The future of multi-channel retailing

Multi-channel retailing is fast moving into the mainstream.  Although on-line sales still represent less than 10% of total retail sales, in some sectors it is much higher.  Despite this every mainstream retailer has to have an on-line offer and the markets do not look kindly on retailers who have yet to integrate their retail channels.  DSG (Currys, PCWorld, etc.) is a case in point.  Their share price has taken a greater pasting than others in recent months in part due to the lack of an integrated offer.

The reason is clear enough.  With the cost of maintaining a high street presence (stock, premises, sales staff) being so high it is very hard to compete directly on price.  Some retailers have chosen to respond to this by keeping their on-line brands separated from the high street and thus enabling differential pricing between the two formats. For example how many people know that the French on-line retailer Pixmania is owned by DSG?  Or that Dixons still has its own on-line offer competing with Pixmania even though it has now disappeared from the High Street and that both of these compete with Currys.  On a sample of brown goods Pixmania appear to be 10% - 20% cheaper than Currys with Dixons somewhere in between.

And yet as shoppers become more comfortable with buying on line and demand more choice in the way they purchase goods this approach is becoming increasingly difficult to maintain.  A number of retailers now present shoppers with many choices - buying on-line and collecting from store, ordering in store but having some delivery in addition to the more usual options of ordering on-line for home delivery and in store for take home.  But to do this prices have to be the same.  Of course special “web only” deals can be offered but that cannot be the norm with a fully integrated multi-channel offer.

So if prices are to converge how are the costs of maintaining a high street presence to be covered?  Will retailers be able to afford to provide this showroom service?

We suspect not but where does this leave the manufacturers who obviously want customers to be able to see their products, touch them and try them?  It seems inevitable that the manufacturers will have to step in.  Increasingly we will see the major brands opening their own stores whose primary purpose is to demonstrate and display their products.  This is already happening and the likes of Nike and Apple, Sony and Panasonic opening more sites.  Alternatively brands may enter into a different type of relationship with the retailers, who currently own the High Street, paying them to showcase their products.  In other words the high street retailer will become a third party showroom service provider.

One of the biggest threats to maintaining multiple retail channels and to the high street may in fact come from Web 2.0.  As on-line communities grow and product comparisons sites become more feature rich we may end up simply buying on the recommendation of others and not need the High Street for many categories of product at all.

So multi-channel retail will continue to evolve.  Prices will converge and then many categories of retailer will slowly move away from the high street to provide a web-only offer to be replaced by a manufacturer funded showroom presence.