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Will online shopping make the retail giants extinct?

Dan Wootton Dan Wootton

With the recent closures of Toys “R” Us (United States), Maplin (United Kingdom) and Topshop Australia, we investigate whether the internet is annihilating physical stores and offer practical advice to dynamic retail businesses on how to avoid going under.

Retail spaces are very different from the places they were 10 years ago, with shops increasingly being used as showrooms for products that customers will check out and then buy online, after some online price shopping. This is true across global markets where retailers are finding that, while the basics of retail remain the same, their consumers’ behaviour is changing. We asked our colleagues in Canada, the United States, Australia and the United Kingdom to give their insights into what businesses can do to meet the changing needs of a more sophisticated and increasingly digital customer, and how retailers can plan for the future in a disrupted market.

The changing role of the retail store

The role of retail stores has shifted. Along with acting as showrooms, they’re now pick-up points for parcels, cafés and sometimes meeting points. The smartest businesses are realizing this and evolving to stay ahead of the game. Many that haven’t yet figured this out have gone out of business. Research from location data advertising firm inMarket shows that shoppers in the United States are making more short trips to Whole Foods stores that have installed lockers, which allow shoppers to collect their Amazon parcels. Walmart recently decided to follow suit.

The answer, then, might suggest boarding up your windows and opening some virtual ones. However, this isn’t always the best or most economical solution, says Grant Thornton LLP Canada Advisory Partner, Daniel Wootton. “An online presence requires a large investment,” he says. “Some people assume that online sales might have lower overheads than in-store sales, but that is not always the case. In fact, online sales may require expanded customer service and separate distribution models. Some retailers—such as boutiques—need to maintain the personalized service they might be associated with offline.”

There is still a place for the bricks-and-mortar store, says Simon Trivett, partner and national head of consumer products and retail at Grant Thornton Australia. “Best estimates are that online still accounts for only about seven to eight percent of total retail in Australia (compared with 16.9 percent in the United Kingdom and 10 percent in the United States).“In Australia, distances between our major centres are huge. To fly from Melbourne to Perth takes four hours. Online retailers can’t easily set up one or two centralized distribution centres. Or, they get the geography right, but they struggle to get the products out. So Australian retailers have a significant role to play. “The basic retail 101 hasn’t changed,” Simon adds. “Retailers can still offer a compelling retail experience with good in-store service and by creating communities.”

Find out how brick-and-mortar stores are competing with online retailers [ 1103 kb ]

Keeping up with the changing consumer

“Retailers have seen consumers going through fundamental changes in spending and shopping behaviour—how consumers make their spending choices, what they choose to purchase, what method they use to make their purchase and the whole process consumers go through to make a buying decision,” says Grant Thornton UK restructuring partner Senthil Alagar.

“In the UK market,” adds Senthil, “the share of consumer spending on leisure and experiential activities is growing, whilst retail spending on non-food items and owning things is not.

“For many items, the spending decisions have fundamentally changed. There is plenty of choice for the consumer and they go to the store to experience the brand, the product, the size, but then many may actually make the purchase elsewhere.” 

The important thing, says Daniel, is knowing the customer—and this applies across all service sectors. Predicting consumer behaviour has become more important and the likes of Amazon know this, altering their stock according to what they think customers are likely to buy next.

Find out how Best Buy is keeping up with the changing consumer [ 1103 kb ]