The Amazon problem

Can high street retailers adapt and compete in the age of eCommerce?

There can be little doubt that the UK’s High Streets have had an incredibly difficult few years, with even the larger department stores struggling against the tide of ecommerce sites such as Amazon and eBay.  Analysis from the British Retail Consortium estimates that around 93,000 retail jobs were lost over the course of 2018, with even household names such as BHS, Toys R Us, Poundworld and Mothercare either disappearing completely or closing significant numbers of outlets.

So what’s behind the retail doom and gloom, what does the future hold for our High Streets, and how can bricks and mortar sellers compete in an increasingly digital world?

So, what do the numbers say?

While a sluggish economy and supply fears caused by Brexit are all touted as reasons for the sorry state of the High Street, many have pointed the finger of blame squarely at online retailers.  In 2017, internet behemoth Amazon made net sales of $178 billion and digital sales at the company jumped by a third when it introduced its exclusive Prime service. In the first week alone, four million people signed up to Prime and Amazon shipped a staggering five billion parcels to Prime customers over the course of that year.

Nine out of ten consumers have said they will check out a product on Amazon before deciding if and where to buy, often choosing Amazon for lower prices and convenience.  An astonishing 77% of UK adults say they bought goods or services online in 2018, with Smart Insights estimating the average spend was £1,600 over the course of the year.  According to Nasdaq, 18% of all shopping last year was done online and they predict that figure will rise to 95% by 2040. Parcel delivery service USP says Millennials already do around 54% of their shopping via ecommerce platforms, and as these are the shoppers of tomorrow, that percentage is almost certain to rise.

If those numbers weren’t terrifying enough for smaller retailers without the online clout of Amazon, the company is also muscling into areas which they might once have considered ‘safe’.  The internet giant has already introduced a groceries home delivery service to rival supermarkets and small independent food sellers, and now there’s talk of a pharmacy service. There’s also the added threat of more than 3,000 cashier-less Amazon Go convenience stores, which the firm announced it was hoping to unveil in 2021.

The Amazon advantage: data

Amazon, it seems, has the upper hand when it comes to selling in the modern world.  Whether you view it as an added convenience or a rather sinister attempt to become ‘best friends’ with the customer, Amazon tracks each and every one of us to understand our shopping preferences.  Whether it’s ‘upselling’ by introducing customers to add-on items or encouraging people to add just a few more unnecessary things to their basket for free delivery, there’s no denying that Amazon is agile and can adapt.  It’s been said Big Data harvested from customers can lead ecommerce platforms to predict when a woman is in the very earliest stages of pregnancy, simply by monitoring the changes in what she buys or stops buying online.

In addition to all the data they can gather, Amazon, eBay and the like have another major advantage over High Street sellers in that they don’t have to cough up the exorbitantly high leases for a bricks and mortar store.  It’s been a regular complaint from shops large and small that rents are going up almost too fast for many to cope with, but no shop fronts means ecommerce retailers can shirk that particular burden and pass the savings on to customers.

The high street is dead; long live the high street

Before the death of the High Street is officially announced, let’s take a step back from the pessimism to look for the silver linings.  In December 2018, one Amazon boss was hauled before a parliamentary committee and bluntly accused of ‘single-handedly killing the High Street’.  Lesley Smith denied the accusation and claimed that Amazon was only a small part of the UK’s retail landscape, and to some extent the figures back her up.

While we’re constantly being told we live in a ‘digital age’, some 82% of retail sales last year were made in physical stores rather than online.  The 18% done through ecommerce platforms actually starts to look pretty paltry by comparison, and it’s hard to see the demand for ‘real world’ shops disappearing any time soon.  Many High Street retailers are staging a fight back, something which PricewaterhouseCoopers also commented on in their 2018 Global Consumer Insights Survey.

According to the latest PwC statistics, 44% of those surveyed said they shopped in bricks and mortar store, an increase on 2016’s 40% and a vast improvement on the 36% figure of 2015.  There is, somewhat unexpectedly, more footfall on the High Streets than in the previous few years and the High Street still has plenty to draw customers out to our town and city centres.

For many, shopping is still a pleasurable leisure and social activity, with many of us turning it into something of a full ‘day out’ experience to be shared with friends and family.  The service and customer experience you enjoy in a physical store is inevitably much more personal, and actually being able to see and handle the goods before having to pay for them is still something most people want to do.

In an age of corporate responsibility, consumers are all too aware that retailers like Amazon don’t always play fairly or ethically.   If High Street retailers can play to their strengths and show they benefit the local community and wider society, customers develop an affinity with the brand and would rather buy from them ‘for the greater good’ than from the online retailers.  Many smaller retailers can trade on being a ‘family business’ or on the length of time they have been established, using their smaller size and personal touch to their advantage.
Despite the challenging times, the consensus from retail industry experts is simple, traditional retailers still have one powerful weapon in their armoury: physical experiences – including everything from tailored personal services to entertainment, a new era of High Street will emerge.

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