‘Retail Armageddon’ e-commerce threat dismissed

Copyright: David Lawson 1998

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First there was Robocop - The Movie. Now comes Roboshop - Retail Armageddon. If a piece of machinery can take police off the streets, can computers do the same for shops?

  This is the picture painted by many forecasters as customers switch to the Internet and TV retailing. Electronic commerce and 'etailing' is already big business, with thousands of virtual shops available at the touch of a few computer keys.

 Amazon has sprung from nowhere to become a leading bookseller - and one of the hottest shares on Wall Street - yet it has no bookshelves or shop front. UK supermarket chains like Tesco and Sainsbury are experimenting with home deliveries ordered via the Internet. CDs, software, insurance, airline and theatre tickets are all available online

  US research predicts 'ecommerce' will grow by more than 100% annually to reach reach $400bn within five years as the number of computers linked to the Internet soars to more than 500m. Enthusiasts believe screen-based shopping  will replace Main Street and malls in the next century.

 So why are retailers and investors so calm? Surely they should be looking for a new living.

 Not necessarily. Julian Markham has seen the future - and it does not work. Shopping will survive, says the veteran UK developer. In fact, it will  prosper as retailers turn technology to their advantage.

  It is a message you might  expect from  the chairman of the International Council of Shopping Centres World Commission and a pioneer of European  shopping centres. But he is no Luddite. This  confidence is a matter of sociology rather than economics.

 The computer will never replace the mall, he says. Shopping has  become as much a recreation as a necessity. 'How can an impersonal screen satisfy those needs?', he asks in  a highly personalised study  called  The Future of Shopping published earlier this year (Macmillan Business).

  Others make similar noises. Colin Vaughan of UK research group Verdict points out that much of shopping is a 'touch and feel' activity. 'You still have to go in to collect your meat and fish, so why bother to order the rest online,' he says.

  The soaring statistics on electronic shopping also tell only part of  the story. The vast bulk of ecommerce is business-to-business. Analysts estimate less than 3% represents trade that would normally have gone through shops. This is also a tiny fraction of the total market. Corporate Intelligence on Retailing (CIR) predicts that UK online shopping, including TV and electronic mail order, will reach more than œ12.5bn in five years. But total retail spending will be well above œ200bn by then.

  Few deny there will be some impact on retailers, however. The differences emerge when deciding how much. Mark Borsuk, a US retail broker and leading commentator on electronic retailing, is deeply pessimistic, calling on developers to design alternative uses into shopping centres to prepare for loss of trade.

  He points out that some could end up as housing, theme parks - even mausoleums. They already have in countries ranging from France to Japan which have seen structural changes in retailing.

 The crucial point is that some goods will be affected more than others. 'Landlords should be checking occupiers most likely to move from real space to cyberspace. The best tenants will offer goods and services that cannot easily switch,' he says. Online shopping will cost so little to run that new businesses could flood the market, threatening the future of  traditional retailers.  That will lead to pressure on rents and  drive tenants to demand shorter leases so they can adjust space quickly. 'Landlords need to do more than ask who will survive. They need to pick who will thrive,' he says.

 Financial services, computers, travel, books, magazines, flowers/gifts and cars as having  the biggest potential to move online, US bank Morgan Stanley calculated in an  investigation of prospects for the sector. Routine purchases like soap powder and baked beans are also vulnerable. This kind of shopping has become 'a bore and a chore,' says John Hollis of Andersen Consulting. That could cut heavily into food store visits.

  It could mean the end of vast sales areas stacked with boxes and tins. Warehousing networks will also need to change. Goods for delivery to online customers will need different treatment to those organised to supply stores. But Stephen Mallen of international property consultant Knight Frank sees hope rather than despair. 'There will be an impact on store size, layout and design,' he says. Retailers will need to find alternative uses such as pharmacies, leisure and  banks. But this could benefit property, as the rents will be higher than for bulk sales.  Abbey National, one of the UK's largest banks, has recently forged an agreement with  Safeway for in-store branches which will be extended to 25 within the next year.

    Even if  shopping streets lose tenants,  they will be replaced, says Mallen. Leisure and fashion outlets are already filling gaps in the UK and US.  'This could be a good thing for our town centres, because it would bring them back to life,' he says.  Malls will also benefit rather than suffer from new technology, says Julian Markham. It will be used to give customers information about travel conditions, parking and product prices.

 Europe has little to fear from reduced high street demand anyway. Mark Teale, head of retail research at CB Hillier Parker, points out that while North America has an average of 45sq ft of shopping per head, Europe is still cramped to  19 sq ft, and a good deal of  activity is also crammed into unsuitable Victorian high streets.  'We could easily lose 10% of market volume to online shopping and still have a shortage of real space for retailers,' he says.

  Armageddon may not be as close as some believe. In fact, retail renaissance may be more apt if new technology can be harnessed to match shops and shoppers in the 21st century.