Industry Voice: The UK is leading the way when it comes to the shift to shopping and consuming online. Leigh Himsworth takes a more detailed look at how this is reshaping the landscape and highlights some of the winners and losers.
I spend a significant amount of time attempting to understand the implications of change that we may see happening around us and trying to identify threats to some of the companies that we may be invested in. Equally, I look for opportunities to invest into the disruptors themselves.
A factor that we may all be aware of is the malaise that we see on many high streets up and down the country with stores and restaurants struggling to attract customers. This may be occurring for many reasons but key amongst them are the inflationary pressures in the system and the more fundamental structural shift online.
It is this structural change that I wished to address here as inflation is something that I have touched on before. The inflationary factor is a more recent phenomenon and may be the spark that has caused the ultimate collapse of chains such as House of Fraser, Toys r us, or Maplins but there has been a far more fundamental demon at work for much longer, that of the increasing desire for individuals to shop online.
Stores in the past were capable of coping with a relatively infrequent physical footfall, with the likes of M&S, Debenhams and Next managing to keep their offers looking fresh. The early online offer was one where shoppers sought information in store and then looked for better pricing online - footfall remained high.
The facts have now changed and so too has the information gathering and sharing - in the past M&S may have engaged with customers perhaps once per month whereas now it is common for customers to engage online multiple times a day and are entering such ‘stores' not just through the front door but via the web page, through an app, in response to an email or perhaps a tweet.
How many times are we told that shoppers want ‘an experience'? - the online groups can keep their customers engaged as every visit can be tailored to the customers' specific route and profile or they can react more rapidly to some event such as a fashion show or a festival - every front door is personal - whilst the high street still ponder revamping some of their estate for some time next year, at substantial cost.
Total UK retail footfall
Source: Springboard.
ASOS yearly website visits
Source: ASOS.
It is this ‘managing of the footfall' that is the key part of this conundrum - having had a recent trip to meet the ‘tech-team' of ASOS I fully realise the staff in such companies regard themselves as much as retailers, as fashionistas, tech people, fulfilment and so on. On the other hand, the high street are still recruiting people into a retail role, or finance or purchasing and so on. ‘Flexibility' is the overriding word and the need to respond to create these customers ‘experiences'.
A key part of the high street that has been used to dealing with more frequent footfall has been the supermarkets, which do see customers on at least a weekly basis and have responded well to differing threats in the past 20 years - from the quality offer of Waitrose, to the door step delivery of Ocado, the discounters and perhaps the threat of Amazon. At least the key four: Tesco, Sainsbury, Asda and Morrisons all remain totally relevant to customers with a strong offer and high market shares.
As the online players continue to build vast databases of customer patterns of behaviour, it may become too difficult for the more traditional groups to catch up or to redirect funds into cutting-edge IT developments, the gap may simply continue to widen.
Whilst we saw some nervousness last November on the back of sales statements from a number of companies, which led to a savage drop in the share price of ASOS, the phenomenon described above looks set to continue. Inflationary issues, the political malaise and more general global economic softening are likely to tempt many into the apparent value offered by many high street retailers, but I fear these may prove themselves to be more a ‘value-trap' than a genuine January sale.
Consequently, the only retail investments that the fund holds are in ASOS and Morrisons. I do also look for associated stories which largely include IT companies.
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