Improving high street performance by communication

As part of a town or city’s marketing communications, communication strategies need to highlight retail change and need to encourage customers to change their shopping habits in a way that will sustain such change (Kirkup & Rafiq, 1999; Warnaby, Bennison, & Davies, 2005).

A good example of this is communicating changes in opening hours. For example, late night opening initiatives can fail if shoppers are unaware of the extended opening times.

Whilst place promotion and communication strategies to shoppers are, on the whole, improving; communication between traders on the High Street is very poor. A study we undertook in 2005 showed that only 40% of
SME traders were in any sort of network to receive information about their sector or location.

There is more commentary about communication contained in our blogs on collaboration, engagement and networks.

References

Kirkup, M. H., & Rafiq, M. (1999). Marketing shopping centres: challenges in the UK context. Journal of Marketing Practice: Applied Marketing Science, 5(5), 119–133.

doi:10.1108/EUM0000000004570

Warnaby, G., Bennison, D., & Davies, B. J. (2005). Marketing communications in planned shopping centres: evidence from the UK. International Journal of Retail & Distribution Management, 33(12), 893–904.

doi:10.1108/09590550510634620

How business rates impact upon high street performance – the evidence

There is an ongoing talk about the re-evaluation of business rates, and several high profile reports (e.g. the Grimsey Review 2013) call for drastic measures in the business rates system before it is ‘too late’ for the high street.

The University of Liverpool and Local Data Company are investigating factors that affect business rates (occupation, vacancy rates and rents ) and their preliminary analysis highlighted the disproportions in rents, vacancy rates and business rates – meaning some high streets are suffering more than others.

A CLG (2011) report presented a government plan that allows local authorities to retain a part of the income generated by business rates to reinvest in their own economic development priorities .

However, De Magalhaes’s (2012) highlights the problem with redistribution of business rates to local authorities, which still does not guarantee money will be spent in-line with a particular place’s priorities.

This is in contrast to the surtax generated by Business Improvement Districts, which is always re-invested locally, according to priorities set by the BIDs’ members.

Secondary shopping areas seem to suffer the most from the business rates system, and this was recognised in a scoping paper by Tym et al. (2000) who called for business rates revisions in these areas.

Also, Findlay & Sparks (2009) raised their concerns about business rates and argued whether they are well matched with the buying power of users and types of retailer present in a location.

In our research, business rates came out the 32nd strongest influence on high street performance, out of 200 factors, on a equal pegging with rents.

We will be presenting the order of influence of all 200 factors we investigated at the free High Street 2020 conference in Manchester on 10th July 2014.

Please click here to register.

References:

CLG. (2011). Local Government Resource Review: Proposals for Business Rates Retention – Consultation, (July).

De Magalhaes, C., & De Magalhães, C. (2012). Business Improvement Districts and the recession: Implications for public realm governance and management in England. Progress in Planning, 77(4), 143–177. Retrieved from http://www.sciencedirect.com/science/article/pii/S0305900612000372

Findlay, A., & Sparks, L. (2009). Literature Review: Policies Adopted to Support A Healthy Retail Sector and Retail Led Regeneration and the Impact of Retail on the Regeneration of Town Centres and Local High Streets. Scottish Government. Retrieved April 29, 2014, from http://www.scotland.gov.uk/Resource/Doc/256980/0076301.pdf

Grimsey, B, 2013, The Grimsey Review.

Tym, R. (2000). Secondary Shopping: Retail Capacity and Need —A Scoping Paper. National Retail Planning Forum, (June 9).

Place marketing and sustainable places

Recently, Piccadilly Gardens was voted Manchester’s worst attraction on Tripadvisor. The designers of Piccadilly Gardens, Arup, say “Piccadilly Gardens transforms Manchester’s central park from a problem area into an effective public space”. On the other hand tripadvisors say “Designed by numpties. Dirty, rotten, awful area. Avoid at all costs. Shameful display and use of civic area.”

Piccadilly Gardens is a ‘great’ example to use to illustrate the complexities inherent in place marketing and how the practice must change if it wants to be relevant in the context of sustainable places. In the last couple of months I have been asked to speak about the topic of place marketing and sustainability at three international tourism conferences. Most recently, this was at the 1st Corfu Symposium on Managing and Marketing Places.

What visitors (and many locals) don’t like about Piccadilly Gardens is the rubbish. Traditionally the role of place marketing has been to attract mobile investment, like tourists or to boost economic activity, such as ‘the evening economy’.

Place marketing activity is designed to draw additional inputs into the system – but with little or no regard for the unwanted outputs created, like litter. If visitors and residents are seeing something as simple as rubbish build up – then that’s saying the system isn’t working. Worse than that – our most recent research demonstrates, unequivocally, that rubbish is impacting on peoples’ place attitudes and increasing their anticipation of witnessing other sorts of incivilities – such as harassment, drug-dealing and public drunkenness. This then makes them wary of the very space that is supposed to be attracting them, illustrating how more interconnected place marketing activity needs to be with other aspects of place management. Is the place marketing budget better spent on more place promotion or more tidying up?

We can tip-toe around the eggshells here – but being blunt – a lot of place marketing activity conflicts with the philosophy of a sustainable place. Place marketing based on the mantra of place competition is always about attracting resources away from somewhere else. Meaning there is winners and losers. Sustainability is about everyone surviving.

Place marketing’s obsession with drawing resources from the ‘outside in’ (inward investment) means, at the moment, it does not have much to offer those trying to create more sustainable forms of development, from within. The empty shops on the UK High Street and the empty hotel rooms in Corfu show how destructive global systems can be on specific places. International property developers, retail chains and tour operators all see location as a key part of their business strategy – but have no loyalty or attachment to any one particular place.

Gold and Ward (1994) stated that “Public or quasi-public policy should embody notions of public good and social benefits, but not promote one place at the expense of another” so to be relevant in the future, place marketers should take heed of this advice (better late than never).

Marketing has evolved from the transactional, one-dimensional activity it once was. It has become more strategic, theories such as the service profit chain, demonstrate the value of service companies investing in their staff, as employee satisfaction is a driver of customer satisfaction. Relationship marketing proves the value of keeping customers rather than attracting new ones. The trouble is these developments in marketing theory don’t reach many of the people practicing place marketing.

The opportunity for place marketing is to shift its focus to endogenous development. Recently, Cambridge was identified as the best city to find a job with 0.22 jobseekers per vacancy. 100 less than in Salford. Whilst Cambridge University competes on a world-stage to attract talent…..that talent often stays. Local firms are supported – there is an home-grown innovation supply chain. Successful companies say you are only two phone calls away from what you need.

If we accept sustainability is a legitimate (perhaps the ultimate goal of a place), then place marketing has an important role in communicating this vision and helping to glue everything together. If it continues to just promote and ‘sell’ places, then it becomes just another destructive force, taking much needed public funding away from building a more sustainable future for our towns and cities.

Budget VAT changes – effect on the consumer, the retailer and the high street.

Today’s budget will integrate an EU change in VAT on digital products and services. From 1st January 2015 VAT will be charged at the rate of the country that the BUYER not the SUPPLIER is based.

What does this mean to UK shoppers? It depends on what they are buying and where they are buying from. For example, the average price of an e-book from Amazon will increase by 57p. That’s because, at present, Amazon levies the 3% VAT from Luxembourg, where the digital product is supplied from, rather than the 20% UK rate. On the other hand, Apple’s Electronic Software Downloads are currently taxed at 23% as they come from Ireland. Whether Apple pass on the 3% VAT decrease to the UK customer remains to be seen.

‘Heads I win tails you lose’ sums up the industry’s likely response to these changes. However, in the short term the retailers that see their prices rise the most may not pass on all the VAT increase to customers, According to an Offcom report last year, the price the consumer is willing to pay for an e-book is £3.74 – but with 20% VAT the average e-book will cost £4.05. Retailers like Amazon may act to neutralise this increase, by dropping the net price – but it won’t be long before they gradually start putting their prices back up and regaining lost profitability.

Retail is renowned for being highly competitive. Retailers admit that they engage in unfair practices, but say they have to, if other retailers are doing it – a sort of race to the bottom of responsible business practices. Two years ago, the Low Value Consignment Relief (LVCR) from the Channel Islands was removed. Previously LVCR exempted products under £18 from VAT if they were shipped from Jersey etc. It wasn’t just the internet retailers that exploited this loophole. Lots of multiple high street retailers jumped on that unfair practice bandwagon, shipping DVDs and CDs through Jersey so they could undercut small and medium sized bricks and mortar retailers.

Will the levelling of the VAT playing field change shopping habits? I doubt it. For many digital products from many suppliers, the increase will be non-existent or so small rendering it almost unnoticeable. Even a 17% increase in an Amazon e-book will not change behaviour. Many of the best-selling e-books are already the same price as their physical counterparts but consumers still buy the digital version. That’s because they are buying convenience and instant gratification and/or space-saving benefits. Sometimes consumers want a physical product, they want to browse and enjoy the shopping experience. Many of those people that shop on the Internet also shop in-store, supporting the notion that an e-book is not a substitute for a ‘real’ book, undermining the argument that increasing VAT on digital products will encourage people to but physical ones again.

So what will this mean to the high street? No doubt the government will say they are acting decisively to reduce the unfair advantages exploited by internet retailers. But it is the EU that has forced this initiative – to reduce VAT discrepancies across the European Union, rather than intervene to help the high street. It comes too late for many high street retailers, especially the independents, who haven’t had the capital to adapt their business practices to exploit these loopholes.

The tax burden is still unfairly biased against the high street retailer based in the UK who cannot avoid corporation tax or get out of paying local taxes in the form of rates. VAT is a consumption tax – and so it’s not the internet retailer that carries this burden either – it’s you and me.

Christmas Shopping Explained

Manchester saw record numbers in the city centre last weekend; visiting the Christmas markets, enjoying a mulled wine or a gingerbread latte and, of course, going shopping. A boost in retail sales was predicted by, amongst others, Deloitte who projected an increase in sales of 3.5% to £40 billion, this year.

Predicting a year on year increase at Christmas is a very safe bet. We always spend more than last year at Christmas. Even if we say we are not going to. Last year, according to a YouGov surveyconsumers in the lower socio economic grouping of C2DE said the would spend significantly less in 2012 than 2011….but their actual spend was higher.

Consumers’ intentions are not a very good predictor of their behaviour. Asked way before Christmas, when stories about redundancy and recession are rife, it is not surprising they prefer to project an image of caution. But in the lead up to Christmas, the retail sector works very hard to encourage people to part with their money, tempting us with seasonal product ranges and festive merchandising – in the four days before Christmas alone Verdict estimate over £12 billion will be spent this year.

Given the ever increasing commercialisation of Christmas it is not surprising we are getting better at being consumers. Last year Internet users started to search for the word ‘sales’ online around about 14 December. Economically savvy consumers have already pulled forward the January Sales to Boxing Day and now they expect heavy discounts before Christmas.

Last week, PricewaterhouseCoopers said that 72% of the high street already had a sale – with the average discount being 46%. Just because items are cheaper doesn’t mean that we spend less. Most Christmas shoppers have a predetermined idea of how much they will spend per person on their list. So, we get more gifts for our money, the retailers move more stock but profit margins are reduced.

The squeeze on profit margins may be felt even more strongly this year as more people shop on the Internet relying on ‘click and collect’ services. Whilst this is convenient to the customer it can be expensive for the retailer, especially the cost of dealing with returns. For example, John Lewis ‘click and collect’ customers have 5 different ways to return unwanted goods. So much more complexity for the retailer to manage than the old ‘returns’ counter – where the customer also met the transport costs incurred in bringing the item back.

With 1 in 5 gifts being bought on-line does this mean further bad news for the high street? According to Experian, there were 113 million visits to retail websites last Boxing Day. However, footfall data shows the same number of people still went to visit the shops on Boxing Day. For many people, including the half a million people that visited Manchester at the weekend, going to the shops is synonymous with Christmas. I predict I will still be saying that for many years yet.

The Teenage Market

Brothers Tom and Joe Barrett created the Teenage Market in Stockport to give entrepreneurs and performers a chance to share their products and skills with consumers. In their first market 70 young people ‘produced’ the teenage market along with 100’s of mainly young consumers.

44% of the young traders had never visited the market before but 53% are now considering it as a career option.

One trader, local artist Lucy Shaw, is funding her advanced studies through her business.

The Teenage Market is being offered, through licence, as a real world counterbalance to the growth of the digital marketplace.

Their on-line portal, driven by WordPress (another Stockport business), allows traders and performers to link and collaborate but always results in a physical teenage market event. It also allows market managers to ‘manage’ the mix of the event – in terms of the type of retail and performance.

Additionally the licence offers full marketing, promotion and other support.

The licence is £700 per year or £1000 for two years

A fantastic innovation. You can find out more at www.theteenagemarket.com

Finally, I was delighted to hear that Tom is a graduate of Manchester Metropolitan University. Tom and Joe told their story to conference delegates at the National Association of British Market Authorities Annual Conference today in Torquay.

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Out-of-town town – Plaza Mayor

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I have just come back from Malaga, Spain and this is a picture of Plaza Mayor. A typical Spanish streetscape? Look closely, and things are not quite what they seem. There are no actual windows at first floor level. The recess in the window frame has been painted to look like a window. Likewise, the life-size horses and cows dotted around are not real. That’s a real clue that Plaza Mayor is a fake. I am a regular visitor to Spain and have never seen horses and cows wandering around freely in town centres.

Plaza Mayor comes complete with plazas, fountains and orange trees but devoid of local businesses, people (rather than shoppers), or the 200 years of history the architecture initially suggests.

Instead, Plaza Mayor has just over 10 years history as an out-of-town retail and leisure centre built to look like a small Andalusian town.

Like some other towns, its leisure offer is separate to its main retail offer. This was added in 2008 and, I guess, built far enough away from the original centre so as to avoid any disruption to existing trading by the construction works.

So, as the photo below demonstrates – Plaza Mayor’s plaza mayor (main square) is now a 1100 space car-park.

This may be quite an apt development and one that shows that even fake towns suffer the same forces of change as real ones.

At 8am yesterday morning there were plenty of cars in the car-park before the centre was even open. With all that free parking and being next to a railway station on a commuter line to Malaga (it takes 20 minutes) it is obviously playing an important role for local people, as the original marketing literature said it would, but I suspect transport interchange was not what the developers were thinking.

At 8pm the evening before the centre was busier – but certainly not attracting the 20,000+ visitors per day it was when it opened in 2002. Interestingly, the addition of more retail in 2008 is housed in a more ‘traditional’ development – in terms of looking more like a run-of-the mill shopping mall. It seems to be doing well as the only vacant units are in the leisure half. At 9pm there were shoppers in the retail half – but many of the restaurants and bars in the leisure half were empty.

I may be just one of the 10,000,000 tourists to the area who prefers the reality of Malaga, Torremolinos or Marbella to the hyper (or hypo) reality of Plaza Mayor. An out-of-town town just isn’t the same.

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Portas Pilots – One Year On

There’s been a lot in the news this week about the Portas Pilots – so here is a round up and my view on some of the key issues that have been discussed.

Why have the Portas towns got high retail vacancy rates?

There are some forces of change that work on a national or even international level, affecting all town centres, such as the recession – people have less money to spend and e-commerce – more of people’s spend takes place on-line.

Then there are factors that impact on individual town centres, such as the size of the catchment – whether more or less people are living in the area, how many people work in the town centre, the retail and service offer, for example comparison or non-food retailing has suffered the most in the recession, food and service business have done better.

Other factors include its location (northern towns have higher vacancy rates than those in the south), size (small centres are more resilient than large) and their accessibility or the ease with which people can travel to other competing centres.

In the case of the Portas towns, what is more important is the long term vacancy rate. For example, pre-recession Stockport’s vacancy rate was 12.7% compared to a national average of 10.3% A long-term vacancy rate higher than the national average indicates a long-term problem, and in most cases, an over supply of retail floorspace.

Whilst the Town Teams can get behind the existing retail, this is difficult if it is spread all over town. A strategic approach to concentrating retail into the right-sized centre is also necessary.

Have the Portas Pilots got high churn rates?

In a word – no. You could not pick out a Portas Pilot accurately on the basis of the number of shops opening and closing in its centre. Croydon has the highest churn rate – but then it probably had the highest concentration of multiple retailers, and due to the amount that closed last year (HMV, Comet, Clinton Cards, JJB Sports, Blockbuster, and Thomas Cook etc.) it’s not surprising they have more of their share of 4,000 empty shops to fill.

As Croydon is in the more affluent south, then retailers are likely to be more attracted to relocate there, rather than Nelson in the poorer North.

Churn rates are higher everywhere.
There has been a dramatic fall in the length of leases on commercial properties over the past five years. Before the recession, the average length of a high street lease was 10 years. There’s no doubt the economic climate has meant property owners have had to offer more flexible lease arrangements –a third of high street leases are now less than 5 years.

So, retailers can relocate to more profitable locations – areas with higher footfall – or larger, more efficient retail space, more easily. In other words they are not so ‘trapped’ in locations, which previously kept the churn rate down.

Also, with shorter term and pop-up leases, rent and rate relief, more independent retailers are being attracted into premises that would not have been feasible for them before. However, like other small business, their failure rate is high. A small shop has about a 40% chance of being in business 5 years after opening.

In a survey we did of 600 small retailers in the UK less than a quarter had a business plan, many of them had no previous retail experience and did not invest in training. We found a significant relationship with having a business plan the number of years the shop was in business and turnover.

Without a business plan and some grounding in retaiing, new entrants may be making the wrong location decisions – based upon supply side factor considerations like the price of the unit, rather than whether there is real market demand for their offer and whether the shop is in a location that attracts enough footfall.

How can the Town Teams increase footfall?

In the short term – by making the most of the space and the assets they have. Markets, vintage fairs, festivals, promoting existing retailers through guides, websites etc. Free or cheap parking on its own will not encourage people to the centre if what they want isn’t there, if there is nothing to attract them, if they can’t find it – or the town is dirty or feels unsafe.

But longer term, towns need to have an offer that meets the needs of their users. Retail and consumer data should be used to undertake an analysis of the retail area and work out what is missing and what sort of businesses would do well. Small in-town or edge-of-town supermarkets are associated with lower vacancy rates. Towns should actively encourage certain types of retailer – by going to other locations and seeing what is missing and who they could attract. If a town doesn’t want a supermarket then it should consider options like a local food market.

Towns will need to accept that retail floorspace has to shrink by between 20-40% and should help surviving retail outlets concentrate in the same part of town. This is the strategic stuff that needs some vision and leadership. Towns should be thinking about what the other space can be used for, in terms of uses that will bring more people into the town centre; offices, education, sheltered housing… in the next 10 years over 12.4 million people will be over 64 so more people will need live near to locally accessibly shops and services as they may not be mobile enough to travel to shop or visit their GP.

How can the towns improve their image?

There’s been a lot of investment by towns and cities into rebranding. But behind every good brand you have to have a good product, so there’s no shortcut to the investment and effort needed in terms of getting the place product right.

However, place perceptions can offer lag behind reality – and if a town has a poor image it can take a long time to change that. Place ‘ambassadors’ should be engaged; these could be the local press or key stakeholders like local retailers, for example. Basically, people that can and are willing to ‘talk-up’ the town.

A rebranding exercise can be useful, if it is thought of as the ‘organising principle’ for integrating measures (e.g. events, media relations, residents’ participation). But it needs to capture the place’s distinctiveness and shouldn’t just be a trite slogan – like “open for business”. What town wouldn’t be open for business?

What’s all this about the night-time economy?

Reports by the Local Government Association show that the public and council offers are concerned about the proliferation of sex shops, betting shops and food take away outlets. But if a property is empty landlords will want to fill it. The problem is the landlord is very unlikely to live in the town that seemingly becomes plagued with late-night bars and take-aways etc.

Councils can stop operators by using licensing restrictions, but they may well be challenged – and this is expensive at a time when they have no cash. Splitting the economy into day and night isn’t very helpful. The economy should be seen as a whole – if a late-night takeaway causes a litter problem that puts people off using the town in the day then the net effect on the economy may be negative.

What sort of retailers are doing well?

Well it is not all doom and gloom on the high street. Primark has seen its sales shoot up 24% in the last 6 months (to March 2013). Unlike other retailers, it is not going on-line as it is concentrating on growth in its existing market and profitability from improving retail operational efficiency. So, for example, it is expanding the sales floor area in shops so it can sell even more.

Even though there is a decline in comparison retail (electricals, toys etc.) Argos has seen its sales grow by 3% because of its successful click and collect service. Whilst consumers like the convenience of shopping on-line, the delivery aspect can be very inconvenient – so the ability to order something and know you can pick it up is very compelling. Likewise, John Lewis and Waitrose have seen big growth in click and collect sales.

And lastly, footfall in towns that participated in last years ‘Love your Local Market’ increased by 4% (against a backdrop of 6% decline). There is a growth of the Totally Locally movement, and after the horsemeat and other scandals, more people want to know where their food comes from, and smaller food retail businesses can offer this more personal connection with the supply chain and this reassurance.

So, one year on – the same questions are being asked and answered – this is worrying as we need to move on to real action if we want to support our towns and high streets to change so they have a sustainable role in the future.

Too many betting shops?

Saturday saw a small group of people protest against the proposed opening of Manchester’s 26th betting shop in the city centre.

I was asked to comment this morning for BBC Radio Manchester on whether betting shops are a good or bad thing for the high street.

On the positive side a new betting shop, like the one proposed, in a prime retail area is likely to employ between 4 and 5 people. It will pay around £40,000 per year in business rates. It will also contribute about £100,000 in tax to central government. Finally, according to a report by Ladbrokes, 80% of their shops open in vacant premises. So the argument is that it’s better a retail unit is occupied and paying business rates and tax than just left empty.

The recent growth of retail betting shops on high-streets demonstrates that they are successful in attracting people in to spend their money. £200 million in Manchester alone according to city centre councillor, Kevin Peel.

The problem is money spent in a betting shop does not circulate very well. Compared to something like a restaurant which is much more labour-intensive, only a small amount of the turnover goes into paying staff.

Also the UK betting shop market is dominated by 4 national players who have 82% of all shops. So profit goes back to head offices that are not based in Manchester.

So the argument is money spent in betting shops cannot then be spent elsewhere in businesses that are more beneficial for the local economy.

But is 26 betting shops in the city centre too many? Some smaller towns like Rochdale have an even higher concentration of shops in relation to their population. On the other hand the UK currently has about 7000 betting shops less now compared to the 16,000 it had in the 1970s.

So the problem may not be how many we have, but where they’re located. The betting industry strongly refutes the accusation that shops are proliferating in areas of economic and social deprivation. But the on line mapping serviceprovided Geofutures certainly shows how clustered betting shops are around poorer areas.

Again, the industry argues that because they need to locate in areas of high football these are obviously going to be in town centres and high-streets. But their argument is not particularly convincing. Even their own research suggests that it is poorer people that gamble. They find a relationship between participation in gaming activities and household income only between households that earn under £36,000 a year.

Historically, activities that are not perceived as being particularly good for us are heavily regulated.

Before 2007 betting shops were not allowed to open next to each other. The reason we are seeing so many new betting shops in areas is partly the relaxation of this control but it is also a direct consequence of legislation that limits the amount of fixed odds betting terminals (FOBTs) to 4 in each outlet.

It’s these high-stake, roulette and casino machines that make up most of the shop’s turnover and also account for 50% of their profits.

A regular better i.e. someone that visits a betting shop at least once a month spends over £1200 per annum on FOBTs compared to £427 on over-the-counter bets.

A report by the Local Government Association indicated that half the public in their sample were concerned about betting shops. In particular, the ease at which empty retail outlets can be taken over by this type of operator.

Mary Portas singled out betting shops as being bad for the high street, but the concentration of any one type of business in a small area is usually bad, unless a location is looking to specialise, for example a street of fashion or second-hand book stores.

Many empty units like banks and building societies will not require any change of use to be granted before they can be turned into betting shops, therefore no planning permission is needed.

But all betting shops have to be licensed. Only one council so far, Newham, has turned down a license application for a betting shop. This is on the grounds that the shop’s primary activity will be gaming on machines rather than traditional over the counter betting.

This decision is being appealed against by Paddy Power and is up for review by local magistrates in June. I expect the licence will be granted as the operator is not proposing to do anything illegal.

Barking and Dagenham Council have launched a more strategic approach to their management of retail units. They have published supplementary planning guidance to give businesses 12 months notice of their intention to regulate the number of betting shops locally.

If gambling is the problem that Saturday’s protesters claim it is, then it won’t be long before national government will have to act. Perhaps that’s why the betting shop operators are so keen to get in quick, take over empty retail units quickly and make as much money as possible from the gaming machines whilst they can.

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Morrison’s launches online grocery service

On Friday I did an interview with BBC 5 live about Morrisons’ decision to start offering an online grocery service in January 2014. Whilst I don’t normally talk about retail in my blog I think this does have some ramifications for the high street.

You can listen to it here

Morrisons is very late with this offer. Waitrose for example has been offering home delivery of its groceries since 2002.

The grocery retail sector in the UK is worth £163 billion. Even though only 5.5% of grocery retail sales are online as one of the Big 4 retailers, Morrisons may have been losing up to £1 billion a year in sales by not offering an online service to its customers.

This was especially apparent over Christmas when they lost out to other retailers that offer customers on-line ordering flexibility and the convenience of home delivery.

But let’s not confuse sales with profitability. It is estimated that it costs £15 to service the average online shopping basket. When you think that customers actually only pay around about £5 for the service then you can see that online delivery eats into retailers’ profitability.

But Morrisons’ market share is falling and basically, they need to restore confidence in their offer to their shareholders and investors.

Their choice of entry into the online grocery market with logistics partner Ocado is expensive but allows Morrisons to compete in their peer group, in other words by offering nationwide coverage by January next year.

If you order your food online from Morrisons, it will be delivered by Ocado, albeit in a Morrisons branded van. Basically Ocado are offering Morrisons the same service they have provided Waitrose for over 10 years. And Waitrose are not very happy about the Morrison deal.

So, is it worth Ocado upsetting such a long-term and important partner like Waitrose?

Well, Waitrose’s market share is growing but at 5% it’s less than half of Morrison’s.

Also Waitrose positions itself as a more upmarket retailer so it’s always going to have a smaller market share than a ‘big middle’ retailer like Morrisons.

Ocado’s business model relies on a percentage of sales income from its retail partners so potentially it can make a lot more money with Morrisons.

Also, Waitrose has been investing in its own delivery service, initially in London, when its exclusive arrangement with Ocado ended within the M25 area.

Waitrose sees itself as an omni-channel retailer in which case it is going to want to control all aspects of its channels to market, to ensure a standard level of customer service and control all ‘touch points’ with its brand.

Whilst it is still tied to Ocado to deliver its groceries outside of the M25 area until 2017, Waitrose has been pushing its click and collect service which means customers can order online and collect from 152 stores and also some John Lewis outlets. Sales through click and collect nearly doubled last year. This service is expected to be rolled out to all John Lewis stores and Waitrose convenience stores this year.

So what does this mean for the high street? Well as the last big grocery retailer enters the online delivery market I think we will start to see some impact on prices.

Serving the customer from a traditional store is cheaper at the moment. Customers make their own way to the store, they pick their own items, they pack them and deliver them back home themselves. The customer bares all the labour and transport costs.

High street stores may offer cheaper prices to consumers, thereby differentiating themselves by channel rather than brand. The discount retailers like Aldi and Lidl are certainly doing very well and many trade from in town or edge of town locations.

It seems only fair to reward customers with cheaper prices if they are prepared to offer their own home delivery service.

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