No more online excuses?

The 10th anniversary of the dotcom bubble spectacularly bursting may be nearing, but ecommerce is now thriving. Etailers have achieved spectacular growth even as recessionary trading conditions have caused their high street peers to stall.

And important new players are piling into the market. Last week Inditex, the world’s biggest global fashion retailer, revealed that it was taking its biggest brand Zara online in selected locations with a view to rolling it out to all of its markets. Other Inditex brands may well follow Zara online in the future.

Many are surprised that Zara, as one of the pioneers in the retail supply chain, has taken so long to take its offer into the new channel. Zara’s move raises the question of if and when the last remaining big retailers that have so far shunned ecommerce will make a similar u-turn.

Timing it right

However, many traditional bricks-and-mortar retailers, including Primark and Morrisons, still seem very reluctant to go down the online route, and many retailers that do have online offers are still struggling in some cases to make the model work.

But with extraordinary success stories such as Amazon, Asos and John Lewis, can there really be a case for being a purely stores-based retailer in today’s market? And why are so many still struggling to get to grips with what has become such an important part of modern retail?   

Brent Hoberman, co-founder of Lastminute.com and Mydeco.com, says retailers not offering or working hard on creating an online offer are missing a huge opportunity because the internet is not only a sales channel but a driver of traffic to stores.

“I suspect why some retailers are not doing it is that to set up direct fulfilment is difficult and it involves investment with no immediate payback,” he says.

Hoberman also thinks that not everyone wants to be the pioneer. “Some people want to learn from everybody else,” he says.

Hoberman believes that Zara has now seen how well fashion is working online it wants to be part of it. “The imperative may not have been there before but it is now when you look at how well retailers like Asos and Next are doing,” he maintains.

Barclays Commercial Bank head of retail and wholesale Richard Lowe says that more than most, when Zara goes live, it will have to be flawless. “When Zara does it a lot of people will be closely scrutinising it,” he says.

He says the same will be true of Gap, which will also bring a long-awaited online offer to the UK next year. “When it hits the market it will have to be good and not just fit for purpose,” Lowe says.

One of the other issues holding many back is the question of profitability. Not everyone has made much money from their sites. There has been speculation that at least one large high street retailer would like to close its etail business because it simply does not justify the cost. 

Google industry head of retail Paul Frantz says that profitability online is a particular challenge in grocery. He says: “Ocado always gets a lot of questions over its profitability but you have to look at online as a long-term investment that will pay off in the future.”

Tesco’s online business is thriving but even the supermarket giant has made its mistakes. In March last year Tesco pulled the plug on its clothing offer on Tesco Direct just six months after launch. It will launch a new online clothing offer in two weeks in the hope that this can tempt its customers with a branded offer.

Morrisons is the only big supermarket not to offer a transactional site and it is in no hurry to change its stance.

Morrisons chief executive Marc Bolland said at the grocer’s interim results two weeks ago: “There are many customers who have not yet experienced a new-look Morrisons so have not seen our Market Street with our fresh offer such as bakery, butcher and fishmonger, which makes Morrisons special. If they haven’t seen and experienced that, then they won’t buy on the web.”

Planet Retail analyst David Gray adds that Morrisons does not have an established store base in the Southeast, which is a key area for online. “It wants to make gains through property first,” he says. 

Bolland insists Morrisons could look at online when it finds a suitable model, but growth through stores remains the key focus for now. “We never close our eyes to opportunities but there is lots of growth at the moment in making sure all shoppers have a new-look Morrisons nearby.”

Another retailer yet to take the plunge is Selfridges. It will, along with Gap and Zara, unveil its very first online offer next year. Selfridges chief executive Paul Kelly has always been adamant that it would not be rushed. He said earlier this year: “We don’t have to follow the crowd, we have to do things when it’s right for the business. It’s great to have four shops and now we’ll have four shops and an ecommerce site, but we want to go online when we’re ready and not launch something in six months and end up with a dog’s dinner. We want to replicate Selfridges and all that it is online and we will not do something quickly and damage our brand by rushing it.”

Fools rush in

Another retailer that refused to be rushed was Clarks. With a £1bn shoes business it was slower on the uptake than others but its later online debut – in October last year – has so far done well. In its last company accounts Clarks said that in just a few months it had generated £3.4m of sales and expects that to grow to £20m in its current financial year.

One of the features of a multichannel strategy that Clarks really understood and took advantage of was click and collect, which it offers across all of its UK shops.

Hoberman says that such services are key to making an online offer work alongside bricks and mortar. Retailers such as Mothercare and John Lewis do this as well.

There are other developments in delivery options that are becoming popular, such as services that allow the buyer to collect their parcels from a local shop or pub if they are not around. “It is the easyJet model – allowing customers to do it themselves,” says Hoberman.

He says that retailers should not be put off if its etail strategy did no work five years ago. The acceptance of online shopping by the consumer means that it may do now.

What retailers are still getting wrong according to Hoberman is not giving online the status within the company that it deserves. “The priority in organisations is wrong as they don’t put the brightest brains in that area. The hierarchy here needs to be broken down.”

Tony Mannix, managing director for retail logistics specialist Clipper Logistics, says that the other way retailers can use online is for store planning. “One US retailer we spoke to that
wants to expand in Europe is going to use the density of its deliveries to decide where to put stores,” he says.

Online is a great way to test new markets with a relatively low investment and many online players are taking advantage of the opportunity. Shop Direct Group, for instance, recently opened Littlewoods up to the expat community, and N Brown and Asos have successfully expanded into new markets.

Next has also used online to try out new territories and launched a dedicated US website this month.

Frantz says that particularly in fashion online interest continues to soar. “Searches in Google related to fashion are growing 30% year on year,” he points out.

However, some are sceptical that all fashion can work online, particularly at the value end. Primark, for instance, seems far from ready to join the world of ecommerce.

“The challenge for Primark is how to do it in a profitable way,” says Frantz. “But we do know that fast fashion works online or else there would not be an Asos.”

Mannix, whose company provides fulfilment for Asda’s online offer including its George range – which sells at similar price points to Primark – believes the value model can work.

“For George the volumes are flying. You have got to get the volumes through raising basket sizes, which justifies the costs.” He says to achieve this means clever, targeted marketing. “When George did back to school it did mail shots to encourage sales,” he says.
It offered a uniform for £4.75 for instance, but customers had to buy multi-packs of each item to get the lowest price per uniform.

Such initiatives have worked for the supermarket and, for the grocers, getting non-food right online will always be a benefit because of the higher margins than in food.

Attention to detail

Frantz says that the logistics behind moving onto an ecommerce platform – that also integrates with current store systems – remains complicated and there is no “buy out of the box” solution that is right for all retailers.

Where retailers are failing, he believes, is that chief executives do not give their sites enough attention. He says they need to treat sites more like stores. “How many retail chief executives shop on their own site regularly?” he asks. “You don’t have clothes on the floor of your stores or empty shelves if you knew senior management will visit and the same should apply online.”

What has also yet to be cracked, and what retailers are still struggling with, is tracking where their sales are coming from. Hoberman says that the measurement is very complex because it is not always clear whether people go into stores after seeing products online or if it is the other way round. “Online vouchers are one way of tracking this as well as online surveys,” he says.

The other reason to be online, he believes, is the next level of ecommerce – mobile phones. With the advent of the iPhone and applications to buy from mobiles, Hoberman says this
is “the holy grail” in new technology and could be a key route to sales in coming years.

Unsurprisingly, given his background, he sees no case for being a pure-play bricks-and-mortar retailer.

Whether or not everyone agrees with that, many retailers generate more sales online than from their biggest stores. With double-digit growth expected for the foreseeable future, the channel can be ignored less than ever. Now that Zara has changed tack, others are likely to follow.