Almost one in three online retail firms in the North West are at greater than normal risk of failure – a higher proportion than high-street clothing, footwear or general retail stores, according to new research by the insolvency trade body R3.
It says the figures challenge the common perception that selling online is a safe alternative to running a ‘bricks and mortar’ store. They show 30% of regional e-commerce businesses are at higher than normal risk, compared to 23% of department-type stores, 24% of clothing stores and 25% of footwear or leather goods stores.
Paul Barber, the North West regional Chair of R3 and a Partner at Begbies Traynor, said that while to some extent the figures reflect the high proportion of small firms and start-ups operating in e-commerce, they also demonstrate the particular challenges that e-commerce firms face.
“Today’s technology allows even the smallest firms to sell online but with such low barriers to entry, there is intense competition,” he says. “There is a danger that retailers can become engaged in a ‘race to the bottom’, trying to undercut each other to the point their business becomes unsustainable. We have seen cases where they are now competing directly with the importer or manufacturer from countries like China which are selling directly to their UK customers at prices they cannot hope to match.
“Online retailers may also face distribution problems and high levels of returns and, as e-commerce becomes ever more sophisticated, they need the skills to drive traffic and constantly enhance the user experience to keep up with rivals.”
However, Paul Barber said that for ‘bricks and mortar’ retailer, there was the sense of a ‘two-track economy’ with those in the ‘big three’ shopping destinations of Manchester and Liverpool city centers and the Trafford Centre faring better than their counterparts in local town centers. While UK retail sales growth reached a 14-year high in November, there was also some evidence that sales may be starting to slow as inflation pushes up prices.
The R3 figures confirm that music stores have been almost eradicated from North West high streets. However home furnishings stores, which suffered badly during the last recession, have made a comeback with just 22% at higher than normal risk in the region, while surprisingly bookshops – another early victim of the internet – are now one of the most stable retail sectors, with just 16% of businesses at elevated risk.
Paul Barber added: “Bookshops were one of the first casualties of the internet but those which have survived have successfully transformed their business model, becoming destination venues and attracting a new generation of book lovers. It demonstrates that high street stores which do adapt and embrace change management can still hold their own even in the face of tough online competition.”