“Omni-Selling”: the Future of Internet Shopping

Business"Omni-Selling": the Future of Internet Shopping

“Omni-Selling”: the Future of Internet Shopping

Online shopping continues to grow in the UK, despite the sluggish economy. But what does the future hold and how are traditional retailers fighting back?
The BBC’s Black Friday video says it all. Inside Currys PC World on London’s Oxford Street reporters gather, waiting for the morning rush. The shop assistants finally open the store and just one customer walks through the doors. His name is Marcel and he is picking up the laptop he pre-ordered online.
This picture was replicated across the UK’s high streets as many consumers chose to do their Black Friday shopping online instead, striking a contrast with the brawls witnessed in previous years as customers fought over in-store bargains.

Black Friday Bonanza

British shoppers splurged £1.4bn online on Black Friday this year – 11.7% more than last year, according to data from IMRG, the internet retailers’ trade group, yet footfall on UK high streets and shopping malls fell 3.6%, says research firm Springboard.
With more and more consumers doing their Christmas shopping online, it is little wonder that Amazon founder Jeff Bezos’ personal wealth has crossed the $100bn barrier.

Shoppers are seen walking past the electronic billboard at Piccadilly Circus, showing retail adverts incuding one for 'Black Friday' in London, Britain
The combination of Black Friday and Cyber Monday creates a “mini-season” similar to Christmas in terms of revenues. REUTERS/Toby Melville

Online retail sales grew by 10.7% in the year to October 2017, according to the UK Office of National Statistics (ONS), and now account for 16.9% of all retail spending. A decade ago, internet shopping contributed just 3.8% of total UK retail spending.
The picture in the US is similar, where 2016 data from the US Commerce Department shows online sales made up less than 10% of overall retail spend.

Ecommerce: Growth Wanes but Market Penetration Remains Low

Admittedly, UK internet sales growth has halved this year compared with 2016, when online sales rose 21.3%. The sluggish economy and pressure on wages are hitting consumer spending. Inflation remained at 2.8% in October but wages grew by just 2.2%.
In fact, in the year to October retail sales fell for the first time since 2013, while a study by Visa and IHS Markit, a research firm, forecasts that Christmas spending will dip by 0.1% this year for the first time since 2012. Last Christmas UK retail sales rose 2.8%.
Nevertheless, analysts agree that online shopping continues to offer growth opportunities. According to Eurostat, 87% of UK consumers bought at least one product online in 2016, while October ONS data shows strong increases in non-food retail, department store purchases, textile, clothing and footwear sales this year.
“The UK is one of the most advanced online retail markets in the world – approaching one in four non-food goods are now transacted over the web,” says Clive Black, head of research at broker Shore Capital. “Accordingly, the pace of growth will normalise but we still see room for higher participation.”

Bricks and Mortar Retailing Remains Key

Garry White, chief investment commentator at Charles Stanley, agrees. “There’s enormous room for growth,” he says. “The penetration is quite small in certain areas. But that doesn’t mean the end of the high street. If you look at Amazon and its pop-up shop in Soho, people like to look at things.”
Indeed, besides its Black Friday pop-up shop in London, Amazon’s experimentation with bricks and mortar shops has included opening a bookshop in Seattle and buying upmarket supermarket chain Whole Foods.
“It is not a one way flow of offline to online,” explains Black. “The latter are now embracing stores as the limitations of online searches become apparent, not least the difficulty to touch and feel and to up-sell.”
As such, White predicts that large out-of-town shopping areas will continue to be important places for consumers to browse products. And, while traditional retailers continue to struggle with online competition, they can overcome these issues, he argues.
“Amazon doesn’t care about profit, they want market share,” says White. “Jeff Bezos says, ‘Your margin is my opportunity’. It’s very difficult for bricks and mortar retailers because they have to maintain stores and staff and pay the minimum wage in the UK. But they can do it.
“Look at Private Eye in the publishing sector – it’s the fastest growing [current affairs] magazine in the UK. There are ways to do it but you’ve got to keep your costs down and use new technology.”

Customer Returns a Major Headache For Online Sellers

While they may enjoy a lower cost base, internet retailers face their own problems. Dealing with customer returns is particularly expensive and time consuming.
“If you look at [online clothing retailers like] Boohoo.com, around 40% of stuff may be returned,” says White. “It’s more expensive to return an item than to send it out.”
He gives the example of a cocktail dress that, if purchased online and returned now, would not return to the warehouses to be sold until the New Year.
Returns of online electrical goods are particularly painful for retailers’ profit margins.

Online Clothing Purchases: Millennials ;ead The Way

Research last year by Goldman Sachs found that US millennials are more prepared to buy their clothing online than other generations. According to the investment bank, they spend 35% of their clothing budget online, while those aged 35 to 44 currently only spend 30%, although this is expected to increase.
“I am nearly 50 and I buy nearly everything online,” said White. “There is a generational thing and there is a demographic shift but there is a place for it. I just think that the traditional retailers need to improve their websites and offerings. The problem [with Marks & Spencer, for example] is [often] in their buying and merchandising.”

Traditional Retailers are Fighting Back

New technologies are also helping bricks and mortar retailers exploit digital marketing opportunities or use mobile apps to get more customers through their doors.
Shopping app Mishipay enables customers to bypass queues using theft-proof self-checkout software that lets them scan an item, pay for it and leave the store.
Meanwhile, London-based start-up Localistico’s online marketing platform helps Starbucks, supermarket chain Morrisons and estate agent Foxtons improve footfall by coordinating their online presence and appearance in local search categories.
The technology enables information, such as Christmas opening hours, to be updated quickly across the board on all forms of social media for multiple physical stores.
“There are always going to be transactions you want to do in person,” says Localistico’s founder, Ricardo Varela. “And 85% of retailers’ sales are still in the stores. Even for a store that is very much online, such as House of Fraser, they still have most of their sales in the physical stores.”

Physical Stores vs Website

However, how customers interact with a physical location is different from how they interact with a website, says Varela.
“With Amazon, all your discovery and transactions are online,” he says. “But for a physical location – a coffee shop, for example – the type of [online search] query you use to find it is different. Your discovery is offline; I ask for directions, I upload to Instagram [a photo of how they got my name wrong on my coffee cup, etc.].
“All these analytics are offline. What we try to do is put that information together for tens or hundreds of locations for clients. It’s about looking your best and controlling your own data. Every marketing team can tell you what is their most retweeted tweet but they can’t tell you which is their most searched-for store.”

Omni-Channel Selling and Mobile

Retail analysts say that the future for retailers is so-called ‘omni-channel selling’, with firms straddling the online and offline markets with an online presence, bricks and mortar stores, sales via Amazon or other outlets, while more online retailers will establish an offline presence through pop-up shops.
In the meantime, the real battle ground is between desktop and mobile, argues Ian Begent-Cove, a buyer at internet retailer Watch Shop, in a blog for Verdict Research.
“Mobile users accounted for 43 percent of online purchases last year, but the past 12 months have seen mobile continue to make ground, with some reports already suggesting it has taken over from desktop,” he writes.
Back in 2014, 64% of internet transactions were completed via desktop computers, with just 20% via mobile and 16% on tablets, reveals data from PCA Predict, which helps retailers complete transactions.
In 2016, desktop transactions fell to 53%, while mobile increased to 34% and tablet transactions fell to 13%, showing the importance of retailers’ websites being fully optimised for mobile use.
Meanwhile, Black believes further regulation could be on the cards. “The online vs offline axis will persist with perhaps the regulator in various forms starting to step in,” he says. “Could we see a digital sales tax noting the Treasury’s introduction of measures to access online royalties?”