Retailers: don't delay, go online today

High street retailers that hold back from entering the online world may pay dearly for their delay and cannibalise their offline...

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.

  • This was last published in December 2000

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