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Pureplays get physical

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What are the challenges and opportunities for online-only retailers?

AMID MUCH HYPE last year, Amazon opened its first bricks-and-mortar bookstore at Seattle’s University Village shopping centre. In May 2016, speaking at the company’s annual shareholder meeting, Jeff Bezos confirmed that Amazon has plans to open more stores. The irony of this hasn’t gone unnoticed: the retailer that did, and does, so much to power the growth of ecommerce is opening stores. It’s become a clicks-and-mortar retailer.

If even Amazon has been won over to the idea of physical stores, it’s tempting to suggest the era of the pureplay etailer is coming to an end. After all, the age of optimism-fuelled dotcom launches trying to secure first-mover advantage is long over, while retailers such as John Lewis and House of Fraser have proved it’s possible for long-established companies to reinvent themselves for the cross-channel era. If this is true, the 17% of the IREU Top 500 that are pureplay etailers are, it follows, potentially in trouble over the longer term.

In truth, this is a simplistic view of what’s going on. For a start, because of the way our research is weighted, any pureplay that makes the Top500 has to be generating far more revenue in online sales than a multichannel retailer. In reality, this 17% are often among Europe's most innovative retailers, and many, we would suggest, might even be considering following Amazon’s lead.

Whether they do or not will probably depend on the way these retailers’ business models develop over the coming years. It’s intriguing to note that around 50% of IREU pureplay retailers trade in the general fashion or consumer electronics sectors. These are sectors where many customers are price sensitive. It may be that many retailers will choose to stay online to keep overheads down. A byproduct of this may be to enable them to serve more territories: at 14.6, the average number of countries pureplays service is 11% higher than the average for the Top500 as a whole.

Other retailers, we suggest, will look to establish a physical presence, but not to build costly stores on traditional lines. In this context, Apple’s stores, designed around gathering customer information and making transactions as easy as possible to complete, are a glimpse of the future. From a different angle, ecommerce platform provider Demandware is rolling out a point-of-sale solution in the US, which will enable retailers to bring ecommerce techniques into the real world more effectively. The rise of pop-up shops goes on.

The wider point is that retail remains in a state of flux. New hybrids will continue to emerge and forward-looking retailers we currently think of as pureplays will drive many experiments. As even Jeff Bezos noted of Amazon’s real-world store initiative: “In these early days it’s all about learning, rather than trying to earn a lot of revenue.”
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