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Tuesday, 16 April 2013

Online webstores kill the brick-and-mortar stores, people say! Will this be the end of shops as we know them?!

In my mind and in my car, we can't rewind we've gone to far

Today, on 16 april 2013,  I have read two news messages on Dutch retail that were both alarming.

One message came from CBS’s daily press release, this Monday. This was the monthly data on the Dutch retail situation:

In Februari 2013, retail turnover was 4.8% down from the same month last year. The volume of sales shrank by a dramatic 7.2%, retail prices were 2.6% higher, as the most recent figures released by Statistics Netherlands show.

The main reason for the turnover slump was the fact that February had one shopping day less than February in leap year 2012. The effect thereof on retail turnover is estimated at approximately 4%.

The non-food sector in particular had a hard time of it. Turnover and sales volume dropped by more than 7 and nearly 9% respectively. Turnover was down across all non-food branches relative to twelve months ago. DIY shops and textile supermarkets suffered most.

For food, drinks and tobacco shops, turnover loss was just over 1%. Volume shrank by nearly 5%. The difference in the number of shopping days entirely accounted for the lower level of sales in this branch. After correction for this effect, turnover growth was about 2%, although volume still declined marginally.

Unlike traditional shops, mail-order companies and internet shops again generated turnover growth in February, but 1% was the smallest growth in this branch since January 2012.

These CBS data are alarming in their own right, but they give you hardly the big picture. I marked the red text, because there is something peculiar in it.

I can understand that the DIY shops had a hard time in Februari 2013, compared to Februari 2012. Last year, the weather changed dramatically for the better in The Netherlands, halfway-February. This year, the weather in February changed for the worse with winter again setting in. This will have had a negative effect on DIY sales, I guess.

Due to the prolonged winter, people didn’t feel a strong urge to refurbish their house and garden, this year. Nobody likes to do their garden or paint their house, when it is freezing cold.

More puzzling, however, is the declining sales in the textile supermarkets, as these are already at the lower end of the textile spectrum, with in general a very moderate price-level. Although the dropping temperature mid-February could have been of influence (you don’t think about summer clothes when it is freezing cold), I still consider this a worrisome signal. 

People might have skipped the purchase of new clothes, as they perhaps gave last year’s clothes a second round in 2013. This would be a strong signal that the crisis is in fact deepening in The Netherlands.

In order to show what the credit crisis has done to retail sales in The Netherlands, I collected the data since 2005. Although the price increases (caused by inflation and (especially) the (VAT-)tax increases by the Dutch government) blur the picture for the sales value (not printed in the chart), the sales volume litterally speaks volumes:

Retail sales development from 2005-2013
Data courtesy of
Click to enlarge
Since mid-2011, the sales volume in The Netherlands went down at an accelerated pace, with December 2012 being the worst December in many years. This was caused by the crisis, which gained momentum in 2012 and also by the VAT-increase with no less than 2% (to 21% from 19%) in October 2012.

In contrary to what the government pundits say (f.i. Dutch Central Planning Bureau), I don’t expect ANY improvement in the remainder of 2013. Call me a perma-bear, but I believe to have been more right than most government pundits during the last two years, since I started this blog.

Another piece of alarming, but not surprising news was the following article by Het Financieele Dagblad, about the disappearance of 2 million square meters in shopping space in the Dutch cities:

During the next seven years, the actual shopping space will decline strongly in urban areas. A total of two million square feet will disappear, according to an analysis by consultancy firm Booz & Company.

The decline means that 17% of total shopping space will disappear. The main reason is that buyers discovered the internet. Booz forecasts a strong decline in the number of brick-and-mortar fashion stores, as people buy fashion online more often. The number of fashion sold online will rise to about 25% in 2020 from 5.6% now. Today, 20% of electronics and household appiances are sold through the internet and this number will rise to approximately 40% in 2020. The sales in shopping streets and malls have declined by 7%, until Easter 2013. In the same period, the webshops sold 18% more.

These are indeed alarming data.

Nevertheless, you should be very careful with interpreting this data in the way that Booz & Company does for their conclusions. Especially the last red and bold sentences are treacherous; they could make you think that the 7% sales decline in brick-and-mortar stores is fully compensated by the 18% rise in webshops sales. This is not true at all.

For the very important non-food retail industry, about €45 billion of total annual sales came from brick-and-mortar stores, while only €4.2 billion came from online stores in 2011 (source: thuiswinkel). Although the data in 2013 might differ slightly from these two-year-old data, I don't expect very dramatical changes in sales for b&m and online stores.

When in a certain year the retail sales until the Easter period are roughly 20% of yearly sales, you could say that this is about €9 billion for 2011 (€45 billion/5). A 7% decline would amount to €630 million in loss of sales during the period until Easter.

The total online sales until Easter – using the same math – would be about €840 million in 2011. An 18% increase of this number would be about €151 million for this year. This means that less than 25% of brick-and-mortar sales decline is compensated by an increase in online sales. This will not be different for 2013, the year that these data apply to.

Still, I happen to agree with the prediction that Booz made for the disappearance of two millions square meters in shopping space. Not so much as a consequence of the assumption that the online shops will wipe-out competing brick-and-mortar stores. This will be an important factor, but not decisive in my humble opinion.

The excess availability of shopping space and shops is a much more important factor: many cities have built over-the-top amounts of shopping space during the last decade. They took the period 2005-2007 as the starting point for their required shopping space calculations, instead of treating it like the end point, that it was in reality.

Today, there is a massive excess of shopping space and (non-food) shops that cannot survive all in the coming years of austerity. It is exactly this excess space that will disappear from the market: not due to online shopping alone, but merely due to the diminished need for shopping space and non-food shops.

Another factor for the future decline in shopping sales and (thus) shopping space will be the fact that parking has become the cash cow of many, many municipalities, being strapped for cash.

Even the dullest shopping mall in the most rural city ‘pampers’ its fun-shoppers with the hated park-o-meters, requiring between €1.50 - €5 per hour. That really spoils the shopping experience.

My story on my hometown Almere-Buiten already showed how much the municipal greed can kill the retailers, especially at the shopping centers which are not very popular and do not have a pivotal function for their region.

Online shopping will be a factor in the coming seven years, but I wonder if the total sales of webstores will exceed 20% of total retail sales in 2020.

Real shopping is still much more fun than shopping behind your computer screen or iPad. And especially fashion, jewels and shoes are things that you want see on you, before you buy it.

On top of that, I expect that the ample possibilities for toll-free returning of non-fitting clothes and shoes might deteriorate in the coming years, as the rising number of returned clothes and rising postal fees pinch the (narrow) margins of online shops.

Summarizing: there will indeed be less shopping space in a number of years, but not (only) due to online shopping. The real reason will be the wipeout of the excess shopping space that we have nowadays. 

To summarize it in a Buggle-ish way: Just like video didn't kill the radio stars after all, I don't think that online webstores will wipe out the brick-and-mortar stores.

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