Retail Property & the Internet: Only the Paranoid will survive

June 2013

According to a report out this week from CBRE ‘Four in five shoppers ‘prefer the high street over the internet for clothes’. Well, all I can say is that if you are in clothes retailing, or a landlord to tenants in this market, you better take this with a pinch of salt. Only the paranoid will survive the internet.

As reported in The Telegraph ‘in the UK, less than half of consumers, 38pc, think they will shop online more in the future, suggesting that a change in customer habits may not be as radical as feared.

Of the customers who shopped online, 85pc said it was still important to visit stores to see and to try on clothes.

Peter Gold at CBRE said: “The essentials of a successful retail destination – value, convenience, cleanliness and security – remain uppermost in shoppers’ minds.

“While many retailers are adapting to technological advances, consumers are telling us that they do not intend to radically change their shopping habits in the immediate future.” ‘

For any of the above to be true the underlying trends seen in the last ten years vis a vis the growth of Internet shopping must have ground to a decisive end. The chart below suggests otherwise.

The Centre for Retail Research in May opined that ‘online retail continues to grow and is predicted to account for 21.5% of all retail sales by 2018’. In addition, there could be 316,000 job losses in the same period due to what the CRR describes as the “growing retail crisis”. Read more of this here.

So take your pick: No need to worry OR where are those beads?

I am firmly in the ‘where are those beads’ camp. There is absolutely no way that the internet is not going to become an ever more important factor in retail and those who blithely believe that consumer behavior is not going to change much are in great danger. In fact they are dead men walking; the only variable being their time on death row.

Why?

1. Bandwidth continues to increase and as it does it means the consumption of online services just gets smoother and smoother. Once you have access to super fast wifi (or 4g) your browsing behavior changes and you spend more time online. Simply because it is a more pleasurable experience.

2. And as bandwidth increases retailers and other service providers start to provide new services that take advantage of that speed. So you become aware of richer, more engrossing, more engaging online experiences. Ones that offer you more information, more tailored to your desires and wishes.

3. Hardware improves relentlessly. Your smartphone just gets better; faster, better screen, better camera, better maps. And every improvement just makes sharing easier and shoppers love sharing. It’s just that they don’t necessarily need to do it face to face anymore. Add in the iPad and other tablets and virtual shopping has genuinely started to become a major hobby. Multi screening from the sofa, TV on and wine in hand is the setting for many a happy hour ‘down the shops’.

4. It’s so damn easy. Amazon is of course the king in this area with their one click and prime options making ‘frictionless capitalism’ a wondrous reality. But many others make ordering super simple, such as John Lewis who have been repaid by seeing extraordinary growth in their online sales soaring 40% in the last year.

5. The online shopping experience is improving all the time. The heavily curated, personalised experience that the likes of Net-a-Porter or Rapha provide is frankly a pleasure to challenge most offline shopping trips. Only the best stores compete. Indeed if you listen to Burberry they make it clear that the purpose of their flagship stores is to replicate the web experience and not vice versa.

6. Online one has access to all available stock (in the better stores), whereas only the biggest and best physical stores do. Online one can also read reviews, watch videos, compare, contrast products and price match.

7. Delivery and returns. By making delivery fast (increasingly next day or in urban areas coming soon same day) and returns free and easy the online merchants have neutralised a major drawback of online, namely the lack of ‘instant gratification’ one gets in physical stores. Next day does it for many.

So there are seven reasons why online sales will only increase and the internet will become increasingly part and parcel of most peoples shopping habits. Unless you can compete with all these you really do need to start worrying. And frankly not that many retailers have the scale, clout and stores to do so. The whole market is bound to bifurcate between large, experiential flagship stores and smaller boutique type outlets that know their market intimately and can curate small collections for niche markets. In the middle will be a bad place to be, as they fail to excel in any area and even the most committed shopper will go elsewhere, even online.

From a property perspective one must either hope that CBRE are right and that not much is going to change and life will return to the nirvana of the pre 2007 financial meltdown or start to get paranoid and obsess about the transformational nature of modern technology.

Over to you. I’m happy in my choice. Are you?

Antony