Online Sales: Another Pressure Bricks-And-Mortar Store Sales

In the recent past the trends was for retail stores to get bigger and bigger and these big-box stores seemed to pop up all over the retail landscape.  The rapid spread of Walmart Supercentres in Canada is one example of how Canada’s retail market, especially in Grocery retailing has become over-saturated with retail space.

However, this trend has been slowing or in some cases reversing as some stores have started to close and some retailers have announced plans to halt, slow down or close traditional bricks-and-mortar stores. The most recent example is Sobeys announcement to shutter approximately 50 stores across Canada as they look to eliminate unprofitable locations from its network in the wake of its purchase of Canada Safeway.

In contrast, along with a change in shopper habits, there has been increasing efforts put towards new technologies such as online shopping.  The increasing presence of online shopping has enabled some stores to switch gears away from traditional stores.

As more stores offer products for sale online, consumers are shifting to making online purchases and this is taking sales away from bricks-and-mortar stores.  Bricks-and-mortar stores are being challenged since they are more expensive to operate in terms of personnel required and has high real estate costs.

According to ShopperTrak’s data, shoppers are not using physical stores to browse as much, either. Instead, they are figuring out what they want online and then making targeted trips to pick up merchandise from retailers offering the best price.

In Canada, one obvious example of a retailer that is under significant pressure from on-line sales is Indigo / Chapters. While this bookseller was an early target of Amazon in the Canadian market, the chain has been forced to adapt its whole strategy moving from a pure bookseller to a “lifestyle” retailer that includes gifts, toys and even technology in the stores that make up its slimmed-down network.

Amazon has been a powerful force in transforming the online industry.  It offers thousands of products for sale and just this year it added many more products to its Canadian site.  It has moved beyond books to almost any category imaginable, including testing both Beauty and Grocery assortments in Canada. Consumers can continue to expect more and more from this comprehensive online retail trailblazer.

In the Grocery sector, British retailer Tesco is one example of a store that is transforming the way it does business due to the impact of on-line competition on its bricks-and-mortar business.  Tesco has created ‘dark stores’ that are warehouses of store merchandise that fill customers’ online orders.  Robots in the warehouses select and fill merchandise based on customers’ orders. The company recently opened its 6th dark store in London. These “dark stores” are often located in closed Tesco locations where these on-line shoppers used to wander with their “old-fashioned” shopping carts.

In the UK, Tesco, Asda, Sainsbury’s and Waitrose all have plans to open new dark stores over the coming year or two.  According to Jennifer Creevy, deputy editor of Retail Week, “Online is just showing huge, huge growth. Online and convenience stores.”  Analysts at IGD state that online grocery sales are expected to almost double in value by 2016 to reach £11.2bn.

Online sales are also creating new ways of doing business for retailers.  For example, drive-thru grocery stores such as Auchan Drive (France) offer a new way for customers to receive groceries.  They can order online and then pickup at a designated location. This has been termed “clicks and bricks”.

This drive thru concept has not taken hold yet in Canada but we suspect that a click and collect grocery option is part of the strategy behind the Loblaw / Shoppers Drug Mart merger. With 1300 collection points across Canada, Loblaw could really leapfrog other retailers in on-line retailing in Canada.

Customers that choose the online grocery-shopping route need to be provided with aspects they deem important such as product freshness and quality.  The produce section is probably the single biggest deterrent to online grocery shopping. In New York City, Fresh Direct has made high quality produce a key part of the brand for their grocery delivery service and they have been very successful. Their trucks are ubiquitous in Manhattan a market that big-box retailers have nearly impossible to crack.

Overall, on-line sales have gained ground in Canada and will continue to do so.  While most retailers know that they need to incorporate the on-line channel more extensively into business plans in order to remain competitive and increase market share, the supplier community still seems to be focused on bricks-and-mortar stores and its flyer driven promotional model.

The supplier community needs to be working with retailers and their own international colleagues that are already working with on-line merchants such as Tesco, Auchan and Amazon to develop the business plans of the future that include a mix of on-line and in-store business drivers.








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