It was around two years ago that the phrase Epocalypse first came into my consciousness. It was used within a report ‘Predictions 2023: Retail’ written by Forrester, one of the world’s leading Research Groups, based in the US.
Amongst many predictions it made for the US Retail Industry, it went on to make some fascinating observations around eCommerce and particularly those online-only brands and businesses that had for many years been experiencing significant growth, often taking market share from the traditional players.
‘Retail’s Epocalypse will bankrupt online-only brands’
Towards the end of the report, it made a startling statement: “Retail’s Epocalypse will bankrupt online-only brands that lack a physical strategy”.
At the time, I found this really odd, why would something as devastating as an apocalypse be associated with the world of eCommerce and why would these successful eCommerce businesses suddenly be bankrupt without physical stores?
We’d not long come out of Covid, where eCommerce had received a significant boost, and everything continued to point in the completely opposite direction. Surely it was the traditional bricks’n’mortar stores that had the most to fear with their high fixed costs and inability to compete effectively with the far more nimble, online players?
eCommerce share continues to grow
During Covid, eCommerce sales in the UK accelerated to around a third (32.5%) of all retail sales and by 2022, although the proportion of UK retail sales made online had fallen back to 26.5%, once consumers could visit stores again; this was still more than double the level it had been in 2012.
There’s no doubt that the eCommerce growth is having an impact, and as the retail industry continues to experience change and to evolve, there are many examples of traditional bricks’n’mortar business models being disrupted. In fact, the growth of eCommerce has often been blamed for the store and branch closures as consumers turn their backs on traditional stores, preferring the wider range, lower prices and convenience of purchasing online.
Without question, eCommerce was contributing to the decision of many retailers to close stores, but that was far from being the only headwind. Elevated debt burdens reduced the ability of some retailers to adapt to changing customer tastes and tipped others into administration, including high profile examples in the UK such as Debenhams and Wilko.
The Storm Clouds were gathering
What I wasn’t quite so aware of in mid 2022, was that the storm clouds were already gathering for even the largest online-only businesses. As the post-Covid boom in the Home and Garden Industry subsided, the reality began to kick in, and the combination of slowing sales growth, slim margins and a substantial rise in costs was already beginning to have an impact.
Investment in Google Advertising – Without stores, one of the only real ways to ensure customers can find your business today is to invest in Google and social media. Between the period Q1 2020 and Q2 2024, Google’s quarterly revenue more than doubled from $40.9 to $84.3 billion, much of it coming from online advertising. With so many businesses competing to be top of search, online only retailers are forced to increase investment or risk becoming invisible.
Escalating Delivery Costs – But it didn’t stop there, without stores, the only way to get your products into your customers hands is through delivery to their homes or place of their choice. Carriage costs were already high and have increased further in the last four years, compounded by several of the UK’s largest courier’s including Tuffnell’s Parcels falling into administration, as their business models failed to keep up with the eCommerce revolution.
Last Mile Delivery – With Amazon setting the standard and expectations for Last Mile Delivery, the once acceptable three-day lead-time was now being rejected by customers and online businesses were forced to compete, with firstly 48 hour and now next day being the acceptable norm, at far higher cost. Faster delivery became even more important for online businesses who were now having to compete with next day click’n’collect available from a nationwide network of physical store retailers, making this option easier for customers.
Returns – Most online businesses I come across in our industry have return rates of between 5% and 10%. It’s a significant and unfortunately unavoidable cost as consumers have been trained that they can buy, try and return without any real consequence.
The Epocalypse is already here
Within weeks of reading the Forrester article, the first example of what I thought was a very successful online business in the UK, collapsed into administration. www.made.com was a furniture and household retailer that gained significant traction in the market. It focused on offering stylish and affordable furniture through its website, catering to a broad customer base. The company fell into administration in November 2022 after facing financial difficulties. The business was subsequently sold to Next, with the deal involving the transfer of brand, websites, and intellectual property, but this did not include stock, staff, or other assets and liabilities.
This was followed in March 2023 by one of the UK’s favourite online homeware retailers, Cox & Cox and then in October 2023, one of the largest online only Bathroom retailers in the UK, Victoria Plum. Since then, there have been numerous examples of substantial online-only businesses who have succumbed to the dangerous combination of unavoidable escalating costs and tiny margins.
In early September Folkestone Fixings Limited, a £97m turnover tools specialist, submitted a notice of intention to appoint an administrator.
You have four options
For the companies and the thousands of staff involved, Forrester’s Retail Predictions of an Epocalypse were painfully accurate and completely changed my perspective on the likely future of our retail industry. At one stage, I genuinely feared for the future of physical retail, I believed the ‘death of the high street’ was coming and accepted that the growth of eCommerce was unstoppable. It was now crystal clear to me
that stores were actually the essential element of any retail proposition and that online and eCommerce on its own was vulnerable.
In conclusion, I’d like to share with you what Forrester said at the end of their report. To avoid the Epocalypse, they made four very clear recommendations to online-only businesses.
They suggested that the only way to survive was to:
- Open physical stores of their own.
- Develop shop-in-shop locations.
- Enter wholesale partnerships or
- Shut down your website.
Steve Collinge is an international speaker, influencer, retail commentator and is Managing Director of Insight Retail Group Ltd and executive editor of Insight DIY.
You can follow Steve on LinkedIn and X.
