The high-street brands that are defying the online onslaught

Times are tough for traditional retailers now internet shopping has taken off. But some big names are successfully adapting to the new environment. What are they doing right? Matthew Partridge investigates.
High noon on the high street. Retail apocalypse. Massacre at the mall. There has been a relentless stream of grim headlines about retailers in crisis in the past few years, and it looks as though 2019 will bring more of the same. Indeed, even before the champagne corks were popped to welcome in the new year, music retailer HMV announced it would be entering administration for the second time; it was resuscitated after going bust in 2013. Meanwhile, Austin Reed, BHS, House of Fraser, Toys R Us, Maplin, Poundworld, Mothercare, New Look and Debenhams (see page 7) are among the high street stalwarts that have either disappeared or may be about to. In the first eight months of 2018, 28 retailers closed 2,085 shops. More than a tenth of retail properties are now vacant.
Moving online
Proximate causes of the downturn include poor real wage growth, rising business rates and careless borrowing to fund expansion. But the most damaging problem is a major structural shift in the way we shop. According to the Office for National Statistics, more than £1 of every £5 in retail sales (20%) is now spent online. A decade ago internet sales comprised just 5% of the total. Amazon alone accounts for £4 of every £100 spent. While the United States has been a little slower to embrace e-commerce, the value of online as a percentage of total retail sales has increased from 4% a decade ago to nearly 10%.
It’s not hard to see why more and more people now prefer to shop online. When I was doing my last-minute Christmas shopping I noticed several of the stores at my local shopping centre seemed shabby and unwelcoming. Neither the prices nor the selection were particularly competitive and the overriding impression was that they weren’t making a big effort to attract customers. While they might just have got away with this a decade ago , it’s economic suicide now Amazon is only a mouse-click or a swipe away.
So why do I still think there is value in the high street? For one thing, the online retailers are experiencing problems of their own that could hamper their future growth and even force them to rethink their business model. Meanwhile, the sector has started to absorb the lessons of the past decade and learn how to play to the strengths of the bricks and mortar model. And some chains are going further, completely overhauling their business for the digital age. Here’s how to identify them.
Has the trend peaked?
Everyone has “fallen in love” with the online retailers, says Alasdair McKinnon of the Scottish Investment Trust. Their shares are “priced in a way that assumes perfection”. However, what everyone overlooks is that the business model of many online retailers is “grossly inefficient”. A key problem everyone overlooks is delivery costs. Most online retailers offer free delivery, either automatically or for purchases above a certain amount. While it isn’t that difficult to deliver goods to a central warehouse or post office, getting them from there to people’s houses (known in the business as the “final mile”) without forking out a lot of money is much harder. This means, despite huge amounts already invested in distribution, the online firms remain at a disadvantage compared to traditional retailers “who can get people to come to them”.
Online retailers have tried a number of solutions to this problem. One popular alternative to direct doorstep delivery is to encourage people to have packages delivered to their place of employment, especially in large cities where the commercial sector is likely to be somewhere central (such locations also have lower postage costs).
The problem with this is that employers are tired of constantly having to deal with people’s parcels, and are beginning to discourage the practice. This means that online companies will need to find an alternative solution, such as paying corner shops to hold people’s packages, which will inevitably cost them more money.

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