Which comes first the retail chicken or the e-tail egg?

This blog results from an interesting conversation I had with my friend Duncan Sutherland a few weeks ago.  Duncan is a bit of a retailing wizard, with an impressive track record in the traditional bricks and mortar retail sector.  He has been in the industry since the age of 22 working for household names like FW Woolworth and Marks and Spencer. When he was thirty the Board of Littlewoods engaged him to turn around the fortunes of the at that time ailing company. That done, John Hargreaves approached him to  help him establish a out-of-town retailer - Matalan. By the time Duncan left Matalan in 1998 the business had, from an almost  standing start, achieved a market value of £1bn.

Duncan then went on to become the CEO of Moss Bros, did a stint at Happit and built up the d2 chain that he later sold to Tom Hunter of Sports Division fame.  So what Duncan doesn’t know about traditional retailing would not fill the back of a bus ticket.

Our debate centred on where we would start a discount retailer; would we start with a base on the internet or use the more traditional way - bricks and mortar. Each model, we agreed, has its own set of advantages.

Briefly stated, for the entrepreneur the obvious advantage of an internet business is significant cost savings. There’s the hugely important cost of stock. In the e-commerce model you don’t necessarily have to stock all of your offerings. With the advent of drop shipping your supplier holds the stock and your website simply sends the orders direct from the consumer to the supplier.

But, the most important advantage for the retailer has to be the size of the potential customer base - it’s truly global. This coupled with the stock savings significantly cuts down costs associated with marketing, customer care, processing and so on.  Put simply you can e-mail the world for a fraction of the cost of sending out brochures to a limited number of people in one country.

What about set up costs in the e-commerce model?  Well that’s become a plus too. Ten or fifteen years ago it would have cost hundreds of thousands of pounds to set up an e-commerce business. Web development in an immature market was an expensive process; but these days you can buy a website in a box and be up and running within a couple of days.

How to take the cash from the consumer also threw up problems.  Payment processing a few years ago was a nightmare; today doesn’t everyone have PayPal and isn’t everyone happy to shop on line with their credit cards?? 

“All fine and well,” said Duncan, “But….” He agreed with me that e-commerce in the UK is growing faster then any other country; but what about the vast number of people who don’t buy from the internet?  This may be due to a lack of knowledge or a lack of trust. I vehemently disagree with this as a reason for not starting your business with a website.  Nowadays there are more than enough people happy to do business this way. The one Duncan argument, however, which has caused me a number of sleepless nights is – what, for a discounter, is the optimum business model.

After all, the whole discount retailer model is based on impulse buys and instant gratification.  You visit Poundland and the vast majority of the products you purchase are impulse buys. Websites are not good at providing instant gratification and the opportunity for impulse buys is greatly diminished.

So is there a hybrid model a model available to a start up business, a model which combines the benefits of online shopping with the instant gratification and the opportunity to sell some more in a physical shop?  Everyone knows that Amazon has been talking about opening distribution centres up and down the country. But does this model stack up for a new start? Definitely not, in my opinion. Duncan and I have been continuing our debate and have come up with some interesting solutions to this problem... more to follow next week.

(Behind St Brides Church)