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Threats To Online Retail Businesses – Part 3

By Andy Mulcahy - Editor at IMRG

Part 3 in our blog series – Threats For Online Retailers

In this series of blogs I’ve been looking at some of the modern potential threats to online retail businesses in a world currently characterised by rapid change (see previous editions focusing on the political climate and technology).

This week’s entry doesn’t really have a cosy overarching theme exactly – this series came about because I was asked to think of a list of threats – so you might think of the issues in this article as being ‘the stuff left over’. 

However, that is not to say that these are any less pressing as a consequence. Neither are the issues covered here the full list of everything that could pose a threat to online retail businesses in the future – there’s only so much information you can put in a blog post, and this is the third one in the series already…

So, without further ado and in no particular order, here are the remaining potential threats.

Thank you for the days?

I’ve talked elsewhere (and indeed continue to talk) at considerable length about Black Friday, so I’ll not delve into any great detail on it now. Instead, I’ll use some rather reductive bullet-point statements to illustrate the disruptive influence it has had in the UK.

  • The scale of it in 2014, when it ‘emerged’, was unprecedented
  • It fundamentally changed the pattern of peak trading
  • It won’t go away

Etc etc. What’s particularly interesting about Black Friday is the way it refuses to settle into a predictable pattern – in 2014 it massively compressed order volumes, in 2015 the shops were empty, in 2016 it stretched out over the whole week. In 2017 something else will probably change again, though exactly what or how is hard to forecast with any real certainty.

What is a bit more certain is that people have got used to the idea that there is a time of the year when there is an ‘event’ during which prices of products will get slashed heavily. Or, to be more precise, there are two – with Amazon’s Prime Day seemingly now being an established day in July (it has run for the past two years, at least).

And this is the crux of the issue. Having a sales bonanza in November is disruptive for Christmas trading; having one in July can potentially do the same for summer trading and who’s to say someone won’t try to launch new rival ones in spring and winter, to give us one for every season?

And let’s not forget that China’s Singles Day may be waiting in the wings. There are problems with importing it into the UK in its current form – 11/11 is remembrance day here, wouldn’t seem appropriate to try to reclaim it as a massive discounting day. But it could be interpreted rather than imported – after all, Black Friday went through the same process; it’s hardly connected to Thanksgiving in the UK, is it?

Should the retail calendar become even more divided up into a never-ending sequence of huge sales days, the impact could be profound. Would shoppers get fatigued if there were too many of them? Possibly, but it doesn’t remove the scope for at least some more such days to be shoehorned in somewhere.

Conclusion: expect some more very large retailers to at least attempt their own ‘Prime Day’, as distinct from the standard seasonal sales campaigns.

The British weather

Other than rain on a bank holiday, you just never know what you’re going to get from the British weather. While that can be a bit annoying if you’re planning a BBQ, this uncertainty can be highly disruptive for sales patterns. 

For example – since 2010 we’ve had a series of warm autumns / early winters, extending right throughout the Christmas period. In December just gone, it was 13 degrees where I was on Christmas Day. The year before, it was 15 degrees. Not good news for the recent mania for Christmas jumpers, as it’s too warm to wear them. 

And for trading patterns, the impact is often clear to see. The fact is that people don’t buy winter-wear when it’s still warm. The second the thermometer dips, retailers report a flurry of activity. In fact, the weather is one of the biggest determiners of shopper propensity to buy.

Stick or twist?

So if we’ve had years of warm (pre-Christmas, at least) winters, how should that affect approaches to buying-in stock? If it’s going to be too warm still for people to buy much winter-wear, should you buy-in less of it and try to mix up the overall product assortment accordingly? 

The problem, of course, is the ever-changeable nature of the British weather. A move away from stocking too much warm gear during the Christmas build-up would almost seem like a goad to the British weather to do its worst and freeze the country from October onwards.

Plus – with Black Friday now serving to compress sales volumes into a shorter timeframe, what kind of impact would it have if we had a layer of snow on the ground that delivery operations had to plough their way through, endeavouring to come good on next-day promises?

Conclusion: what can you do about the weather? Yet we may see further disruption to supply chains if the climate does, as anticipated, continue to warm; consider the recent courgette crisis

Cutting corners

The pressures on modern online retail businesses are consistent and insistent – Brexit and the devaluation of the pound, inflation, automation, ever-increasing competition – the list goes on.

It can be tough to secure continued growth in such a climate – and this can lead to a degree of corner-cutting by some in order to be as efficient as possible and protect margins. Which is something that isn’t lost on the media, who are always looking to expose these consequential elements of bad practice in business. Plus, once they identify it in one place, they go looking for evidence of it in others.

Three of the core themes for media in this area (there are others we could list too) recently have been:

  • Low-paid workers – use of workers paid well below the minimum wage in sub-contracted, often less visible parts of the supply chain; 
  • Delivery drivers – again getting low wages but also instances of having to work to extremely tough schedules; and
  • Tax – use of complex arrangements across multiple regions to avoid paying high rates.

Morale

But this is about more than avoiding bad PR or getting a panning on social media. If we consider the move toward automation in many business processes, staff morale could also become a major issue over the coming decade or so.


Image credit: Ilya Pavlov

For example – one of the areas in which automation seems set to have a major job-displacing impact going forward is in fulfilment operations. Drones, warehouse robotics and driverless vehicles could come to replace a lot of staff. To quantify the potential impact, a recent report put the number of retail jobs at risk in the UK at one million.

It may be a good idea to put some thought into how the process of increasing automation can be handled in a ‘human / humane’ way – just focusing on the efficiency benefits to the business is not likely to go down well with those staff at greatest risk of being replaced.

Conclusion: we live in an age defined by rapid change that can be tough to navigate, but cutting corners for short-term gain or ignoring the impact on staff can come back to bite.

Employees are getting more expensive

Connected to the above is the coming increase in two measures from April 2017 – the apprentice levy and the national minimum wage.

The apprentice levy is applicable to businesses with an annual pay bill of more than £3m (or are connected to companies whose total pay bill exceeds it). For the national minimum wage, there is a sliding scale of rate depending on age but, by way of example, for over 25s it is rising from £7.20 to £7.50.

Conclusion: pretty clear really, basically it means the average wage bill will go up. How big an impact that has depends on the size of the business, how many lower-skill workers they have etc, but it exerts greater pressure at a time when inflation is looming.

The kids are coming up fast

Time moves on and people get older. It’s such an obvious point, that it can be easy to miss what it means.

To help spell it out, consider this sequence. 20-somethings move into their 30s, 30-somethings into their 40s and so on and so forth. While this is hardly revolutionary information, the potential impact on retailers can actually be fairly profound – as each demographic falls into specific retailers’ target customer bases, but the people within those demographics are actually constantly (if gradually) shifting toward other demographic segments.

This illustrates the challenge of understanding what your customers want and how they want it – the people making up that demographic don’t stay the same. If your target demographic are typically in the 20-30 bracket, the channels and networks a 21-year-old has a preference for may be quite different from what the 29-year-old uses – they are the new entrants from a different generation who might see the world (not to mention consume it) differently.  

Just as how your mum and dad suddenly started using Facebook (to many of their children’s horror), so at some point they will start snapping regularly (by which time the kids will have moved onto something else to escape it, naturally). 

Conclusion: may be worth keeping a sharp eye on the demographic just behind your usual age bracket, as that’s who you should be planning for in the future. 

End of the series

I hope you’ve found this series of blogs useful in identifying areas to consider in this fast-changing period. You can view the previous articles from the series here: