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Ecommerce growth means more shops will shut

Richard Hyman is founder of research firm Verdict Retail and analysis site

Richard Hyman

Richard Hyman

You may think we have already been through the retail shakeout, with many indies closing their doors and high street names, such as Jane Norman, going bust, while shopper behaviour is evolving and ecommerce has developed at a pace. But I believe there is more to come next year.
There is too much retail capacity out there to be economically viable, and that capacity is growing thanks to the addition of online. Fashion is particularly oversupplied, because remarkably little clothing capacity exited the market in 2008 following the credit crunch. I expect that to change drastically over the next few years.

The retail recovery began running out of steam this summer, with the warm weather this autumn magnifying what was already going to be a slowdown. And now we have the crazy bandwagon of discount days (Black Friday et al) that gobble up sales, dilute margins and damage customer relationships. Some retailers are running earlier and heavier discounts each year, which will have a knock-on effect for the industry as a whole.

Meanwhile, online retailing is proving to be the biggest economic game changer the industry has seen in modern times. It has been a cannibalising channel from the start. Some physical retail selling space has shut - around 3% since 2008 - which has helped sales per square foot to increase over the period by around 9%. I estimate the growth of ecommerce will add the equivalent of 77 million sq ft to total retail floor space in the UK over the next five years - some 10% more than we already have.

Expanding capacity through online means lower sales productivity. Traditional retailers will have to close stores as their ecommerce business grows -or face lower returns per square foot.

For retailers losing market share there will be less space to hide in, but for those strong enough to increase their share there will be good returns. This profound structural change is forcing retailers to be more innovative, dynamic and get ever-closer to their customers.

Readers' comments (6)

  • I agree Richard. It's becoming very competitive. Margins are being squeezed and the likes of Amazon and their targeting of fashion in 2015 suggests it's going to get even tougher.

    Omnichannel retailers will succeed, especially the ones that recognise that in store is where you create customer loyalty.

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  • I ain't so sure ! In a push for growth the multiples pushed out most of the Indi's from the UK High Streets, at all levels, from market town to major town, what we have seen over the last couple of years is these same multiples pulling out of the lower mid grade towns, in the believe that they will be covered on-line, perhaps so. This surely gives the Indi a chance to rise again, landlords will need to re think their expectations of yield if there shops are not to remain empty, there are only so many coffee shops and phone stores to go round. Online continues to grow, however it is slowing, one big issue that everyone seems to be overlooking is profit, can someone out there please tell me why all the hype when the profits are at best marginal and in some cases non existent, i understand that these business's are being
    invested in for the future but many are starting already to lose traction, see Boo Hoo article, if online operated as retail does then most of the online retailers would have gone bust, seems all the investors are interested in is not profit but growth, growth, growth, float, walk away, to me it's still a bubble if not pyramid investment, i maybe wrong but bricks and mortar still appears to be more profitable and king, hey, one day it maybe more novel to actually try stuff on before you buy !

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  • As a foot note to above, yes Amazon is focusing on fashion, looking to pay massive amounts of money around the world to do so, Jabong in India being it's latest target, talks of US1.2 billion being mentioned.
    Amazon a loss making company paying US1.2 billion for another loss making company, where is all this funding for loss making come from and when does it stop, answers on a postcard please.

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  • darren hoggett

    A very good piece.

    I personally feel that if you are a City Centre Indie that does not own the freehold you will be doomed within five years. There are options however:

    If you have a good online business, then move to a secondary location. If your business turnover has turned predominantly online, then maybe you don't need a shop at all.

    One aspect is that brands are obsessed with location. Somewhat naively in my view. That view will have to change as stores simply will not be able to afford to stay in city centre locations, yet brands simply want to cut out the middle man and have a fully integrated operation.

    While the future isn't all doom and gloom, for many, it isn't good.

    Darren James Hoggett
    J&B Menswear Limited/Norwich

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  • I don't own and Indi but did work in one in for many years in my youth !!, it wasn't prime location but was just off the main drag, it was a destination shop, in fact it's still there some 20 years later, not the same tenant though and certainly not freehold. If online is causing there to be too retail capacity surely high street rents will fall otherwise we will have landlords holding onto empty properties. Recently someone told me that the institutional landlords would rather see shops empty than drop the rents as this would cause a spiral which cannot be allowed to happen because many of the big pension funds are linked to high street properties and there rental and capital yields, not too mention loans borrowed against these properties, we could have another sub prime on commercial properties, surely however given the above article at least some high streets should become more affordable.

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  • Chris Bishop

    "Online retailing...has been a cannibalising channel from the start"

    Come on Richard!?

    This isn't Ecommerce vs. Retail.

    There is no E-business, no E-commerce, no E-tail, no E-Retail.

    It is now just retail. With as many active route to markets as possible. All working together. Yes they can have separate business models, even P&Ls but ultimately they are aligned in a proposition to the customer.

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