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Retail industry: analysing performance in the face of on-line retail

The global e-commerce sales were USD 994.5 billion in 2015 and are forecast to be around USD 1,506 billion in 2018 (Source: Televisory's Research). The consumer trends and preferences are changing, but these are not going to lead to the death of brick and mortar stores in the near future.

 
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Televisory carried out a research on global companies, in a number of industry types within the retail sector. The below graph depicts the comparison of revenue and EBITDA margin of the 3 largest online fashion retailers: Zalando, ASOS and YOOX with Hennes and Mauritz. All these brands have a major proportion of their sales in Europe. Hennes and Mauritz operate 2,666 stores in Europe. The European region presently has the largest share of internet users at 77.6%. But despite having such a large proportion of internet users, the three largest online fashion retailers in Europe had relatively smaller revenue than one of the largest fashion retail chains in Europe, last year. Their performance was also poorer as is evident from the comparison of their respective EBITDA margin of the past year with Hennes and Mauritz.

 
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Source: Televisory's Research

One of the reasons for the poor performance of these online retailers is the discounts offered to overcome the inertia of the customers for online shopping. In the below graph, the proportion of internet users in regions other than Europe is still marginal. It may take more than a decade for the online shopping portals to reach the levels of sales of the brick and mortar stores. The companies operating retail stores have nothing to worry, but at the same time, they cannot ignore the risks of changing consumer preference.

 
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Source: World Bank

With the growth of online retail, the consumers have an easy access to product reviews and ratings. The tendency to shop through a phone using an App is also increasing day by day. It has been observed that now-a-days, customers go to a shop, see a product, view the reviews of the product on the App, compare prices and then take a buying decision. The availability of a product review online can be used by the brick and mortar stores to their advantage for inventory planning and pricing. One advantage that these stores will always have over online retailers is that the product is mostly available to the customers instantly. The online retailers have also come up with the concept of same day delivery to overcome this phenomenon. However, there are still some challenges involved in the same day delivery. The customer should be at the designated address when the product is delivered.

Most of the global retail players have their own channels of online sales. The retail stores can also have a facility where their customer can buy the product online and pick up the product from their nearby store as accomplished by Macy's in the US. Another advantage that the brick and mortar stores may always have is that they can mostly fulfil the needs of their customers through the availability of a product in a store and in a tangible form.

The traditional retail stores will in all probability see their foot traffic decreasing over the next few years. However, they can adapt to the transformation if they wish to. They attract the customers through the ambience of their stores. Moreover, they should have a well-trained sales team in the shop. The sales team should be well informed about the products on display, their online reviews and their prices on websites. They should focus more on customer service, loyalty programs and warranties. This will give the customer an unbeatable shopping experience that the customer may not witness during online shopping.

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