubtless a few more, so you can hold hands and sing a cheerful jingle as the water level rises and you sink like the Titanic!
Meanwhile, back in the real world, on-line retail is taking over and the good news, at least for us Brits, is that the UK are leading the race. It seems that Napoleon may have been right about us being a nation of shopkeepers and it doesn’t seem to matter whether that shop is on the High Street or cyber-space, we still seem able to spot the winning formula – well, most of us!
The thing is, on-line retail isn’t just a digital reproduction of a physical store. Its a different environment, with different customers with different attitudes, needs and expectations. As such it represents an unrepeatable offer to entrepreneurial retailers everywhere to do stuff they have only dreamed of before.
The biggest on-line bonus is that it immediately opens up international markets to even the tiniest of enterprises and, as is the nature of innovation, driven by tech, some of these small, light-footed and determined youngsters, unhindered by infrastructure and convention, are showing many of the big boys how to do it. If you want examples you need look no further than the cycle or sports sectors where businesses like ChainReactionCycles.com, Wiggle.com and PDHsports.com are movin’ and shakin’. Stand by for a change in retail hierarchy!
A smart retailer can now enter buoyant new territory without having to stump up the investment in stores and local management and they are doing it with a vengeance! British retailers are exporting like crazy and, as if to underline how good we are at this, 21% of our non-UK customers are in the US! However this doesn’t even begin to scratch the surface of this opportunity, because while we can pat ourselves on the back for having captured the hearts of American consumers the real golden chalice lies in the opposite direction. Consumers in Asia and China for example spend up to six times their Western counterparts each time they visit an on-line store. Eastern on-line shoppers may be small in numbers so far, but believe me, on-line operators are working hard to break into these markets and when they crack it, it could be a big pay-day!
On-line expansion isn’t without its challenges though. For one thing traffic on this High Street goes both ways and there’s nothing substantial stopping Indian or Chinese retailers, who after all are making a large proportion of the fashion products in UK e-stores already, by-passing the system and selling direct. In fact they are doing it in small, limited inventory stores right now and it won’t be long before they develop the finesse they need to shift up a gear.
However, bigger challenges lie in areas of supply-chain development. There are some interesting partnerships emerging, especially in the supermarket sector, that are delivering own-label products from people like Tesco and Waitrose into Africa, the Middle East and Asia. I hear that Argos too have been exploring a similar approach. Once you have your products on the shelves of one thousand supermarkets like (the African, but Indian run) Choithrams (which Tesco have achieved through a partnership with the regional distributor MENA Holdings) it’s but a segue into a outlet-fulfilment supply chain model.
The challenges don’t stop there though. Western retailers will have to cast off their pre-conceptions and be prepared to re-think their on-line model to accommodate some of these new customers. In the Middle East for example, where temperatures are too high to do much in the daytime, shopping centres have become the focus of social life and a saunter around the mall is the closest a Saudi (for instance) gets to exercise (or an evening out!). On-line shopping is still popular, but click-and-collect might be a better option. This is all the moreso because in many of these countries there’s no real postal service, nor indeed postal addresses. You might consider delivering by courier, but success rate falls off a bit when the DHL man is working with “The third villa on the right after the car wreck on the street after the third telegraph pole on the road to Riyadh”! Then there are the domestic social issues to contend with. Many women won’t answer the door to a delivery man when their husband is out.
Now I re-read this piece I can pick holes in some of the suggestions I have made and I’m sure you will too. It’s a big subject and there are many ways of cutting and dicing it and you have to choose your route to these markets based on your own resources. Hopefully, this will start you thinking. These are just a few examples of how Western retailers will have to adapt if they want to make the most of the on-line marketplace, but despite all of this, on-line retailing is gaining traction in these countries and its clear that it will grow faster when some of the players overcome their limitations. In the case of the locals it’s just a case of improving operational standards, design, web-development and the like. While Western contenders need to get to know local consumers and their needs better. Once they do things are going to really hot up!
Originally published on LinkedIn August 2014
Phil Darby
August 1, 2018