Chris Roberts

The Future of the High Street

• Posted in Business

It would appear that it's not an easy time to be a retailer. Stories of familiar high street names going into administration, or at least severely struggling, are becoming ever more frequent. Blacks, La Senza and Hawkin's Bazaar have all gone into administration following a disappointing Christmas shopping season.

Whilst the current economic climate is clearly a large part of the problem, the rise in internet sales can only be adding salt to the wounds. Figures from an IBM study show an increase in UK online sales of 21.5% from November 2010 to November 2011.

It's not unreasonable to conclude that internet sales represent the single biggest challenge the high street has ever faced.

So who is to blame for this wanton destruction of our high street? Are internet retailers really the villains of this story? To my mind, the downfall of these retailers is the result of their own failure to recognise shifts in supply and demand, the most basic of business principles.

Internet retailers are thriving because they can often offer goods at lower prices than the high street, largely because they can operate with significantly lower overheads. Internet based retailers find it much easier to scale their fulfilment capacity both up and down as demand changes. Conversely, high street retailers can't very easily shed staff and floor space during quiet periods.

Is the future bright for internet retailers?

It's certainly looking that way at the moment. But, there are some significant challenges ahead.

Internet retailers currently benefit from a small side-effect of a busy high street. Many shoppers use 'real' shops to look at their potential purchases before going online to buy them at a lower price. There are even barcode scanning apps for mobile phones which help people with this! If the high street were to fail completely, this benefit would not only be removed but the effects would be reversed. An increase in product returns would certainly add to the overheads!

There is little concept of 'local' on the internet. When deciding what area to cover, internet retailers tend to pick entire countries rather than settling for one town. The result of this is that competition is fierce and fewer, larger retailers are likely to prevail. Starting a new online retailer to sell books is, for example, quite likely to have difficulty in competing with Amazon.

Ultimately, a lack of competition is likely to be a bad thing for the consumer - but if we were worried about that we'd all be spending our hard earned cash in our local independent shops, wouldn't we!?

Is the High Street doomed?

There is one thing that is surely clear - retailers that do nothing to react to the changing environment are bound to fail. To my mind, retailers need to recognise that competing on price alone will not work. In a race to the bottom, those with the lowest overheads just need to wait for those around them to fail.

One advantage the high street will always have is immediacy of acquisition. If I want to buy something now, I can go to a shop and buy it. This is one thing that internet retailers can never hope to compete with. The problem is that shoppers are learning that a 24 hour wait (albeit with an extra postal fee) really isn't that much of a problem.

Internet retailers are also using increasingly sophisticated order fulfilment and delivery methods. I recently placed an online order at 19:30 and the goods were delivered by 9:00 the following morning - an impressive 13.5 hour turnaround! Of course, not all retailers are so prompt or reliable.

The key differentiator that can set the high street apart from online retailers is in the service they provide and the overall 'shopping experience'. In-store demonstrations and advice, low hassle returns procedures and other such 'face to face' value-added services are strengths that internet retailers will never be able to replicate.

High street retailers should seek to secure or create products and ranges which are exclusively available offline. If they do a good enough job of this, demand will be created, supply controlled and profits will surely follow!

A saviour of the high street may also come in the form of product manufacturers who tightly control the retail pricing of their products. Apple is a prime example of this, the prices of their highly sought after products are artificially kept the same on the high street and online. If anything, this provides high street retailers with a slight advantage over their online counterparts.

Ultimately, it is the consumer who loses out in this scenario once again. A lack of competition amongst retailers ultimately removes some of the pressure on the manufacturer to supply at lower prices. Corporate profits remain secure at the expense (literally) of the consumer.

In Conclusion

Times are indeed tough on the high street, and I feel sincerely sorry for those who have lost their jobs and their businesses as a result.

The changes we are seeing now are reminiscent of the rise of the supermarket after the Second World War. The independent retailers they replaced are still declining. Many surviving butchers, fishmongers and bakers now market themselves on their personal expertise and diversity or freshness of product to differentiate themselves from the mass retailers.

I do believe there is a future for the high street, but in order to survive, similarly drastic changes will need to be made. Offline retailers must work harder to market themselves and be seen to offer something not available online. The high street as a result will look like a very different place.

Of course if we don't want that to happen, we only have ourselves to blame.