Retailers facing an online challenge
AS WE enter the month of December, many shoppers will be looking forward to the festive season and considering what to buy friends and family for Christmas.
Indeed, the Fenwick Christmas window has been revealed for another year and, with its usual style, it portrays the season of goodwill with the sparkle and good wishes shoppers have grown accustomed to. There has even been a flurry of snow!
Christmas is always an important season for retailers but competition has been increasing for a number of high-street names.
Over the years, shoppers have slowly become more aware and comfortable with ordering from online retailers such as Amazon and Play and, for music, Apple’s iTunes store.
A further attraction is that internet retailers are very competitive on service and often advertise the same product as can be seen on the high street, but at a cheaper price.
The shopping experience itself is also quite appealing. Instead of battling through packed stores, customers can place an order from the comfort of their own home and simply wait for the Royal Mail to deliver their new purchase to the front door.
In order to keep pace with the competition a number of high-street retailers including HMV, Dixons and Game now operate impressive internet shopping portals.
In the case of HMV, the owner of Waterstones, shoppers can purchase CDs and books direct from the company’s internet site.
However, this has been taken a step further as customers can also download music and purchase electronic books (e-books). E-books, in particular, may be a fantastic growth opportunity for retailers.
The success of the iPad and Amazon’s Kindle has opened up the market for digital media such as online newspapers but also a range of popular e-books. Apple, through iTunes, and Amazon were among the first to enter the market, but HMV is not far behind.
Creating a successful online footprint is not the only challenge for the retail sector. The price of a number of commodities has risen over the course of the year.
This includes the price of cotton, which is used in the manufacture of many clothes.
This may have an impact on retailers such as Marks & Spencer, Next and discount clothing chain Primark.
Early indications are that the rise may be passed on to customers in the form of higher prices. However, due to the competitive nature of retailing, a full price increase may lower the volume of clothes sold.
Striking the correct balance will be difficult. That said, commodity prices, such as cotton, can be volatile and any fall would ease this problem.
There are also other headwinds which must be navigated carefully by the retail sector as a whole. Next year there will be a VAT increase from 17.5% to 20%.
This will provide additional revenue for the Government but it will also increase the price of many products and services. Retailers will have to manage this change carefully to stay competitive in the challenging market conditions.
:: Anthony Peart, Brewin Dolphin, Newcastle. Anthony.Peart@Brewin.co.uk