Why e-tailers are turning to high-street distribution

The first network of online distribution outlets shows that rather than revolutionising retail, e-tailing may have to depend on the high street for delivery.

The story of the changing nature of shopping changes faster than the nature of shopping itself. At the height of the dot-com hubris, the story was that shops would cease to exist within months (or so it seemed), with all retailing going online. This was fairly quickly followed by the stories about survival of specific kinds of retailing – this was the line that ran “You can’t try on a jacket over the Internet”.

When the dot-com bubble burst, there was a good deal of revisionism about the e-tailing revolution. Suddenly, online champions had rediscovered distribution as a marketing function and the wiseacres were holding forth about how e-tailing was all very well, but you still needed White-Van Man to deliver the goods, literally and metaphorically.

Whatever their relative validity, these were stories born of the boom-and-bust period of febrile dot-com excitement. We were all, to some extent or another, making it up as we went along. Today, the nature-of-shopping story is developing in a recognisable and substantive way, free from the more fevered imaginations of those looking to make a fast buck.

It turns out that what’s happening is a process of e-volution, rather than revolution. Symptomatic of this is the news that Mancunian entrepreneur Brendan Flood has secured some modest backing – &£5m, which in the context of the cash that was being sprayed about in e-commerce a few months ago, tells its own story – to develop the first outlets in a network of home delivery and online distribution stores.

The venture is branded as e-stop and provides drive-through pick-up points in edge-of-town locations and other urban sites. The property sector has long been looking for the grounds for a commercial renaissance for light-industrial accommodation in such sites, which are rather prosaically called “sheds” by the property moguls. It would appear that Flood is handing them an imaginative solution, if hitherto boring property companies are visionary enough to grasp it.

I would imagine that the major superstore chains will note this development with interest. The online shopping ventures of Tesco, Sainsbury’s and Asda have had mixed success to date, the distribution factor being the key stumbling block. I have no doubt that Asda’s newish owner, Wal-Mart, will be addressing this, as will the other majors, but I suspect that sub-contracting the likes of Flood’s e-stop will be a proposition very much in all parties’ minds.

The nature of the stumbling block has been traffic congestion and the high cost of fragmented and small-order home delivery. With the economies of scale that e-stop can bring to bear through strategic alliances with the major retail chains, we’re looking at a mechanism that allows the majors to deliver in bulk and consumers to collect with geographical convenience.

We might ask what the difference is between driving to an e-stop and, say, driving to a Safeway, but the answer probably lies in speed of service and geographical convenience (as well as the ability to collect goods late into the night) for consumers. For retailers – and this development is as much supply-driven as it is about consumer demand – it takes away the whole problem of trying to assimilate online shopping with the clunky inefficiencies of White-Van Man.

The ramifications of this are wider than Flood’s initiative. I have mentioned a property sector that could do well by turning itself into something more 21st century than a collection of companies that build things. The property companies that will count over the next decade or so will be those that develop into logistics management as well. But there is also a case for suggesting that the retail sector is coming full circle in its solutions to distributive challenges and that, perversely, online shopping is set to provide a boost to those retailers that it was supposed to destroy.

During the last quarter of the previous century, we witnessed the near-destruction of the high street as it had developed as a retail market over the rest of the 20th century, through the growing establishment of the shopping mall and the out-of-town superstore. We have grown accustomed to the notion that the corner shop could not compete on variety or price.

I gather that, in the context of online distribution, the corner shop is to enjoy something of a reincarnation. On the same principle as e-stop, retail independents can offer similar local economies of scale to the major distributors. Whether it is organised on a federal or piecemeal basis, it clearly makes sense for bulk deliveries to be made to my local newsagent and for me to pick up my orders there.

It doesn’t, of course, have to be the newsagent, but the Asian-descent domination of that part of the retail sector does tend to mean that they will be open at the best times for customer collection. Such high-street retailers have the opportunity, too, to sell products alongside what is collected from the online distributor at the point-of-sale.

If anyone had suggested even three months ago that the Internet would offer such a lifeline to the high street, they would have had any sharp implements confiscated from them. But the nature of business development is often not unlike Mother Nature. Nothing is wasted.

George Pitcher is a partner of issue management consultancy Luther Pendragon

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