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Online shopping will precipitate an economic collapse on the high street. Well so the mantra goes. A few years ago, the mere mention of the Internet sent many a retailer rushing to the thesaurus to come up with new ways to define a visit to the high street. “Customer experience” and “in-store theatre” became the watchwords for enticing customers away from PC-screens and into the shops.

But just when online shopping seemed to be taking off in the UK, with the launch of hundreds of new e-commerce sites, the bottom fell out of the business-to-consumer market. Memories of the e-meltdown last spring and a fall from grace of the dot-com businesses mean that many virtual retailers have lost much of their shine.

By the end of last year, there had been dozens of high-profile casualties including health and beauty site ClickMango, the CD-retailer Boxman and, of course, Boo.com.

Few pure-play brands (pure online brands) have managed to survive and all is not lost for high street shops as they have proved themselves more adept at filling the e-commerce gap than they ever were at rewriting the dictionary.

Filling in the gaps

Town centres remain universally free of tumbleweed because where the dot-coms have fallen by the wayside, the clicks-and-bricks retailers have been ready to step in. For every failed online CD-seller, there are sites at HMV or Virgin where you can buy CDs over the Internet.

Online and offline routes to markets have converged to the point where customers can research a product on their PC, order it over the Internet, track it’s progress over a WAP phone, collect it from a store or have it delivered to their home. Therefore understanding the way customers act is crucial.

“You have to strike the right balance between what the different media can offer,” says Coutts managing director Nigel Stern. “Dot-com retailers aren’t exempt from the vagaries of consumer behaviour – customers are just as disloyal online as they are in retail stores.”

That, as many a rueful venture capitalist will testify, is an understatement. With up to 70 per cent of start-up funds poured into marketing and advertising campaigns, investors have watched in dismay as the brand-building activities of the dot-coms have become little more than bottomless pits of debt.

But while the start-ups may have forced the offline shops to sharpen up their e-commerce activities, it has put them at a disadvantage where the bricks-and-clicks have been able to lever their strong, recognisable brands and shops, which act as physical contact points.

Time is running out for the virtual retailer. In a recent briefing, Kingfisher’s chief executive Sir Geoff Mulcahy voiced the view of the City when he said: “As e-commerce develops it’s becoming clear that simply being online isn’t enough. While much talk of the Internet’s impact on the retail market has emphasised price, quality of service and ease of use have emerged as even more important factors.”

Even the Internet’s image as a cyber bargain bucket may be evaporating as a unique selling point. Last September, the Goldfish e-tail price index by Datamonitor confirmed that although virtual retailers have reduced their prices by two per cent, the figure was almost matched by the clicks-and-bricks at 1.4 per cent.

But, Steve Reiman, a partner at the HPI Research Group, believes there are more touchy-feely reasons why companies with store networks have an advantage over the virtual retailers.

Two-way relationships

Reiman believes that as society uses electronic-based systems to shop, such as the Internet and interactive television (iTV), consumers will still seek reassurance and support from other people. He describes it as: “A kind of high-touch compensation,” explaining that HPI’s research has found very few cases where consumers abandon offline shopping completely.

“It’s fine having an online, one-to-one relationship with the supplier but, after a time, shopping on the Internet becomes sterile. People who shop online may do so for a few weeks, but typically, they will then go back to ‘normal’ shopping for a time,” explains Reiman.

“Purchasing behaviour becomes cyclical, so for services and enterprises to really succeed, they will need a balance between online and offline facilities,” he says.

Recent events serve as pointers to where the market is heading and the likely requisites for future success. Over the past 12 months, the number of dot-com’s moving onto the high street has accelerated, often as part of a strategic relationship or in a merger with an established high street retailer.

The online wedding site, Confetti.co.uk, for example was launched 18 months ago but has since extended its business through a series of acquisitions and partnerships with offline brands. Its first move into clicks-and-bricks was a deal with Moss Bros, the menswear retailer.

The move enabled Confetti to promote its online services via Moss Bros’s store network, while the retailer was able to tap into Confetti’s e-commerce capability.

Since the initial partnership with Moss Bros, further ventures with high street retailers have allowed Confetti to gain an offline foothold in every area of the marriage business, from booking honeymoons to providing wedding lists.

The wedding industry is estimated to be worth over £10bn across the UK, France and Germany alone. With this fact in mind, Confetti chief executive Andrew Doe points out that even a small percentage of the market makes it an attractive industry to be in.

“We want Confetti to be the leading wedding brand.

“Inevitably that means developing every channel to reach the market,” says Doe.

Whether this includes Confetti-branded high street stores remains to be seen.

“We already have a range of Confetti-branded merchandise that I could see being sold offline. But Confetti-branded stores? We’re not ruling it out, so who knows?” he asks.

Confetti has survived because it has a strong customer proposition, but other pure online brands that relied on more ephemeral benefits of online shopping, particularly in the clothing and entertainment markets, have been ruthlessly culled.

Customer Dynamics

According to David Batter, executive vide-president Europe at Impiric, part of the problem is that the dot-coms never really grasped the behavioural dynamics of the online consumer.

“Retail customers’ needs and behaviours are firmly established. In contrast, the clicks world is still defining the ‘norms’ for customers’ shopping behaviour,” he says.

For all its advantages of personalisation, the actual science of online decision-making is not well understood. Batter adds: “It sounds cynical, but retail point of sale is based on the importance of closing the transaction. In retail, you rarely hear ‘we’re not just about selling things, we’re investing in the long-term value of the customer base’.

“Most dot-coms provide information about a single brand or offer. It is up to the customer to shop around. In retail, the store owner has already made many brand filtering decisions and works hard to present customers with competing offers,” says Batter.

What it amounts to is that the online and offline businesses have to learn the rules of the new economy ad hoc. One of the major lessons learned is that those e-commerce businesses that harness the speed and entrepreneurial spirit of the start-ups with the corporate knowledge of the bricks-and-clicks are likely to be the ones that will survive in the long term.

With the days of the pure-play clicks effectively numbered, the future business model for online retailing is quite likely foreshadowed by shopping and community portal, Zoom.co.uk. Jointly financed by Arcadia, the retail group that owns high street brands including Top Shop and Racing Green, and Associated Newspapers that owns The Evening Standard, the company is able to leverage the assets of the parent companies to its own advantage.

“It’s easy to be wise after the event, but many of the dot-coms that have disappeared didn’t have a strong enough business model to survive,” says Jo Masako, advertising and sponsorship director at Zoom.co.uk. She cites the high proportion of money spent on marketing as a major contributor to many of the failures.

As part of a national store chain, Zoom has access to several marketing communication channels, including in-store promotions, till receipts and up to 5 million store-card holders. “You already have an existing relationship with customers,” explains Masako, who points out that Zoom has a policy that enables its online customers to return items to any store that is part of the Arcadia Group.

However, there is still a long way to go, says Mark Simon, founder and chief executive of The Chemistry, a networking hub that brings together e-commerce players. “Though there will be another dot-com shake-up this year, it’s healthy if you are to build a vibrant industry. E-commerce has been slower to take off than was predicted, but it is still the future. Entrepreneurs behind the failed start-ups will return, this time with more experience and knowledge to make the business models succeed,” he says.

So it would be wrong to assume that we are approaching the concluding chapter of the unfolding clicks-to-bricks story.