Some people are suggesting that Internet shopping - or e-tailing - will herald the beginning of the end for the high street. Within a few short years, the pundits would have us believe, people will no longer venture to the shops, but order their goods online from the comfort of their own homes.
Much of this is hype. Internet shopping will not spell doom and gloom for the high street. There will, most likely, be some adjustment, but shopping as we know it is set to survive and thrive.
It is true that shopping on the Net is capturing an ever-increasing share of the market, but it remains very much a minority share. Accurate estimates are difficult to come by, but figures suggest that in 1999 only 0.3 per cent of UK retail sales were captured by online retailing. In the US, which is considerably more advanced in terms of Internet usage, the figure was 1.4 per cent.
Christmas last year was a big test of the concept of retailing on the Net. Numerous online retailers set up their websites in advance of the expected surge in demand. In the UK, it is estimated that £200 million sterling was spent online over the holiday period. In the US, the figure was $10 billion, a 300 per cent increase on the previous Christmas.
However, the Christmas period also highlighted some problems with e-tailing. Many of the retail websites could not cope with the volume of hits that they received. In many cases - particularly with pure Net retailers - while vast sums of money were spent on advertising and marketing, not enough was channelled into technology. As a result, sites collapsed, leaving frustrated would-be online shoppers unable to make the purchases that they were trying to effect. Estimates put the failure rate at between 10 and 25 per cent.
Another problem which was highlighted was that of delivery delays. Both DHL and Andersen Consulting estimate that around 20 per cent of deliveries of goods bought online were delayed. Many of those that did arrive did not have proper information on the sender, ranging from an incomplete return address to a lack of a telephone number. This made it difficult for customers to return unsatisfactory items.
Both of these problems highlight an advantage which traditional retailers with websites in addition to high street presence - or "clicks and mortar" retailers - have over pure Net retailers. These retailers can (and in some cases already do) offer the flexibility of being able to order the goods online and having the alternatives of getting them delivered or collecting them at one of the high street stores. Alternatively, if the goods need to be returned, they can be brought to the store and exchanged there, saving the customer the trouble and expense of returning the goods by post.
Although three-quarters of Internet users are thought to research products over the Net, a recent survey suggests that only 9 per cent of Irish users had bought online in the previous three months. A similar figure was found for western Europe as a whole, at 5 per cent. Possibly the single most important factor influencing that was concern over security. Many people are still reluctant to give out their credit card details over the Net.
Indeed, there have been a number of high profile hacking incidents, which would appear to justify some concern. In one case, a hacker penetrated the website of CDUniverse, a US-based online music retailer, and downloaded credit card details from it. This prompted American Express and Discover to withdraw a significant number of their credit cards.
Another major issue with Internet retailing is legislation. There are two lobbies currently debating this point. One suggests that consumers need to have some form of redress with Internet retailers, while the other counters that the main reason that the Net has flourished is the lack of regulation and that this should be maintained. The European Commission recently decided to insist that, if an Internet retailer wishes to sell goods in the EU, it must comply with the laws of the country in which it is based. However, this poses its own problems, as in some cases it is difficult to tell exactly where these Net retailers are domiciled.
A related issue is that of taxation. Currently, retailing on the Net is exempt from sales tax in the US, as the transactions cross state borders. A similar situation prevails in the EU. This is being hotly debated at the moment on both sides of the Atlantic. It is quite possible that the tax moratorium on Internet sales in the US will be extended beyond next year, while the outcome in Europe is more difficult to predict.
However, the effect of taxation on Internet sales would almost certainly curtail the expected growth in this sector over the coming years. This tax-free status gives remote Net retailers a competitive advantage over their local high-street counterparts, as goods can be offered at lower prices. If this competitive advantage is removed, then the relative attractiveness of online shopping would be reduced.
Shopping is also becoming more widely thought of as a leisure activity, and this is being reflected in the increasing tendency towards providing associated leisure facilities in shopping destinations. Modern shopping centres often incorporate restaurants, cinemas and other leisure facilities. This is another way in which the high street has an advantage over the Net.
Although some retailers are coming under more competition from Internet retailers, who can offer the same goods, often at lower prices, with the added convenience of being able to order them from home, not all goods are suitable for Internet sales. The most popular categories of goods and services purchased online are CDs, books, IT hardware and software and travel.
Goods such as clothing are less suitable for sale over the Net as they need to be sampled by consumers. For example, whereas items like CDs and books are homogeneous, consumers still like to try on clothes before buying them. Hence, some types of retailers would be less at risk from Internet retailing than others.
Based on the current tenancy information, we have undertaken an analysis of the risk profile of retailers in some prime locations in Dublin. High-risk categories include books, electrical goods, music and banks (branch banking is likely to become less popular as Internet and telephone banking increase in prevalence). Medium-risk categories include jewellery, gifts, stationery and department stores. Low-risk categories include clothing and footwear, pharmacists, confectioners, cosmetics retailers, restaurants and cafes.
Based on these categorisations, almost two thirds of retailers on both Grafton Street and Henry Street fall into the low-risk category. Just over one fifth of retailers on Grafton Street and just over one in six on Henry Street are classed as high-risk. The story is similar in some of the prime shopping centres in Dublin. In Liffey Valley, over 70 per cent of retailers are in the low-risk category and less than one in seven are in the high-risk category, while the figures are similar for Blanchardstown Shopping Centre and The Square in Tallaght.
This is encouraging, as it indicates that these retailing locations will continue to trade well, even as Internet shopping becomes more popular. There may be some adjustment in tenant mix, with some (but certainly not all) high-risk retailers being replaced by low-risk retailers. Even still, retailers in high-risk categories are unlikely to completely desert the high street. There will always be demand for these goods in physical stores, not least because not everybody will have access to the Internet and not everybody who does will be in a position to make online purchases (a recent survey suggested that 70 per cent of Irish Internet users do not have a credit card).
Hence, although Internet shopping is likely to increase in its popularity, a significant proportion of traditional retailers will find their markets remaining buoyant. Estimates in the UK suggest that by 2004, the proportion of retail sales captured by e-tailing will still be low at only 3 per cent.
Some retailers will experience a reduction in demand, but these retailers are unlikely to entirely surrender their high street positions. Furthermore, retailers who maintain a high street presence while also providing an Internet service will have the benefit of capturing both segments of the market and have the potential to profit greatly from the current e-revolution. One thing is clear, however, and that is that rumours of the demise of the high street have been greatly exaggerated.
Brian Turner is head of research at Hamilton Osborne King
