Don’t believe the hype: Internet shopping is good for the High Street

Remember Blockbuster? They had a chance to buy Netflix for $50m, or team-up with Lovefilm (now part of Amazon Prime Video). They didn’t, they went bust, and everybody blamed the internet… as opposed to terrible management choices. Every time a big High Street brand of yesteryear goes to the wall, much of the media reporting and industry chatter says it’s the fault of the internet.

After all, we’re all sitting at home playing Fortnite on our VR headsets and ordering everything for home delivery off smartphone apps, we never actually visit a store to physically touch anything. Right? Er…. no?!

The problem isn’t the internet, it’s doing e-commerce badly. Take House of Fraser. Their online model was built on defunct brick-and-mortar retail logic.

You can see this clearly from the fact that when HoF went down, they owed their logistics supplier XPO about £30m for services that included a fleet of vans and two massive warehouses full of stock. More agile e-commerce models, where the front-end store takes a fee and a third party supplier handles the warehousing and fulfills the delivery via their own logistics suppliers, have proven much more effective in the online retail space.

This ‘marketplacing’ trend – as illustrated in this Retail Week report – blends various ‘dropshipping’ models and third party wholesaler fulfilment options to keep inventory and logistics costs down while servicing greater sales volumes. This is a vital part of a modern retail strategy to compliment the items you warehouse yourself – like Amazon Prime – for premium direct to consumer delivery. It’s how the likes of ASOS and Amazon grew so big, so fast. HoF, by contrast, was dragging major costs to warehouse unsold stock. That was never going to end well in the era of marketplaces and drop-shipping.

It would be a mistake to write HoF off for that alone. They underinvested in their e-commerce platforms too. It’s reported they spent £25m on their online revamp last year, which sounds big until you learn ASOS spent around £50m in the same year, and John Lewis over £500m for a major omni-channel upgrade. However, in other digital respects, they were doing a lot of things right. They spent wisely on a click-and-collect system that (according to Qudini, the developer) drove around a 20% increase in unplanned purchases from higher footfall, and doubled staff productivity by optimising trips to the stockroom around a click-and-collect desk. However, generally speaking, HoF treated their e-commerce like many failing High Street brands, as an afterthought, in a silo adjacent to their core business.

You could list a whole load of additional problems that were nothing to do with the internet. HoF operated 59 stores after decades of expanding their physical presence without the sales to justify it, accumulating major legacy lease overheads. They also acquired smaller department stores to facilitate this expansion, like Army & Navy (remember them?) but never really established a clear HoF brand identity themselves.

They didn’t have strong own-brand labels, they didn’t offer a clear ‘never knowingly undersold’ proposition, no seasonal ‘blue cross’ sale, no sparkly Christmas ad campaign with indie piano version of an 80’s pop classic or whatever. Duff marketing is not the internet’s fault.

The in-store experiences were dominated by third party concessions – over 600 in 59 stores – which also accounted for over around 65% of their 16,000 staff. Now, concessions are no bad thing and have proven highly effective in some stores, but there’s a limit. Putting Argos into a Sainsbury, or Curry’s into Tesco has a complementary logic to it.

If you are a world-renowned brand like Liberty, or Selfridges, you can fill every floor with luxury concessions and it helps to build the exclusivity of the high end department store brand. If you are an average, everyday retail store, with a bland brand, found everywhere, comprised mostly of third party concessions, you’re basically a shop where customers have to queue-up at five different concession tills to buy five different concession items.

Online sales with a shopping basket and single checkout are far easier, which probably explains why HoF was growing online while shrinking offline.

It would also be remiss to suggest changing consumer behaviour in this new digital world, or Amazon, or anyone else was as damaging to HoF as two CEOs in the last two years, at least three hostile takeover attempts in the last decade or so, plus being sold wholesale to Iceland’s Baugur group (didn’t their top guy go to jail?) and China’s Nanjing Xinjiekou group.

HoF has been floating like a piece of stale bread in a corporate takeover duck pond, for a long time. It’s amazing that they kept going as long as they did.

It’s time to stop the lazy default argument that internet shopping and smartphone empowered consumers are the the reasons why High Street retail is struggling. Especially considering how Amazon Go and Alibaba’s Hema Fresh prototype stores are transforming High Street retail experiences with blended digital-physical retail.

House of Fraser reported 20% of its sales were online in 2016-17, and growing… which means internet shopping was one of the few things keeping them afloat.

Poor offline choices – and avoiding new technologies – is what sinks High Street brands more often than not. The bigger picture shows internet shopping is giving the High Street a whole new lease of life.

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