All around the UK high street stores lie abandoned. But this is not just a symptom of the recession taking its toll on consumers. It’s also a sign of “etail 3.0” – a new wave of online retailers offering shoppers a better experience, product range and value than they can find offline.
The first wave of etail involved online retailers undercutting their traditional counterparts on price. The second involved trying to create “experiences” online, rather than just slashing costs. But the third sees etailers surpassing their high street rivals with enhanced consumer offerings.
The industry body for global online retailing, IMRG, predicts that by the end of this year, 20% of the UK’s £300bn retail business will be e-commerce. Fashion brands such as ASOS (originally “As seen on screen”), Net-A-Porter, jewellery and diamond specialists Blue Nile, optician business Glasses Direct and many others are providing sophisticated customer-focused experiences that leave their high street rivals trailing in their wake.
High street fashion retailers are traditionally some of the worst culprits for poor websites. Over-focused on making the websites look pretty, they have hitherto overlooked that the successful online fashion retailers fully embrace the whole consumer-centric concept of ecommerce and also manage to look good.
Jamie Murray-Wells, founder of online spectacles company, Glasses Direct, embodies this third wave of customer-centric web businesses. Murray-Wells recently received a Queen’s Award for Enterprise – at 26, he is the youngest ever recipient – but more tellingly, he also recently secured £10m venture capital funding to invest in his UK business and launch an attack on the US market.
Murray-Wells says: “Things like value and range are as necessary in ecommerce as in other lines of business – it’s the bread and butter. But as companies like Amazon have found, as you mature as a business, where the real headroom exists is in how you delight and surprise customers.”
Glasses Direct exemplifies the etail 3.0 trend by taking the disadvantages and restrictions of an online business selling apparel – the inability to try things on – and using innovative marketing methods and delivery tactics, to create an experience not available on the high street.
For example, Murray-Wells allows consumers to select four pairs of glasses to be sent to them for trial, decide which ones they like, then return the rejects free in a specially designed box. No high street operator could hold the necessary stock in its branches to make an offer of this type.
In a high street outlet, consumers can only shop for glasses in one way, with products bracketed in categories such as “rimless” or “designer”. Online, Glasses Direct is able to offer new and multiple ways of looking for glasses by devising searches so that people can look for frames made of a particular material, colour or to suit a particular face shape or hair style. The company is even working on technologies that will suggest frames to users based on lifestyle questions.
A team of facial recognition experts in Paris have developed a “virtual mirror’, a piece of software that allows users to virtually place the glasses on their heads and try them on online. Users can upload a picture of themselves, see themselves in several different pairs and send the results to their Facebook page or other social networking destination, or post on the Glasses Direct community forum and ask other users what they think.
Murray-Wells believes the social element of buying glasses is an important one. “We think people bring partners and friends into an opticians for their input more often than they do when they are, say, buying a dress.” But no high street optician can offer the range of opinions facilitated by Glasses Direct with its social and virtual technology.
Glasses Direct has been running since 2004, when Murray-Wells, then a student, founded Glasses Direct to allow people to buy prescription glasses online at a cheaper price than they would through a high street equivalent. He has been backed by figures such as David Magliano, the former London 2012 bid and easyJet marketer, who helped Glasses Direct with its initial marketing strategy.
Murray-Wells was not just keen to undercut his traditional rivals but from the start was looking for an industry about to “flip over” and take online retail further than the bricks-and-mortar equivalent. A spectacles webstore was the third idea he considered. Before that, he had looked at a sports betting scheme and a property reverse auction idea. He remembers: “All the generic industries, like books, airline tickets and DVDs had already flipped. Glasses was such a ‘high-touch’ product, it had been left alone.”
He claims that the online portion of overall sectors that have “flipped” onto the web will ultimately be 10-15% and in some cases as much as 20%. When one considers the combined US and UK spectacles market is £28bn, the online share of that is a serious chunk of money. Murray-Wells says: “It’s our challenge to remain the company that has the biggest part of that chunk.”
It is not just Murray-Wells that has taken etailing further than retailing. One soar-away success is US-based website Zappos, founded in 1999 as an online footwear retailer but which has now expanded into a variety of goods. It boasts 10 million customers and, in 2008, gross sales of $1bn (£660m).
Led by chief executive Tony Hseih, Zappos practises a consumer-centric philosophy that many try to emulate. In 1999 the idea of selling shoes on the internet was seen as a major challenge. Hseih took this as an opportunity to offer something not available on the high street.
He put in place a system of free (often overnight) shipping, 365-day free returns policy and developed an über-responsive customer service mantra. Hseih’s central tenet is to “deliver the ‘wow’ through service”.
To manage this, Hseih says he had to “untrain” employees from “bad habits” they had acquired in previous call centre or customer service jobs where they had been taught to be more efficient by minimising the time they talk to the consumer. “The more time we spend with customers on the phone, the deeper the relationship will be,” he says.
Zappos uses social networking with Facebook, Twitter, YouTube and its own blogs helping to engage its customers in a continuous dialogue. The use of real employees in its social network marketing has provided the firm with a human face. The company says it does not use social networks as sales tools but as a way to show customers that there are real people behind the company.
Zappos has had since 1999 to develop but its focus on the service aspect of its business is critical. Murray-Wells says this is also vital for his brand. He describes the “smaller things” Glasses Direct does, such as sending out little gifts with its glasses or perhaps a handwritten note from the person in dispatch.
“These are the kind of touches where, if everyone is competing on value and range, you can really differentiate. This is the stuff that makes your brand sparkle,” he suggests.
Online jewellery retailer Blue Nile also aims to add the personal touch but through providing consumers with more information than they could ever hope to gain in store. It provides large amounts of detail about its products, approachable on-call consultants and a build-your-own engagement ring section. Software allows users to compare the difference between how a half carat and 0.75 carat diamond, for example, look on the average finger.
It is possible to search by budget, material, cut or product type. Users can choose pre-set pieces or select a loose stone. Furthermore, Blue Nile has an enormous selection of stones, with more than 60,000 available in a variety of shapes and sizes – far more than any high street jeweller could offer an extremely discerning customer.
Buying jewellery both on- and offline involves the consumer perceiving a certain value in the experience and understanding clearly why items are priced a certain way. Helping consumers make informed, confusion-free purchases is the backbone of Blue Nile, and thus the site is able to appear more reassuring than physical retailers.
Online luxury store Net-A-Porter, founded nine years ago by Natalie Massenet, is another etail brand that has brought about a fundamental shift in how consumers behave within a sector. It has added the luxury experience to online fashion retailing. Net-A-Porter has proved that people are willing to commit large sums of money to online fashion purchases, contrary to popular wisdom.
Furthermore, last month Massenet launched a sister site, theOutnet.com, which offers past season items from all the designer brands on Net-A-Porter at knock-down prices. Quick to spot a trend, Massanet says she had been thinking about launching a dedicated “outlet” store for “quite a while” because she had noticed Net-A-Porter’s sale section attracted a different kind of customer and created theOutnet as a specific online destination for that person.
ASOS is another online fashion retailer putting the high street to shame. Last month, it brushed aside the fears that have high street fashion retailers wringing their hands. In March, it reported its annual sales had more than doubled, reaching £165m and predicted it would see another year of strong growth in 2009 with further international expansion (see Viewpoint, below).
Dean Benson, director of Visualsoft, which creates ecommerce solutions for companies, agrees that the high street is paying the price for implementing online techniques poorly. He says: “Woolworths had a website but didn’t use it, and online operators like Play.com and Amazon just took the business from under it. Woolworths was left with only declining store sales.”
Benson believes many high street retailers are guilty of failing to understand their online businesses. He advises: “Websites need to take the customer through the experience, remembering that there is no tactile experience online. Businesses have to, as closely as possible, match what the customer would do in store. If they can address their concerns about buying online then they will see their conversion rates increase.”
Benson stresses that retailers need to put time and effort into presenting their information. “You can’t just throw stuff up online with a scrappy picture and expect to sell it, just as you wouldn’t just sling things on a hanger and not put a ticket on it in a retail shop.”
Although web-only operators have the benefit of centralised distribution, which gives advantages in terms of stock and range, many are still young businesses and have yet to establish the kind of trust and heritage some high street retailers have built decades establishing.
Trusted brand names could go some way to addressing one of the potential online consumers’ number one fears: fraud. According to a report by the Office of Fair Trading, almost a third of internet users are still not shopping online due to security concerns.
High street stores may find the time is running out for them to leverage this asset and find real traction online when others are establishing a level of consumer confidence that is already allowing them to diversify. Amazon, for example, is reaping the rewards of expanding beyond its core offering of DVDs, books and CDs and in its recent results, it reported 40% of its business is now accounted for by the other products it offers, such as jewellery and electricals.
It all sounds like grim news for traditional retailers. But Benson says some are catching on. “The smart retailers are beginning to create a convergence between the two, bringing the high street and web offerings together. Comet’s website, for example, sells to customers but also encourages them to come in store.”
Those looking for inspiration could learn from high street music and film retailer HMV. Seeing the writing on the wall for its core offering of music and film in stores and determined not to go the way of doomed competitor Zavvi, HMV has diversified into several new and unexpected areas.
A move into the UK live music business earlier this year may allow HMV consumers exclusive content and other potential benefits. And this month the company announced it was putting cinemas above its stores in a partnership with cinema chain Curzon Artificial Eye. The idea, says HMV Group chief executive Simon Fox is to “get HMV’s customers even closer to the entertainment content they love”.
It will be tricky for traditional retailers to compete with the extra benefits offered by online brands in the age of etail 3.0. They will need to leverage the trust in their brands and translate that into offering extra value. If they cannot do this, the fourth wave of etail may well be the one that finishes off the Saturday out shopping on the high street completely.