‘Reverse engineering’ sees physical retail driving online sales

Some have been quick to declare the end of traditional retail is nigh, but actually in the real world physical stores are making a comeback and driving online sales, rather than the other way around. 

In the UK, which is the most mature market in Europe and the first to embrace e-commerce, ‘we now see a kick-back into retail through things like showrooms,’ said Damian Harrington, Director, Head of EMEA Research, Colliers International. ‘Not just retailers and online retailers but also manufacturers are branding their goods on the high street’.

The reason is that ‘a lot of retailers have now realised that if they actually keep a presence in the high street or in a good shopping centre location, it actually drives the online traffic’, he said. ‘It is almost a reverse engineering of retail driving online, not the other way around. I think we will see that across different countries.’

E-commerce is still growing, but the rate of growth is declining, even though total consumption is rising. ‘Yes, a lot more shopping is done online and yes, click and collect is successful, but we are still going to be buying and picking up things from stores’, he said.

Colliers did a study of profitability in the retail sector and found that pure play online retailers’ margins are very tight and profitability close to zero, while omnichannel has good profit that benefits from scale and traditional retailers have the profit but not the scale.

Damian Harrington, Director, Head of EMEA Research, Colliers International

Ominchannel the way forward

The conclusion, Harrington said, is that ‘omnichannel certainly is the way forward, it is the way city retail is going to change’. 

The growth in omnichannel in turn fuels demand for big boxes and distribution centres across Europe because modern logistics is needed to service retail in and around cities.

The retail landscape is changing fast but the future is about integration, co-existence and mixed use, especially in cities where most people are choosing to live.

‘In cities you are not going to get a pure logistics product to work because you won’t get the rents to drive gross development value to match existing use value, so it’s about blending it with other uses, retail with offices and particularly with residential,’ Harrington said.

Residential as an investment sector is growing in Europe because, as urban populations grow, they need housing. ‘When the new houses are built and the new neighbourhoods created, what do people want there?’, he said. ‘The top two things, apart from access to good public transport, is shops and leisure so you have to blend all these things to make mixed-use communities work again. Mixing facilities is what will make the high street work’. 

All the new successful inner city locations in Europe like Battersea, Stratford or White City in London, up-and-coming suburbs in Paris or the areas to the North of Amsterdam have one thing in common, Harrington said: ‘They all have a strong element of retail’.

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