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Shoppers on Oxford Street on 7 November.
Shoppers on Oxford Street on 7 November. Photograph: Mary Turner/Reuters
Shoppers on Oxford Street on 7 November. Photograph: Mary Turner/Reuters

As Amazon opens a guerrilla store, has the internet beaten the high street?

This article is more than 6 years old

The online giant will have a real store in London for Black Friday. In this topsy-turvy retail world, innovation is now a necessity

Black Friday 2017: where to find the best UK deals

On London’s Oxford Street a row of glittering snowflakes guides shoppers along the golden mile of fashion and department stores. The 750,000 lights floating above Selfridges, John Lewis and Debenhams are a decades-old tradition but events like Black Friday have changed Christmas shopping for ever.

The UK high street has just experienced something of a watershed, what some have called its “Tesla moment”. Online fashion website Asos overtook Marks & Spencer in market value terms for the first time despite not having a single store to its name. The comparison with the automotive industry comes because electric carmaker Tesla moved ahead of the 114-year-old Ford Motor Company in market value earlier this year.

The growing might of the internet will be writ large when the £10bn battle for sales in Black Friday week is tapped out on websites rather than from bargain hunting in stores.

“Online has been a catalyst that has reinforced the fact that we have too many shops in the UK,” says Matthew Hopkinson, director at retail consultancy Local Data Company. “Around 10% of the UK retail stock is surplus to requirements, which equates to about 50,000 stores.”

It’s a frightening statistic for an industry where jobs are already disappearing at an alarming rate. The retail workforce has shrunk from 3.2 million in 2008 to around 3 million today with the British Retail Consortium predicting another 900,000 jobs will disappear by 2025 as companies end their leases on unprofitable stores.

That pace of job reduction has accelerated this year, with the BRC’s most recent figures showing the biggest drop in hours worked and employment since it started keeping records in 2008, as the technological revolution in retail reduces demand for labour.

“The internet is the most powerful marketing channel we have ever seen,” says Hopkinson. “It brings with it a massive amount of convenience so you only have to go shopping for the things that you actually want to. You no longer have to do mundane shopping.”

Recent industry data shows retailers fighting a losing battle to lure customers into their stores with shopper numbers down more than 9% in October, according to the most recent figures from Ipsos Retail Performance’s shopper tracker.

One retail analyst likens the diverging fortunes of the physical and digital high street to Netflix sci-fi show Stranger Things where a malevolent alternative dimension, the “upside down”, is encroaching on everyday life. “Retail seems trapped, with a real world showing online sales booming and an upside down world showing increasingly scary results for high street stores,” says David Jinks, of ParcelCompare.

In a further inversion of the norm, some internet-only stores are selling their wares via seasonal pop-up shops. Amazon will open a guerrilla store in central London that will last as long as one of its Black Friday deals. The pop-up shop will showcase bestsellers in mock room sets as well as offer shoppers tutorials from “social media influencers” Lottie Tomlinson and Gizzi Erskine.

By the end of the year Britons will have spent nearly £60bn via their phones and tablets – a figure that equates to more than £1 in every £6 spent on the high street. The trend is expected to continue, with online sales predicted to hit almost £100bn by 2021, according to consultants at Retail Economics.

With the retail market barely growing, the web is sucking sales out of high street stores, making life more difficult for traditional stores such as M&S, Next and Debenhams, which have long dominated the high street. It also comes at a time when Britons are carefully monitoring their budgets because inflation is eroding their spending power.

Some chains have begun to take tough decisions about the future of their stores. M&S has said it will close 30 stores, while a further 45 are being downsized or converted into food-only outlets. But many analysts think retailers will have to go further given the pace of high street change. Mothercare, for example, plans to halve the size of its 150-store UK chain after more than 40% of its sales shifted online.

Retailers are following the consumers’ lead after watching online retail sales double over a five-year period. The growth in online spending also holds a mirror up to how we spend our free time. In 2010, 60% of adults went online every day. That figure is now 84%, according to the Office for National Statistics.

“It is the structural change in the way people interact with digital technology that is altering the retail industry,” says Richard Lim, chief executive of Retail Economics, who also points to a shift in spending to the so-called “experience economy” as Britons spend more on leisure, travel and entertainment.

Peak home furnishings? An Ikea lighting department. Photograph: Julio Etchart / Alamy/Alamy

Steve Howard, Ikea’s head of sustainability, caused ripples last year when he suggested households had reached saturation point. “If we look on a global basis, in the west we have probably hit peak stuff,” he told a conference. “We talk about peak oil. I’d say we’ve hit peak red meat, peak sugar, peak stuff … peak home furnishings.”

Until the Brexit blow to sterling, Britons had benefited from 20 years of falling prices as canny retailers imported vast quantities of goods produced cheaply in Asia. There is now an abundance of material possessions,” says Lim. “For the past two decades British shoppers have enjoyed persistent deflation so the economic value they attach to purchases is diminishing.”

He gives the example of people buying their first iPad, which was a much bigger deal than when they upgraded to their fourth or fifth model. This purchase fatigue is changing what we spend our money on as we relish holidays or treat ourselves to days out. In the early 1960s retail accounted for close to a third of Britons’ spending, but that figure is 24% today and is expected to fall further still.

Shifting priorities have seen retailers invest heavily in creating more dynamic store experiences to pull shoppers away from their screens. A recent example of the trend is John Lewis’s new Oxford store where more than a fifth of the 120,000 sq ft of selling space is devoted to 21 “services and experiences”, ranging from style advice to personalised Christmas baubles.

Some analysts argue the internet should no longer be seen as the enemy of the store. Amazon put a cat among the pigeons earlier this year when it swooped on organic food chain Whole Foods Market. The move showed that even the biggest of the online giants saw value in a physical store network.

Closer to home, supermarket chain Sainsbury’s swallowed Argos last year for £1.4bn as it looked to borrow the catalogue chain’s successful model, which marries stores, the web and super-fast delivery.

Argos chief executive John Rogers explains a new topsy-turvy retail landscape where 60% of orders originate online but two-thirds of those shoppers turn up in store to collect their toys, kettles and toasters. Despite a plethora of delivery options, 80% of its orders end up being fulfilled the old-fashioned way through the now combined Sainsbury’s and Argos store network.

Rogers says that it is no longer possible to “delineate” between online and physical sales as customers move seamlessly between the two worlds. “The majority of orders start online but are fulfilled in our stores,” he says. “I can’t overestimate the importance of that flexibility. I’m a big believer in stores but there is no question that online will continue to grow.”

In the coming days retailers will wage a fierce battle for Black Friday sales, an event that will be a litmus test for the key Christmas period, when many bank the lion’s share of their annual profits. Rogers is determined that Argos will be one of the winners from these first skirmishes, insisting that if you have the right products at the right prices, the demand is there.

“I think Christmas will be big this year, but it will come later,” he predicts of the nail-biting trading days ahead. “I would not write off stores.”

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