We are doing more and more of our shopping online. What does this mean for the long-term future of the high street?
The Reality of Shopping Online
What would you like first? The good news or the bad news?
Let us start with the good – and the news that the British shopper leads the world! Yes, when it comes to shopping online the UK spends more per household than any country in the world, according to a report from the UK Cards Association.
In 2015, the report says, UK households spent the equivalent of $5,900 (£4,600) using their payment cards online. Countries comfortably beaten included Norway ($5,400), the USA ($4,500) and the shoppers ‘down under,’ who could only manage a miserable $4,000 online. And there is no sign of the trend going away, with UK shoppers reportedly spending a total of £154bn online in 2016: up by 25% over the past two years.
Why was the UK so far ahead? Experts have suggested that ease of delivery was one of the driving factors: there are no extreme distances, which cannot be said for Norway, the US or Australia.
What do we spend our money on?
…Going to the cinema, ordering takeaways and downloading music apparently. What could loosely be classed as ‘entertainment’ accounted for one in four of our online card purchases, with 67% of concert tickets and 61% of cinema and theatre tickets being bought online.
We also spent our money on financial services – such as renewing insurance contracts online – and the retail sector continued to benefit, although as we will see below, that is not necessarily good news.
Our changing shopping habits
Consumers used to be wary of shopping online: they were worried about giving their credit card details in case of online crime. But as Richard Koch, head of policy at the UK Cards Association, pointed out, security is improving rapidly:
“There has been a host of innovations, from digital wallets to one-click purchases, which bring enhanced security and choice.”
There is also the protection inherent when you use a card online, which means shoppers are ever more willing to buy on their mobiles, tablets or laptops.
Importantly, they are also increasingly ready to return goods they bought online, with a survey for the BBC’s You and Yours programme finding that 63% of shoppers who had bought women’s clothing online had returned at least one item.
I saw this at first hand when my son finished university and went travelling in South America. A large box arrived for him, containing three pairs of identical walking shoes in different sizes. He tried them on, chose the pair he wanted, boxed up those he had rejected – and asked me if I would drop the box at a collection point.
What does this mean for the British High Street?
The anecdotal story of my son is instructive: no trip to town, no looking for a parking space, no waiting to be served in a shoe shop and – crucially – no exposure to the other shops in the town centre. He spent £150 online and subsequently had £100 refunded to his card after returning two pairs of shoes: his net spend of £50 was lost to the traditional high street and I doubt that he will ever buy shoes in the ‘normal’ way again.
We wrote recently about the taxation system being a ‘20th Century tax system struggling to cope with a 21st Century economy.’ You could argue that the high street is essentially the same: a 19th and 20th Century distribution system struggling to cope with 21st Century shopping habits.
Retail sales fall
The struggles of the high street will only be compounded if retail sales start to flag – as has now happened. Retail sales fell sharply in March as price increases – largely due to the fall in the value of the pound since Brexit – started to hit the British consumer. In-store prices grew by 3.3% in the month, the fastest rate of growth since March 2012 according to the Office for National Statistics. As Richard Lin, chief executive at Retail Economics said,
“this latest data shows that the surge in inflation is putting retailers under intense pressure, with the first quarterly decline in retail sales since 2013. Families are facing the fastest rise in living costs for over three years and they are rapidly reigning in their spending.”
Or as Jeremey Cook, chief economist at World First put it rather more succinctly,
“We used to think that when the going got tough the Brits went shopping. But this retail environment is too tough for the consumer.”
Perhaps he should have said, ‘too tough for the high street consumer:’ because accordingly to figures from IMRG Capgemini online retail sales maintained double-digit growth in the year to February, growing by 15% year-on-year for the second year in a row. The average value of the ‘online basket’ was £20 with sales growth on smartphones up by 57% in the year to February.
UK companies react
Quite clearly bricks are losing the battle with clicks. We are not buying from the high street; we are buying online, with our orders fulfilled from out of town warehouses. The increases in business rates, which – unless Chancellor Philip Hammond takes drastic action – will further favour the internet/warehouse model, exacerbating the problem still further.
It is difficult to see this trend doing anything other than continuing. Shopping online is easy, it is convenient and it is very simple to compare prices. Delivery and distribution in the UK is not a difficult proposition and as consumers increasingly use drop-off and collection points the old delivery problem of ‘we called but you were out’ is eliminated.
It is hard to see what the high street – needing to maintain buildings, employ staff and pay business rates – can do to fight back. What this means for the character or appearance of our town centres is unclear. We can all think of a corner shop that has been turned back into a house: twenty years from now will we walk past yet another apartment development and say, “I must be getting old. I remember when this was all shops…”