High street retailers that hold back from entering the online world
may pay dearly for their delay and cannibalise their offline sales.
Lindsay Nicolle investigates.
Branch-based retailers the world over are facing the agonising
dilemma of whether to sell online and cannibalise their high street
sales, or stick to their knitting and hope their customers remain
loyal.
It may seem like a tough decision but it's actually a
"no-brainer", according to e-business consultants. They warn that
hanging back from the digital world of commerce simply begs
humiliation by some online upstart.
In the Internet age you have to be in there, blazing a trail and
fighting off opponents from 360 degrees, or your virtual space will
quickly fall to some unknown who could eventually put you out of
business.
Research by US-based Forrester shows that within three years
between 3% and 5% of all retail sales will be via the Web.
Small though that figure is, it's predicted to grow fast
year-on-year, plus it represents billions of dollars worldwide
which, once lost to a rival, may never be won back.
Alex Birch, e-business strategy expert and director of
consultancy OC&C, has studied online markets across Europe and
identified where clicks and mortar companies are most at risk of
cannibalisation to maintain market share.
Traditional companies selling products in the most popular
e-sales markets of travel, books, music, IT and financial services,
are most vulnerable in northern and middle Europe where online
leaders are already well-established.
Pioneers are also emerging in the online markets in the middle
stages of development, including clothing, lifestyle products,
toys, and cosmetics.
Here, if a company adopts a synergistic strategy between its
offline and online businesses it could leapfrog its long-time
rivals to a new position of market leadership.
The markets where there's everything to play for, for everyone,
include food, electrical goods, furniture, and DIY and
gardening.
Clearly, the message today is that only enterprises that can
adapt to the online world quickly will survive.
But how can you create synergy between online and offline sales
channels, where customers expect the one to undercut the prices of
the other? Surely, cannibalisation is inevitable?
You can bet your business on online sales, but if they don't
materialise you could face serious cash-flow problems meeting the
costs of your branch-based business.
If you cut your online prices, then you have to cut your high
street prices, but your break-even point is usually higher on the
high street. Make the price gap too wide and the difference may
prove to be too great for the market to bear and your high street
sales and your business stability could simply disappear.
Brand is everything on the Internet but that means that it can
also be your downfall. A strong high street brand can lose its
glitter overnight with a poorly serviced Web site. The effect is
global, and your competitor only a click away.
The temptation to be innovative on the Internet is high, but you
risk leaving your offline business stranded using yesterday's
technology, looking old-fashioned to your customers and possibly
unable to respond to the market interest you've generated.
Not only do you risk losing your offline business, you also risk
going too far ahead in your online one.
Virgin territory online is just that - you may have guessed the
market incorrectly and find yourself with an empty shop.
Each sector faces different stresses, but the basic advice to
all clicks and mortar companies faced with cannibalising their high
street sales is to face the threat head on, accept it in some
respects but work against it in others.
- Sort out a pricing structure for goods that takes account of
popular items, competitor positioning, and added value services to
customers such as long-term support.
- Integrate your online and offline business technologies in
order that the whole company gains from the commercial knowledge
both generate, and can support and enhance each other.
- Accept that your business model, and therefore the role of your
physical business, must change. For example, a high street shop
could become more of a customer service centre - a community of
interest offering added value services that support both offline
and online sales.
"Moving to online sales means creating a new business model that
integrates clicks and mortar into one channel and which supports
being more proactive," claims Michael Meltzer, managing consultant,
CRM e-business at Computer Sciences Corporation.
The traditional high street bookseller Waterstone's is facing
down Amazon, its colossal online rival, with a new business
strategy, and is doing well.
At first glance it's hard to see how Waterstone's can compete
against Amazon's established online business and its
bargain-basement prices, but the company is actually relishing the
challenge.
As Waterstone's Online has evolved, it has
inevitably had to sell some books cheaper on the Internet than
can be bought in the chain's bricks and mortar outlets. But
Waterstone's is not worried about cannibalising itself. Instead,
it has subtly re-positioned its shops to complement its online
business by turning them into what, in essence, are customer
service centres with in-store Internet kiosks and highly
knowledgeable staff.
The company believes that its strategy is a powerful weapon in
the online war for booksales.
"The online business is about ordering and sending books on
demand, while the retail business is about informed staff helping
people find the right book, select similar works by other authors,
or return books when the wrong choice has been made. The two
services are complementary," argues Jonathan Wilson, Internet
business manager for Waterstone's Online.
"I think online businesses will try to emulate that kind of
personal help and assistance, but I don't think you can do that
effectively without a high street presence. There's a lot more to
selling books than just on price," he continues.
"I can see a future where Amazon will establish physical
premises to get closer to its customers - whereas we've already got
them. It's far easier to create a Web site than to create real
estate penetration," he adds.
Clearly, those retailers that hang back from the brink of the
online world will pay dearly for their delay.
The authors of OC&C's recent publication The Age of E-Tail*,
conclude: 'There is little doubt in our minds that e-tailing and
e-shopping will affect all industries and goods and even the most
established of companies will be forced to adjust. Some will do so
in good time. For others realisation will come late, and at a high
cost. Remember: you can take part and lose - but if you do not take
part, you've already lost.'
The Age of E-Tail: Conquering the New World of Electronic
Shopping, by Alex Birch, Philipp Gerbert and Dirk Schneider, 2000,
ISBN 1-84112-092-8.