Trials and tribulations of real and virtual retail worlds


To form a rough idea of the impact of the internet on electrical goods retailers, picture your local high street or retail park. Now compare it with ten years ago.

A decade ago, Dixons and Comet between them had nearly 1,400 UK stores. Today, Comet has joined Rumbelows in the ranks of defunct store chains, while Dixons has reshaped its portfolio to focus on fewer, larger megastores that combine its Currys and PC World brands. It has 550 stores remaining.

It seemed fitting that little more than a year after Comet’s collapse,, a relatively recent online arrival in Comet’s white-goods heartland, floated in London with a valuation at £1.2 billion.

Electrical retailers feel the pressure from online most keenly because their goods are overwhelmingly branded and therefore easy to price-check, and their prices high enough to justify serious research.

Research by OC&C, the consultancy, has shown that the greater the proportion of sales conducted online in a category, the lower the profitability of the retailers.

Yet, there are signs that the bricks-and-mortar survivors are at last turning the tide against pure-play internet-only rivals.

Kevin Sterneckert, chief marketing officer at eCommera, a cloud software company for online retailers, says: “Stores used to think of their bricks-and-mortar stores as a liability. Now they’re beginning to think of them as assets.”

He points out that customers checking the price of a tablet computer in a store on a smartphone, for example, may discover a lower price elsewhere, but the price gap will have to be larger to induce them to buy from the competitor than if they were sitting at home. The arrival of mobile internet means that stores are now an integral part of online shopping.

This is the flipside of the so-called “showrooming” phenomenon that retailers have come to fear – the behaviour where savvy customers avail themselves of the advice and demonstrations of a specialist store and order the product from Amazon or another low-price competitor.

“People used to say the number-one reason consumers showroom is price. I believe the number-one reason is availability,” says Mr Sterneckert.

Once customers have made the decision to buy what they came for, the retailer has a better chance of selling higher-margin accessories – a case for the tablet computer or the anti-virus software for a laptop – than they do online. What used to be showrooming could now be more accurately described as “honeytrapping”.

This is why the likes of Dixons have been moving towards price parity between online and in-store, in stark contrast with their strategy eight years ago, when the company took the Dixons name off the high street to use as an online and airport brand.

Sebastian James, the chief executive of Dixons, says the company is close to introducing a scanning-based smartphone app that allows customers to check rival’s prices in stores. It is also looking at electronic shelf-edge price displays that can be changed instantaneously from head office.

“As shopkeepers, we need to be reactive, nimble and accurate with our pricing,” he says. “Shelf-edge electronic labelling is part of a trial we have been using to achieve this. It probably is the future, but it remains a bit glitchy at the moment.”

The resurgence of the electrical store appears to be popular with brands that can rely on trained salesmen to show off products which are difficult to demonstrate online. But a new-found reliance on stores demands investment.

Mr Sterneckert of eCommera says US stores are far more likely to see owning bricks-and-mortar shops as a disadvantage than their UK and European counterparts. “In North America, most physical retail stores are uninspiring. They don’t provide much of an experience for the consumer. In the digital age, if you have an uninspiring environment, then all you’re doing is selling what everyone else is selling. You’re reducing the reasons why anyone would cross your threshold,” he says.


Grocery chains have been looking seriously at the opportunities and challenges posed by the internet for 15 years or so. But the supermarket industry is still struggling to make money online.

“The history of grocery is littered with the corpses of failed pure-play businesses,” says Bryan Robertson, retail insights director for Kantar Retail.

Likewise, the online operations of the traditional grocers are widely held to be unprofitable or, at least, low margin because the delivery charge does not cover the cost of picking and delivering the goods.

The plight of online grocers stands for a general difficulty for online retailers.

The absence of profits has long been excused for online retailers by the imperative to increase market share. But in the past two years, investors have proven increasingly unwilling to settle for jam tomorrow. As a result, online-only ventures, such as Pixmania, Empire Direct and Mywardrobe, have found it harder to stay afloat or to finance growth.

However, a consensus finally seems to be coalescing about the way ahead, in grocery retailing at least. “The way forward is for retailers to do it through a combination of dark stores and click-and-collect,” says Mr Roberts. “Store-picked home delivery is inherently very costly.”

Dark stores are distribution centres, laid out like stores, which are solely used for the distribution of online orders. In the early part of the last decade, some big retailers adopted this centralised approach, but quickly abandoned the model because at that point they had insufficient scale to keep them fully occupied. In recent years, with the growth of e-commerce, it has become viable again.

Tesco has a series of dark stores encircling London, while Asda built its first dark stores in a densely populated part of its Yorkshire powerbase. Mr Robertson reckons that dark stores increase the efficiency of online deliveries by more than 30 per cent.

Asda has already opened click-and-collect facilities in locations separate from stores and Sainsbury’s recently announced it was moving in the same direction by opening collection points at some London Underground stations. Tesco is also rolling out standalone click-and-collect sites in the car parks of its larger hypermarkets.

In France, lower population densities made home delivery prohibitively expensive. The market is dominated by click-and-collect “drive-through” stores, with Auchan and E.Leclerc leading the way.

There is also a new generation of internet-only pure-plays that have learnt from the mistakes of the likes of Webvan, which collapsed after the dot-com bubble burst.

In the UK, Ocado has distribution agreements in place with Morrisons, the UK’s fourth-largest grocer and the last of the big four to move online, and with Waitrose, which is also developing its own web service.

In New York, there is FreshDirect and in the north-eastern States, Ahold’s Peapod has achieved significant scale. In Seattle and California, Amazon is testing AmazonFresh, its first grocery offering. Walmart, meanwhile, is taking the lessons of its Asda subsidiary and applying them to its US business.

Yet the pure-plays, such as Ocado, still divide opinion. “It depends on how you see Ocado. Is it a retailer or a technology and best-practice provider for retailers?” asks Mr Roberts. In other words, it needs the buying power and scale offered by a bricks-and-mortar partner to succeed.

Amazon’s experiment will also draw nervous glances from rivals. Sharpening the threat posed by Amazon is their willingness to accept low profit margins in exchange for market share. “Their strategy is all about land grab and disruption, and they could certainly achieve that,” says Mr Roberts.

Spending on groceries bought online is expected to double over the next five years, but it still remains a relatively small proportion of the overall total. Online grocery sales are expected to hit £8.4 billion this year in the UK, up 11 per cent. That figure is still less than 5 per cent of total grocery spending in Britain.