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INTERVIEW Christopher Jones of Altium Capital on investment prospects for the ecommerce sector

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Brands, shops and showrooms will all figure strongly in a maturing ecommerce market, according to a leading corporate finance adviser in the sector.

Christopher Jones, managing director of corporate finance house Altium Capital, tells Internet Retailing about his take on some of the trends that are coming to the fore as customers continue to look for convenience and price when shopping online.

Maturing sector

Ecommerce investors have matured in recent years. “Think back to the noughties and there were businesses that stuck .com on their name and thought on that basis someone would come along and pay tenfold for them,” says Christopher Jones, managing director of Altium Capital. “The sector has matured and buyers have become more discerning. Deals are happening but there’s a dawning recognition that the internet isn’t the cure for cancer when it comes to retail. I think people have stopped looking at the internet as a panacea, as an alternative to shops and have focused on making the two work more closely together. In many ways it’s about using physical retail to supplement what the internet can’t provide.

“We’ve seen a number of deals where more traditional retailers are behind the game and want to bulk out their ecommerce expertise. That is a more defensive element. We’ve seen consolidation among online retailers. It’s very much a scale game – it is tough being the weakling in the group. There are a number of consolidation plays, such as The Hut, where they’ve added a lot of scale to the business to exploit a very powerful engine behind it.”


It’s better to be a brand that sells its own products than a retailer selling third-party products when it comes to winning venture capital investment, says Jones. Price is king and it is hard to make money in sectors, such as beauty, where profit margins are tight. “Those customers are going to shop elsewhere if they can find a discount code or free P&P if you’re not offering it,” he says, adding: “Online retail has got quite tough for some people – tougher than it was five or six years ago. On the flip side, those retailers who control their own brand are a hell of a lot more protected.” He adds: “I wouldn’t take on a mandate for a business selling third-party beauty products for example because that’s a vicious place to earn a living. There are plenty of opportunities out there though.”

One key exception is in the luxury retail market. “The internet has become a “viciously competitive place to be,” says Jones. “The consumer is very promiscuous outside niche and hobbyist sectors. One niche that has been a bit more protected is luxury. The suppliers and brands are more choosy about how they work, and they work with merchants on the basis of availability and the curation of products.” There, he says, retailers such as Net-A-Porter, Matches and Germany luxury retailer MyTheresa [whose founders Altium advised on the company’s sale to the Neiman Marcus Group in 2014], excel by becoming a curator of products, advising and guiding customers on finding the right thing for them. “The consumer is going to them to better understand where trends are heading, and what’s hot and what’s not,” he says, adding: “The retailers are competing on product and product availability rather than price. It’s all about the products.”

But brands and etailers alike share the single biggest challenge: the rising cost of customer acquisition, whether through search or pay per click.

“I think it’s just the maturity of the sector: as markets mature they become more efficient and there’s no hiding place on the web,” says Jones. “Investors have become more attuned to that. There are little corners of the sector where life is a bit more comfortable, and luxury fashion would be an obvious one.”

Shops and showrooms

While it’s easy to sell some products purely online, customers want to see for themselves before they commit to spending on larger and more individual items, such as sofas. Ten years ago, says Jones, a sofa buyer would go to an out-of-town shopping centre with shops such as MFI or DFS and test out the various wares. The internet has changed all that. “Your customer starts their journey on the internet,” says Jones. “By the time they’re finished on the web they have done the purchase journey that someone would previously have done in-store. Therefore you only go to those stores where you’ve pre-qualified yourself as potentially buying something they’ve got, so people tend to be prepared to travel further for far fewer store visits because using the internet as part of their research.

“That has totally changed the landscape of UK retail because instead of having 90 to 100 stores to adequately cover the UK as they defined it, DFS now probably only need 50. That’s a massive challenge for the big beasts out there – the internet has fundamentally changed the way they do business.

“You’re finding pureplay online retailers are adopting physical retailers. is a case in point. They set their stall out as being the online model and then realised that a lot of people before they sign on the dotted line want to have a look at it. Everyone thinks of [Altium advised on its sale to CBPE Capital earlier this year] as being an online-only retailer – but 70% of people before they converted, would go to a single showroom in Chelsea. That showroom was turning over £15m to £16m, tucked away in a backwater along the Thames. Even if it is very difficult to get to a showroom, people will drive for two to three hours to get to see it for themselves, touch and feel.”

He adds: “If you’re off pitch you’re not reliant on passing trade but you also don’t get any time wasters. Everyone who comes through the door has searched you out. If you can only have qualified, valuable customers through your doors you can lavish a lot of time and attention on them.

“But whether you need stores totally depends on the category. The higher the propensity to look, touch, feel, the higher the conceptual barrier to converting online, whereas in many categories people are totally happy to buy online.

““It’s a really interesting space, we’re seeing selectively seeing trade buyers coming back into the market – there will always be private equity interest in this sector, particularly for the more disruptive sectors.”

Delivery as a competitive factor

Retailers hope that having super-fast fulfillment will give them a competitive advantage. Argos, indeed, has recently launched same-day delivery to enable it to get goods that are ordered at 6pm to their buyer that evening.

But Jones argues the fulfillment advantage, and that given by strong online service, can be only marginal. “Having a slick ecommerce engine is kind of a hygiene factor now,” he says. “If you’re not good at it you get punished, but I don’t think you get the credit for it that you might hope for or expect. Customer expectations or standards are very high when it comes to ecommerce.”

And while same-day delivery may help Argos fend off competition from Amazon, Jones says that’s not necessarily going to make it money. “Ultimately Argos is in some very low profit-margin categories and that’s a difficult place to be so it has to differentiate itself somehow.

“If you think about how the world has evolved, customer expectations keep marching on. Five or six years ago if you ordered something and got it in 48 hours you’d be delighted. Today you expect to go home, eat something, have supper, order online and still get it the next day. With all our ecommerce clients there’s an inexorable rise in delivery and despatch cut off times towards 9pm to 10pm. There’s a continual improvement – it’s a hygiene factor, you have to be competitive. Consumer expectations keep growing and you have to keep up with it.

“It’s become a bit of a scale thing – the lowest common denominator is Amazon which operates on a wafer-thin profit margin, so if even they can’t make anything from that sort of product. If you’re selling someone else’s product you’d better make sure you’re in a niche.”

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