An Independent View

Changes To The High Street

There are a number of big retail stories in the past week that in my view tell us something about the sector, and how it may look in the coming years.

First up, Aldi has announced that it is raising their minimum wage to £11 per hour. This represents a huge vote of confidence in their team, their retail offer, and their physical stores. It also says something about customer expectations and Aldi’s willingness to put their team at the heart of their business. The supermarket brand has travelled light years in the space of a decade or so, by being authentically and genuinely true to their core values. For me, they are an exemplar of how to make the very best of your business by focusing on your strengths. 

By contrast, made.com has been unmade. Who could possibly have imagined that a furniture business with no showrooms would be unable to get through the first choppy waters that it has encountered? I have used made.com myself with mixed results, some items have arrived within days and have been exactly as described. Other orders have taken months, and have been substandard and left me with a poor impression of their products and their service levels. It is (almost) always sad to see a business fail, but given their current predicament, that lack of trust in product and service would appear to be the wider experience for too many of their customers. They also made the same mistake that many online retailers have made over the last year, which was to assume that the sales pattern during the pandemic would be their new normal. There are numerous other examples. From my perspective on the High Street, that always seemed to be a crazy idea. I did not sit behind the closed doors of my shop in the spring of 2020 and think that my customers had deserted my business, and I think that was the experience of most shopkeepers. I had faith that they would return. They have. Online retailing still lacks perspective because they only really have experience of the online element of consumer behaviour. It was apparent on Day One of reopening in June 2020 that people crave the social interaction and the product experience that retail spaces provide.

That partially explains why High Street UK has seen other more adventurous e-commerce natives open physical spaces. Gymshark are the latest online phenomenon to make that leap of faith and join the world of shopkeeping. The new store looks incredible, and is designed for interaction with consumers. Ben Francis has created a rock solid online business with a community of fans who will flock to Regent Street and ensure the physical space works too. City centres need that kind of pull and that level of investment to draw the crowds, and I would love to be trading in the vicinity of a shop like that. They succeed because Gymshark doesn’t have customers, it has a community and that is a key element of the 21st century High Street. I sincerely hope that they employ experienced retailers to ensure the shop works out in the long term.  

What about the rest of e-commerce? The Frasers Group has been on a relentless acquisition trail, adding to their stakes in ASOS and Australian online retailer MySale. The pattern of online wheeling and dealing follows the principles that served them on the High Street - look for value, cut and chop, and exploit for profit. The empty Debenhams and House Of Frasers unit across the cities of the UK provide visible reminders of the impact on people and places. There is an efficiency to the ruthlessness that makes you catch your breath if you consider the collateral damage. The shape of the Frasers Group - high utility fashion at one end, and chic boutique style at the other - is clearly successful, but the business is applying generational experience of the High Street to get ahead online by focusing on core retail values. A similar story can one told at Next, who had the added advantage of their success with Next Directory logistics to ensure a smooth transition to multi-channel retailing while the rest of the High Street was still busy registering their own domain names.

The story that really caught my eye - and compelled me to start typing - was the Amazon results. They have been the online exemplar for twenty years, dominating the retail landscape and crashing through the High Street like a virtual mammoth. Now, the real world is catching up with them. Fast. They are mired in union disputes here and in the US, and their share price has fallen again amid gloomy forecasts and lacklustre performance through the whole of 2022. In fact, their shares are down an eye watering 35% so far this year - to quote another tech overlord, ‘let that sink in’. The Amazon business now encompasses a dizzying array of offshoots, vanity projects and dead end profit killers. Much like other tech stocks (Meta, Alphabet) they have moved away from their core purpose and in doing so I think they have lost some of their focus. For me, this signals the beginning of the end of Amazon as a retailer. Whilst I concede that this is a bold statement to make given their vast revenues, their is plenty of anecdotal evidence to suggest that brands and consumers are deserting the platform.  

I don’t think Rocketman Bezos ever really intended to be a retailer, but the Amazon share price will have brought him back down to earth with a bump. I would suggest that in a decade or so from now they will mainly focus their hunt for profit on their distribution businesses. Some of these have been enormously successful - whether that be physical warehousing and final mile delivery, or their huge digital content delivery through Amazon Web Services. Their growing media offering through film, TV and sport is the kind of digital delivery that they are able to do very well to their captive consumer base, for as long as they have them. As they refocus on profit sources, I think their original e-commerce websites will behave much more like a platform such as eBay…or Shopify. There is a great irony here, as Amazon ditched their own merchant services web store in 2015, and actually recommended Shopify as their preferred provider. 

Shopify were inadvertently given a full tank of rocket fuel for their business by Amazon, which may go some way to explaining why they have just posted very contrasting results. Sales are up significantly - a rise of 22% on last year and their share price has surged. Where is this coming from? In my view, that revenue is mainly coming from small business, not big ones. Shopify have some stellar brands trading on their platform, but during the pandemic, Shopify did something that Amazon didn’t do - they provided an opportunity for thousands of small businesses to invest the time they suddenly had on their hands. That has meant a huge array of local retailers and specialist brands were able to reach their core consumers - both local and beyond - and build on that community of shoppers who know and love their store or brand. Many independents will have seen a huge surge in online sales during the pandemic, and I suspect that many of them have held on to their online sales volumes as store revenues recovered after lockdowns. That is direct competition for Amazon, and an opportunity that gives Shopify a longer term benefit and advantage over the incumbent. 

The pandemic and the associated lockdowns turbo charged some of these changes, and I think the nature of the High Street reset is becoming clearer. The high utility business model is thriving - the discount supermarkets are rewriting food retail and making the whole market fitter and more effective in store and increasingly online. Retailers like The Works spring to mind, and even Primark has a website now. The traditional High Street retailers like Next and Sports Direct have been absolutely ruthless in shaping their business and brands around a utility/value offer at one end, and a quality/luxury at the other, creating shops and websites that reflect the customer needs and expectations. Online brands like Gymshark which make a high quality offer are moving in to empty units with an integrated and absolutely seamless B2C offer that engages their audience and makes their physical spaces a pleasant environment. Specialist and niche retailers have been able to grow their quality product and range offers, and make their business more widely accessible to consumers who have changed their shopping habits over the last two and half a years. In the gaps between the big players, in secondary shop sites, on suburban High Streets - and on search engines and online shipping channels - there is room for independent retailers to not just maintain but also grow their presence as multi channel retailers too. 

For a long time, it felt that Amazon would eat retail. How do you eat an elephant? One mouthful at a time. Perhaps retail will eventually eat Amazon after all.