Analysis - UK retail faces virtual future or real demise
LONDON (Reuters) - Tradition has counted for nothing as new trends put paid to some of Britain's best-known retailers, while some of the oldest names, like venerable department store chain John Lewis, are showing how to catch the changing tide.
With footfall on the high street in decline and new sales channels chipping away at bricks-and-mortar retail, most stores on the main shopping strips are having to evolve fast or face extinction.
"What we are seeing is a seismic shift in shopping habits," said Tim Steiner, chief executive of online grocer Ocado (OCDO.L).
Britain leads the way in internet shopping, with online sales making 10 percent of all retail business in 2012, ahead of the United States, where about 7 percent is online, and the rest of Europe, and it's a rapidly rising share. This year it is expected to rise another 12 percent to 87 billion pounds.
John Lewis JLP.UL, a fixture on London's Oxford Street since 1864, is ahead of that trend and others. Online sales now account for one pound in every four spent at the group. Its Christmas online sales jumped 44 percent on the previous year, helped by a click-and-collect service that allows shoppers to also pick up orders from the outlets of sister company Waitrose, an upmarket grocery chain.
When would-be customers browse johnlewis.com on a cell phone, they find a website designed for mobiles that fits handily sized menus to the small screen without the need for resizing or swiping to see what's on the page or hunt for command buttons that are out of sight.
Once reserved for calls and texts, shoppers are increasingly using mobiles to visit websites. At department store Debenhams (DEB.L), 36 percent of traffic to its website in the Christmas trading period came through mobile devices, though conversion to sales was less than for traffic via personal computers. Sales via mobiles at Home Retail's (HOME.L) Argos business more than doubled in 2012.
"The trend is undoubtedly towards using mobile devices, and the challenge for retailers is to make them easier to use to get that conversion up," Debenhams CEO Michael Sharp said, adding the key to getting consumers to spend rather than browse is to improve the look and feel of sites on handheld screens.
WINDOWS ONTO THE VIRTUAL
A Deloitte poll showed only 15 percent of e-commerce firms have websites designed to be viewed on smartphones, but after five years of consumer confidence weakened by muted pay rises, intermittent recession and government spending cuts, they can ill afford to ignore technologies that are fast turning physical stores into windows onto the virtual world.
Shoppers are increasingly "showrooming" - using their mobile devices in stores to see if the product in front of them is cheaper online or elsewhere. Some retailers are tapping into that practice; Marks & Spencer's (MKS.L) new concept store at Ellesmere Port, north west England, features 70-inch display screens, browse-and-order hubs and iPad-carrying shop assistants to help customers reach a decision to buy.
Some, including Marks & Spencer's "Virtual Makeover" site, are using visualisation technology, which can let shoppers see, for example, how make-up or a pair of jeans would look on them or how a kitchen or sofa would look in their own homes. Others are experimenting with "augmented reality", overlaying computer-generated images onto real-world situations. Luxury brand Burberry (BRBY.L) opened its Beijing store with holographic models strutting down the catwalk alongside the flesh-and-blood regulars.
In addition to spotting new opportunities to catch sales, retailers also need to recognise how to tailor their traditional channels to cut costs such as rent and wages.
As trade moves online, many retailers, including electricals firm Dixons Retail (DXNS.L), mother and baby products group Mothercare (MTC.L), and Philip Green's Arcadia fashion group, have all said they will be more profitable with fewer stores.
Britain's grocers, including market leader Tesco (TSCO.L), No. 3 Sainsbury (SBRY.L) and No. 4 Morrisons (MRW.L), have also slowed expansion plans after two decades of rapid space growth.
"If you are not careful, you build huge temples to retail which become less sustainable as large proportions of your trade go online," said Waitrose managing director Mark Price.
OUT OF TOWN
Run-down warehouses on the edge of cities across Britain are being snapped up by big firms seeking sites closer to customers who will increasingly demand delivery to stores and homes within hours rather than days. Investment is also needed to deal with the inevitable consequence of more returned goods.
Amazon (AMZN.O) is hunting for 20 sheds close to British cities, while Tesco and closest rival Asda (WMT.N) are opening so-called "dark stores" - distribution centres that look like supermarkets on the inside but are closed to customers.
"Your industrial estate (near heavily populated areas) is the high street of the future," said Jonathan Holland, senior manager of Legal & General Property's industrial fund.
Failure to adapt will prove fatal for some.
The collapse into administration of electricals group Comet, camera specialist Jessops, entertainment retailer HMV HMV.F and DVD rental firm Blockbuster all reflect failure to react quickly to shoppers' changing habits and the threat posed by online stores like Amazon, download sites like Apple's (AAPL.O) iTunes or supermarkets that undercut them on cost.
According to the Local Data Company (LDC), the stores run by these failed businesses, if left vacant, could raise Britain's national shop vacancy rate by nearly 5 percentage points to an all-time high of over 19 percent.
Slow movers are also paying a price.
Morrisons is underperforming rivals and posted a weak Christmas update, partly attributed to its lack of an online food offer. Analysts expect it to launch a trial this year.
Marks & Spencer, Britain's No. 1 clothing retailer, has also been criticised by some analysts for lagging rivals in adapting to the internet age. While it is now investing heavily, its new web platform is not scheduled to launch until 2014.
By contrast, the second-largest clothing retailer, Next (NXT.L), recorded sales growth of 11 percent in its Directory online business, partly fuelled by a standard service that delivers the next day any orders made by 9 p.m. British Time.
The world's two biggest clothing retailers, Spain's Inditex (ITX.MC) and Sweden's Hennes & Mauritz (HMb.ST), have been slow out of the blocks in their push online.
Though No. 1 Inditex has over 6,000 stores in 86 markets, it only ventured online in 2010, while No. 2 H&M launched its mobile-adapted site in eight online markets in January, and will only launch online in the United States this year.
(This story amends a typo on "world" in the 11th paragraph)
(Reporting by James Davey and Neil Maidment; additional reporting by Helen Massy-Beresford and Tom Bill; Editing by Will Waterman)
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