UK’s high-street chains learn the digital ways

London: In 2000, a young marketing executive changed the face of British fashion retailing, founding Asos to sell cheap imitations of celebrities’ outfits.

Last week Nick Robertson, the great-grandson of retailer Austin Reed, resigned as chief executive of the business, just as another shake-up of the industry is under way.

The UK’s online retail market is large and growing. Its value increased 17 per cent in 2014 to £42 billion (Dh233.8 billion), according to Euromonitor.

But the growth of pure-play digital retailers is under threat as their marketplace becomes increasingly crowded. The big beasts of the UK high-street have finally fought their way into the sector, meaning that digital retailing is no longer the preserve of digital businesses.

“The high-street has fought back,” says retail analyst John Stevenson, of City stockbroker Peel Hunt. He adds that “multichannel” retailers, which sell through stores and websites, are claiming a “mid-teens” share of online shopping.

Companies such as Debenhams are only “replacing lost store sales with internet sales”, Stevenson says, but are nevertheless providing robust competition to companies such as Asos.

Large retail chains — such as John Lewis and Dixons Carphone — claim that using “bricks and clicks” together creates a better experience for customers. Some have slashed prices or built detailed customer databases in a similar way to online competitors.

John Lewis makes 33 per cent of sales online, according to figures provided by the department store group. Half of its customers research and pay in shops, but the rest mix up store and website purchases, perhaps trying out items in stores before buying online.

High-street electricals and mobile phone chain Dixons Carphone has boosted sales by cutting prices to match online retailers including Amazon, while pushing shop staff to offer detailed product advice. In the three months to May, Dixons achieved 13 per cent like-for-like sales growth year-on-year.

Digital retailers’ stock market valuations remain at a premium to high-street groups’, but they are falling. Asos’s shares traded at 80 times forecast earnings in early 2013. After a torrid 2014, when the company issued a string of profit warnings, that ratio has halved.

AO World, which sells household appliances online, soared to a price representing more than 125 times forecast earnings following its flotation last February. That multiple is now about 75, following a profit warning issued a year after its market debut.

Online retailers argue that they deserve richer stock market valuations because their profit margins are higher — they do not have high fixed costs from employing legions of staff and maintaining shops.

Carol Kane, chief executive of online fashion retailer Boohoo.com, says her sector has more flexibility than the operators of large store estates as they are “not inhibited if you want to add or remove styles quickly or change a price point, or an image. If you have 200-plus stores you can’t make these changes.”

Access to customer data is another benefit, Kane says, because “you can really target your promotions”.

Still, many online retailers have struggled in recent months. Boohoo warned on profits in January, following last year’s Black Friday pre-Christmas shopping event, when heavy discounts boosted established chains’ online orders. Its business has now returned to growth but its valuation has slumped alongside those of its online peers.

The high-street is also learning the digital world’s tricks. Suit hire group Moss Bros has built a customer database so it can carry out targeted sales promotions while store staff can see visitors’ transaction histories, for example.

To fight back, digital retailers might need a physical presence, according to some commentators. “You have to drive stores and online around in a circle,” says Becky Clark, chief executive of retail logistics business Netdespatch.

Some physical retailers are providing iPads in stores to help customers look for items that are available on their websites, while using shops as showrooms, Clark adds. She suggests online retailers respond by building pop-up stores in abandoned high-street shops, to show off their ranges.

“I’m not sure anyone buys much in mobile phone shops,” Clark says, “but they show you what is there to be bought online”.

Financial Times