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Wednesday , 17 September 2014
Interesting times for retail as e-commerce poised for rapid growth

Interesting times for retail as e-commerce poised for rapid growth

Retail is risky business these days. More and more consumers are going online to do their shopping, and in some categories retailers are losing market share to the e-tailers. The numbers of online shoppers will only increase, but retailers must learn to make the experience more comfortable and secure to make sure they don’t miss the boat. Shoppers across the demographic spectrum are quickly learning to embrace the new reality. It’s only a matter of time before many bricks and mortar stores will be obsolete, and will disappear. according to some analysts.

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The old-fashioned way. Research shows that consumers still prefer to go to the store for really expensive items, like diamonds and cars, as well as for routine items like groceries. But clothing, electronics, entertainment and other categories are blasting ahead, stealing market share from the bricks and mortar retailers.

To add insult to injury, many retailers have to contend with the phenomenon of “showrooming.” This is what it’s called when a consumer goes online and researches a product he or she wants to buy—a sofa, a television, a refrigerator—then goes down to the local store that sells the product to check it out. Then goes back home and orders it online because he can get it for much less that way. It’s a serious issue for retailers, but they will have to learn ways to deal with it, or perish.

Probably the most obvious solution is to become more competitive on price, since that, along with convenience, is what drives consumers. A typical consumer comment goes something like, “I paid 20–35 per cent less online than I would have paid in the store, I didn’t have to pay for shipping, and I got a credit for my next purchase. The selection was vastly superior. Why would I shop in a store?”

The ability to comparison shop is a big motivator for online shoppers as well, as is the avoidance of crowds and the availability of discounts and coupons.

Statistics Canada just released a study of e-commerce in Canada, showing that in this country retail e-commerce reached $15.3 billion in 2010, twice the level in 2005. The average Internet shopper spent $1,362, and the most common purchases were travel services, entertainment (tickets), books and magazines, and clothing (including jewellery and accessories).

These numbers are pretty much in line with what has been happening in the US so far. But researchers there have projected sharp increases in ecommerce in the coming years. As reported in a study of retail real estate by RREEF Real Estate, Nielsen Consumer and Shopping Insights predicts that ecommerce will grow at the annual rate of 8.5 per cent until 2016, outpacing all other retail. Forrester Research puts the growth rate even higher, at 10.1 per cent annually, and Citigroup Global Markets forescasts a 15.3 per cent gain this year and 14.3 per cent next year.

The only retail areas where (so far) ecommerce has not stolen their share are really expensive things and cheaper things, where customers like to see and smell and touch the product: automobiles and luxury items like diamonds at the high end, toothpaste and eggs at the low. For these categories, Internet penetration was just 2 per cent in the RREEF study.

But when you get into the core categories of hobbies, electronics, apparel and furniture, Internet penetration jumps fivefold to 10.5 per cent and higher. Clothing has grown most, increasing its share by 87 per cent in just five years. Grocery sales, on the other hand, actually fell 39 per cent between 2007 and 2011.

According to the RREEF study, nearly a tenth of shopping centres are already obsolete, and online sales are growing five times faster than total retail sales. The trend will only accelerate. This group sees online sales in the “core” categories—hobbies, electronics, apparel and furniture—reaching 25 per cent market share in just four years from now. “Inferior” shopping centres, the report concludes, should be “very, very concerned.”

One industry that has adapted particularly well to the ecommerce wave, and continues to do so, is real estate. Arguably, it has little to lose and much to gain. Real estate agents are still pretty secure, though there has been growth in the sell-it-yourself sector. But consumers have taken to online home hunting in a big way, with reports of 75 per cent and more saying that they did some searching online. Most of them still rely on a realtor to complete the transaction, according to the National Association of Realtors. The Internet is primarily a research tool, and a particularly effective one for real estate.

Things you can and probably should buy online

Pharmaceuticals, from reputable sites, with prescription

Electronics, including cell phones, digital cameras, office equipment: just make sure there’s a return policy

Software

Books and music

Event tickets: there’s really no other way

Travel: as above

Clothes, but check return policies

Toys and games

Cosmetics

Furniture

Housewares, cookware

About Nicole Ryan Editor

I am Nicole Ryan, a contributing editor at Condo.ca—Canada's Condominium Magazine.

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