Revolution in store as online retail sales soar

Store groups have to adapt or die as online retail sales soar, and time is running out.

Bricks-and-mortar retailers need to emphasise their advantages over cheaper Internet-based rivals, such as faster delivery and better customer service, and turn their shops into more attractive places to visit, analysts say.

They also need to expand their own Internet offerings into popular areas such as social networking.

Online retail sales in Britain leapt 38 percent to over 26.5 billion pounds in the first half of this year, driven by growing broadband penetration and the convenience of shopping at home, according to research by consultancy Capgemini and global e-retail industry body IMRG published on Friday.

That's equivalent to 17 pence in every pound spent, and Capgemini believes the Internet will account for between 30 percent and 50 percent of all retail sales in just five years, meaning store groups have to move fast.

"Somewhere along this journey retailers will reach a tipping point where the growth of the Internet seriously challenges the future viability of their business model," said Mike Petevinos, head of consulting for retail at Capgemini UK.

For some, this could mean store closures and job losses, but analysts believe there is a future for store groups, if they put the Internet at the heart of their strategy.

So far, many retailers have viewed their website as just one of a number of ways of selling goods.

But Greg Hodge, an analyst at researchers Planet Retail, believes they need to take a broader view and use the Internet as a way to extend their appeal to consumers, and adapt their stores to outflank cut-price online competition.

Many, particularly those already feeling the force of competition from Internet retailers like Amazon.com, are already doing so.

PIONEERS

Household goods retailer Home Retail, for example, is seeing strong demand for its "check and reserve" service, which allows shoppers to buy goods online and pick them up in store, without the delay of delivery from an Internet retailer.

Others are making more far-reaching changes.

Music and DVDs group HMV, for instance, has boosted its presence in computer games, which are still predominantly store-based purchases, and introduced "new generation" stores that include "refreshment hubs" and places for shoppers to burn their own CDs and pay to play on the latest games consoles.

"You have to make people want to return to your stores and spend time there," said Hodge. "And if they're spending time there, they're likely to be spending money."

Some retailers are expanding their presence online to attract custom.

Baby goods retailer Mothercare, for example, runs the gurgle.com social networking site, while HMV has recently launched the getcloser.com as a forum to discuss music and film.

All of this requires investment, which is difficult when trading conditions are tough. But the rewards can be high.

Nick Greenspan, a partner specialising in retail at consultants Bain & Company, has calculated that twice as many UK retailers lose or gain market share in a slowdown than a stable growth period and of these, 75 percent of winners and losers in that period retain their position even four years later.

The signs are that many retailers are responding.

Electrical goods group DSG, for example, has put revamping its stores, improving customer service and expanding its online presence at the heart of its turnaround plan.

Capgemini's Petevinos believes that, after music, books and electrical goods, clothes retailers could be the next to reach the "tipping point" of reassessing their strategy in light of the Internet.

Clothes sales, under pressure at store groups, were up 32 percent online in the first half of the year, with lingerie up 37 percent and footwear up 38 percent.

Companies like ASOS, whose sales leapt 95 percent in the 13 weeks to June 27, are throwing down the gauntlet to store groups such as Marks and Spencer and pioneering what could be the shopping experiences of the future - 360-degree viewing of shoes and virtual catwalks for clothes.