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The ecommerce challenge


January 2018


Andy Viner, BDO Audit Partner 

Ecommerce continues to challenge bricks and mortar shopping. Online retailers are making use of new technology to reinforce their offer – but so are traditional retailers.

Online sales are still a long way off dominating the shopping scene: online retailing accounted for about 17% of total retail sales (or 12.8% excluding food) in September 2017, according to the Office for National Statistics. However, this is up from 15.6% in September 2016. The average weekly spend online was £1.2bn – up 14% on 2016.

 

So while online sales remain the minority part of UK retail activity, there’s no denying the onward march of ecommerce. According to BDO’s High Street Sales Tracker, online sales in the UK in December 2017 were up 21.4% on December 2016, while bricks and mortar sales fell by 2.3%. Research firm Forrester expects Europe’s online retail market to be worth €378bn a year by 2021, with the UK, France and Germany accounting for 69%. In the UK alone, online shopping could account for almost a fifth of total retail sales by 2021. Consumers have also increasingly moved towards smartphones, with smartphone penetration in online ordering increasing from 9.9% of online spend in 2016 to 15.1% in 2017. Mobile spend is forecast to grow 112.0% between 2017 and 2022. Consumers, particularly those aged under 35, are also becoming more accustomed to paying for goods via their smartphones, using formats such as Apple Pay and Android Pay.
 

New opportunities

Low cost ecommerce solutions and an increasingly accessible supply chain create new opportunities for independent online retailers to challenge big name retail brands. One example is Cornerstone, a subscription-based men’s skin care, shaving and toiletries supplier. CEO Oliver Bridge expects ecommerce to take a bigger share of the men’s grooming market and believes his company’s ability to maintain direct relationships with customers is a key strength. “We get all the feedback on what they like and what they don’t like and then we have the power to change our products n response,” he says. Cornerstone plans to make maximum use of website data and is “building algorithms to offer dynamic personalisation”, while also exploring how to use machine learning to find new ways to engage customers.

Major online retailers continue to seek ways to make online shopping even easier. Both Amazon and Google, for example, have partnered with retailers to offer voice-controlled shopping, with their virtual assistants (Amazon’s Alexa and Google Home) being able to order for consumers and set up repeat subscriptions. In the online fashion sector, ASOS has applied visual search technology to enable consumers to photograph an item of clothing they like and then search for similar items stocked by ASOS.
 

The in-store advantage

However, bricks and mortar retailers are defending their ground by adopting technology themselves. For example, some are experimenting with virtual reality to let shoppers ‘try on’ products (such as cosmetics retailer Charlotte Tilbury). Data analytics is also valued, with increasing use of in-store contextual marketing to send notifications and discounts to customers’ smartphones when they enter a shop.

Some businesses that start out as ecommerce-only also see value in developing some form of physical presence. Wonderbly, a publisher of personalised picture books for children, uses technology to enable customers to buy books online and have them printed on demand. While the model has proved highly successful – Wonderbly has sold over 3m books in total and over a million in the US alone – the company is also trying to reach more shoppers by experimenting with ‘pop up’ stands located in traditional retailers. It recognises that some customers may not find its product online or may not feel comfortable buying online. There is still the potential, therefore, for online and physical retail models to cross-fertilise and support each other.
 

Future predictions in a snapshot

We speak to two industry experts on their thoughts on the future of ecommerce and retail:

Oliver Bridge, founder and CEO of Cornerstone, a flexible, subscription-based men’s skin care, shaving and toiletries supplier.

“Ecommerce is clearly going to take a bigger share of the men’s grooming market. Not only are businesses like Cornerstone 'stealing customers from bricks and mortar' outlets, but the big brands themselves, like Gillette, are getting in on the act.  In response to Cornerstone in the UK, Gillette launched its own subscription service online. So Gillette has started, albeit in a small way, to cannibalise its own bricks and mortar business. So I think we will see consumer spend moving online, whether through challengers or cannibalisation.”

 

Ian Sutherland, CFO of Wonderbly, a business that creates personalised books on demand for children which started out firmly in the world of ecommerce.

“People still want physical products. Where you are seeing most decline is in e-books and e-readers. The size of machine we need to print our books at the moment wouldn’t fit onto a book store, but within a few years – perhaps by 2020/22 – that sort of on-demand printing will become more prevalent in retail. If you turn up at a Waterstones in the future you might see our Wonderbly machine sitting in the corner printing out books for people. That will definitely happen in our lifetime.”

 

Further trends

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