Cyber attack on city centres – How will online retail transform the high street? (2012)

Trade means change and has always been exposed to regular episodes of transformation. The shift in sales activity from the marketplace into the department store and the introduction of mail-order trade in the late 19th Century in Paris and Leipzig were as infl uential as the introduction of the fi rst self-service markets or the creation of pedestrian shopping zones in the mid-20th Century. With the proliferation of online commerce we are witnessing perhaps the greatest process of change in consumer behaviour, which as yet is not even fully apparent in its entirety. For when smartphones get established as an obligatory shopping aide, one will be able to consume at any time from any location. What consequences will this have for the inner-city A1 urban locations? The evidence is currently very complex.

On the one hand, nationally renowned chain stores are announcing the reduction of retail space and justify this by the loss of customers to the internet. The shoe retailer Gˆrtz from Hamburg is to shut about 30 of its 260 branches and will eliminate 100 of the 250 jobs at its head office in Hamburg. The book retailer chain Thalia is complaining of equally drastic declines in sales and is to give up on 15 of the approximately 300 stores it currently holds. Particularly the large-scale stores threaten to fold: The 2,000 m2 branch on the street Essener Kettwiger Straße is to be closed in mid-October, three months later the only slightly smaller branch at Dortmund Westenhellweg is to follow. Besides complete closures, range improvements and area reductions by sub-letting are also planned. The current closure of „Mayersche“ book store in the prime location of the Schildergasse in Cologne proves that the book trade in general is facing restructuring. Obviously, the smaller locations that demand lower rent are fully adequate for the necessary closer interconnection with online retail, which at present is responsible for 14 % of Thalia´s profits.

In addition to the sale of footwear, clothing and books/recordings, trade in travel and event services (air, train tickets, entry tickets) is increasingly taking place on the internet. Rapid growth in the future has even been forecasted for online business in non-prescription drugs and pharmaceutical products. Ultimately, sale on the internet cannot be ruled out in principle for any commercial product.

On the other hand, not all store concepts in the retail trade seem to be equally affected by the threat of the internet. On the contrary, even within the respective branches, there are not only losers but also winners among the retailers who embraced the internet early on as a challenging opportunity. They use the internet for targeted customer care and customer acquisition in addition to the continued expansion of their branch networks. Remaining with the book trade, this has the following consequences: While companies such as „Mayersche“ book store and Thalia meanwhile cannot abandon their strategy of large area shop floors fast enough, and are currently conspicuous only due to their store closures, at the same time regional, very agile medium-sized businesses – such as the book store chain mainly operating in Bavaria, Rupprecht – are constantly enlarging their branch network.

Various fashion retailers have also learnt that trade on the internet is not to be taken for granted. The return rates are currently at an average of 50 – 60 %, in some segments, such as lingerie and foundation garments, the level is even at 70 – 80 % according to store information. These masses of returned goods make Germany the return champion of Europe. Obviously, at present the focus is almost exclusively on the acquisition of market shares – whatever the cost. Zalando & Co. have yet to prove that in the long term they can also realise profits in addition to sales. The visionaries among retail strategists are still at odds. Of course, one hears that online trading will have a significant impact on over-the-counter retail trade. And the seminars offered under the heading „Cross-Channel-Commerce“ could fill entire textbooks with the success factors they prophesise for integrated online trading. Despite the internet hype, the actual shopping experience filled with trying on, touching, tasting or smelling is expected to survive for the foreseeable future ñ even if individual ranges will find their way to future customers disproportionately well through online trade as evidenced by the current growth rates in E-Commerce from 8 – 15 % (forecast for 2012). It is clear that nearly all the stores that are present in German pedestrianized shopping zones have built online portals to serve at least at a complementary distribution level, even if the connection between both distribution channels in most cases is still worthy of optimisation. If one can offer one‘s products online nationwide, one just needs a nationwide presence in order for the consumer to be able to view the originals or try them on and try them out. The shop with its original sales function accordingly evolves into an integrated trying on, ordering, picking up and returning station. This is an excellent opportunity for traditional retail locations.

A clear trend of „growth or turnout“ is emerging. Only those retail concepts that succeed in closely interconnecting the over-the-counter retail outlets with online sales will be sustainably viable in A1 locations. This requires not only shops in the four German cities with more than one million inhabitants of Berlin, Hamburg, Munich and more recently also in Cologne, but also in the remaining ca. 300 small, medium and large cities in Germany, which were previously the focus of their expansion in branch operations. This in addition to the convenient surface-covering stationary online business „Parallel Presence“ could also explain the recently apparent accumulation of large mergers in textile retailers. After at the last turn of the year the women¥s outerwear supplier Gerry Weber, owning 560 (partner) stores himself, took over around 200 branches of the insolvent fashion chain Wissmach, the large sizes provider Ulla Popken announced in early 2012 the store take-over of all Gina Laura locations (formerly Buddelei). Finally, the acquisition of the 900 Bonita stores mainly located in Germany by Tom Tailor created something to talk about within the industry.

Up to now, the demands on the retail properties in terms of their location and facilities have remained open. Is transportation accessibility by car, delivery vans and public transport again acquiring a different status? What impact will the internet have on the retail space required? Is ancillary space as additional storage space regaining importance? How can order frequency using smartphones in the shop be increased through intelligent structural store technology? Or will the current top players of online trading in the future take on the position of tenant in the coveted A1 locations of the cities? Zalando in any case opened its first outlet-store in Berlin a few months ago in order to display a steady presence only for registered customers (for now). During the last Christmas season, even the trading platform eBay opened a store in the middle of London for a limited period. The path away from store shopping to online shopping is therefore a two way street. The reverse direction „viewed online and purchased in the store“ is thus also shaping future stationary trade and therefore leads many consumers into the inner-city shopping areas.

In summary, it should be appreciated that online retail will continue to increase in importance and ultimately extend to all sectors. If it is possible to operate nation-wide chain stores, to interconnect E-commerce with stationary retail, this trend will not be a threat to the growing urban locations. Rather, the opposite is then looming: If one can already advertise to an almost limitless level through online retail portals, then a high density of branch network is the best way to reduce the current high return rates and the distribution costs associated with it. A nation-wide surfacecovering presence of many suppliers can then bring about promising so-called Multi-Channel-Synergies.