Who owns all the oranges? by Oran Burke

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Who owns all the oranges?

Photograph © kanshiketsu 2008

The closure of Woolworths

January 3, 2013

The internet and high street retailers

Last year’s announcement from Argos that they are to phase out their much-loved catalogue and restructure the business to focus on multi-channel and high-end sales will come as no surprise to those who have been monitoring the decline of the UK’s bricks-and-mortar shops. The last five years have hit high street retailers hard with the worst hit areas in the northwest of England having retail vacancy rates of over twenty per cent.

However, having a strategy that encompasses mobile phones, the internet and social media doesn’t necessarily guarantee a recovery. The focus is shifting with some of the largest retailers gravitating towards having a physical presence mainly for collection and customer service. John Lewis’ newest shop in Exeter, described by the company as, “the first of its new full line flexible format department stores”, will concentrate on offering an assortment of goods with interactive terminals to guide shoppers through the entire catalogue of goods. Ten more of these stores are in the planning stages.

Another method used by John Lewis and other retailers has been the pop-up shop, allowing retailers to utilise empty high street space to showcase products temporarily. eBay famously opened one in the run-up to Christmas 2011 to allow shoppers to browse around 350 of the site’s bestselling items. There were no cash tills in the store with customers instead scanning items with their smartphone which took them to the eBay payment screen, after which the goods were dispatched to their homes in the normal fashion.

The model for what can arguably be called traditional online sales and distribution is already in place and working, as Amazon has shown. The company’s recent developments are likely to make it harder for retailers like Argos to break into the market the behemoth has created over the last few years.

Amazon now allows its customers to pick up smaller purchases in places such as corner shops and is rolling out self-service collection lockers that will be placed in shopping centres and convenience stores. This mix where the majority of a retailer’s presence is online with just enough of a visible offline existence to give the perception of bricks-and-mortar looks set to become popular for those retailers that can afford the investment.

The effect this approach will have on the high street is unclear. The 2011 Portas Review on the future of the high street painted a bleak view of town centre shopping and the effect it has on the social and economic well-being of a community. Spending in town centres declined more than seven percent from 2000 to 2011 and it is telling that the average vacancy rate for all UK shop space was 14.6 per cent in September 2012 but only 8.1 for retail parks according to analysis by the Local Data Company, a retail research company. This suggests that retailers are heading to one-stop shopping centres away from the high street.

There are signs that this may change though with a recent survey by commercial property agency CBRE suggesting that retailers expected to need more shops as their online sales increased. Two thirds of retailers said they intended to use their physical stores to fulfil online orders, offering more convenience to their customers. This suggests that smaller high street shops with a better quality facade may be needed to showcase, as eBay did with their pop-up shop, the goods they are trying to sell online.

This still creates a problem for independent retailers who may not have the resources or expertise to implement a strategy that will help them survive, but looking to Japan may provide an answer. Rakuten, the world’s third largest e-commerce company after Amazon and China’s Taobao, has built its business on small shops. It showcases more than 40,000 Japanese merchants selling anything from chocolate to cameras and has eighty million users. Consumers can buy online from a virtual storefront and their order will be fulfilled by the independent shopkeeper they buy from.

The focus of its operation though is not the end customer but the seller. It employs 500 consultants who help with marketing and dispense advice to inexperienced merchants as they customise their online storefront on Rakuten Ichiba (ichiba means market in Japanese). The company’s model has proved successful, resulting in it being placed seventh in the Forbes list of the world’s most innovative companies in 2011. This success has led to expansion, and they have acquired similarly placed e-commerce companies in a number of countries, including play.com in the UK.

There are of course no guarantees that Rakuten’s model can work outside of Japan but their CEO and co-founder Hiroshi Mikitani has big plans. He wants to be bigger than Amazon, probably its main global rival in the provision of an online platform to independent retailers. The difference in attitude to merchants, along with perhaps agreeing to pay tax in the UK, could help not only Rakuten but also the small high street shops that have struggled so much during the recession. After years of decline, an online marketplace with more focus on local businesses might be just what’s needed to reverse the decline in the retail industry.

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© Oran Burke 2014. All rights reserved.

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