Sharp retailers to exploit quality of service to cut down Net rivals

When Internet players run out of margins to cut, high-street retailers will be strong rivals on a battlefield where quality of service is what counts, says George Pitcher

This is the last column I shall write this millennium. Though perhaps not the most momentous landmark in the passing of the 20th century, it provides an opportunity to look ahead for a source of optimism in our business sector.

Lately, I’ve been banging on about corporate armageddon, what with the Seattle riots, overpriced equity markets, the return of hostile mega-bids, and the like. It’s time to look for something nicer to remark on.

I have decided on this: the start of the 21st century will be marked by a significant improvement in the quality of service in UK retail.

It will have less to do with a millennial and spiritual re-awakening of human nature and more to do with developmental pressures in the markets. But it is a source of pleasure and optimism nonetheless.

This is all the more comforting for the fact that a number of us predict another ghastly Christmas – in trading terms – for retailers. Consumers rumbled Christmas mark-ups long ago and will shop late and little, saving for what they rightly anticipate will be some fabulous price cuts in January.

The all-important home computer market, which is fairly smug about its present buoyancy, may do the volume, but its margins will have to narrow even more in the New Year. There’s nothing like a vibrant market for turning into the most dangerously competitive.

But enough of the Christmas trading gloom. I promised a bright prospect and that is what I intend to deliver. Why, then, do I anticipate a shift to renewed quality in the retail service culture – when everything would appear to point to slashed prices, in a depressed and competitive market – being the name of the game?

Part of the answer must be the consolidation of the industry’s weakening behemoths. As yet, we don’t know what is to become of Marks & Spencer, and under whose ownership. Nor do we know what the “Knutsford four”, under the direction of Archie Norman, may unbundle in their acquisitive ambitions: Storehouse, Somerfield, Sainsbury’s? We’ll see.

But what we do know is that the complacency with which the major retail chains could sit on their market shares are long gone. The economies of scale that will proceed from consolidation will naturally manifest themselves in price competitiveness.

There is no reason why such scale economies should not be applied to the qualitative edge of products and service. After all, the Americans can provide keenness in both, through a brisk economy and consolidated retail industry, so why can’t we?

The more urgent driver of service quality, however, is the creation of a new set of retail characteristics through the revolution that is on a par with the commercial development of the printing press in the 16th century, or the invention of the silicon chip. It is, of course, the Internet.

Don’t groan. I’m not about to launch into another diatribe about how the Net is changing our lives, and that soon we’ll all be buying cars through it. We’ve all said and heard that before. Remember, what I’m trying to prove is that retail service quality is about to improve dramatically across the sector – not just quality of service on the Net.

The Net is in an intermediate technological state; it is still slow and clunky. Early next century, the main commercial breakthrough will be simple Net access through our TV screens. Home shopping will have at last arrived.

But the real driver of service, both on the Net and the high street, will be the former’s cost-competitiveness. I don’t just mean the price-pressure Net sites can apply to the retail chains, though this is undoubtedly true. I mean price-pressure on the Net itself.

Take Net share-dealing services as a paradigm. Free-dealing offers are legion – revenue streams being delivered on the trading margin with brokers and linked advertising. Increasingly, such Net services will have to compete on quality of service. They will then find themselves on a battleground where high-street players can take them on. Convenience and price are battlefields where “real” retailers have faced insuperable odds. With service quality, virtual retailers are on weaker ground.

The most commonly used example of this circumstance is the fact that you can’t try on a jacket on the Net. You can, of course, try one on in a shop, go home and buy it cheaply on the Net. There is my point: the high street has an opportunity to secure custom at the quality level.

The bottom line is that the Net cannot compete solely on price indefinitely. It will have to embark on qualitative competition as it runs out of margins to cut. And, while it might be over a barrel on price, the high street can compete on service.

It’s a cheery thought for retail shareholders, as well as consumers. It’s also a happy one for retailers to take through Christmas and into the New Year.

And it’s one I supplement with my best wishes to all involved.

George Pitcher is a partner of issue management consultancy Luther Pendragon

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