Ian Cheshire of Kingfisher: “Everyone has got to worry about the internet”

As internet shopping becomes ever more popular, hypermarkets and enormous warehouse-style stores are beginning to look as futuristic as the woolly mammoth. When you can order online for delivery to your home, why spend money on expensive petrol to drive to a cavernous store and drag the kids along aisles as long as a football pitch in search of items that may not be in stock?

In January, when Tesco delivered a shock profits warning, chief executive Phil Clarke indicated that the days of massive new stores were over. He told reporters: "Do you need to build large hypermarkets in the UK when the internet is taking so much growth in electricals, in clothing, in general merchandise?"

Industry insiders say that it was probably a mistake for any supermarket to open stores over 60,000-70,000 sq ft, as it is becoming a challenge to fill them with enticing products when many things sell better online.

Of course supermarkets are not alone. Retailers across the UK are realising that they have too much physical space. The economic downturn, which has dampened retail sales growth, has only exaggerated a strategic shift towards the internet.

Consultancy Verdict Research says online sales have more than doubled to £26.3bn in the last five years and will rise to £40bn by 2015.

Big department stores like Marks & Spencer, John Lewis, House of Fraser and Debenhams are fighting back against online competition with clever multi-channel strategies. New services are merging the physical and virtual shopping experience such as "click and collect", where shoppers can order online and pick up in a store of their choice and "quick response" (QR) labels which, if scanned with a smartphone, can take shoppers straight to a mobile online store to get information or make a purchase. Some stores, such as Apple and House of Fraser, are experimenting with giving staff mobile internet devices such as iPads so that they are better able to answer queries from shoppers who now have access to a wealth of information via their mobile phone.

House of Fraser and rival John Lewis are also trying out much smaller stores supported by internet kiosks which give the opportunity to buy and get delivered a bigger range of products beyond those on display.

Even in DIY, where less than 6% of sales go online, retailers are preparing themselves for the future. DIY giant B&Q revealed last week that it is to refurbish its entire 358-store estate to improve the experience for shoppers. It is also investing heavily in internet and multi-channel services.

Ian Cheshire, chief executive, says: "Everyone has got to worry about the internet. Our biggest single investment in the UK is going to be multi-channel systems and infrastructure this year. If you are not investing in that you are going to be in trouble."

Supermarkets have not ignored online retailing. Tesco and rivals Asda, Sainsbury's and Waitrose all offer groceries and non-food online with "click and collect" services. They have been able to attract new shoppers to buy a massive range of fashion, homewares and electricals online, some of which does not appear in their stores.

Neil Saunders, managing director of retail consultancy Conlumino, says the supermarkets, and particularly Tesco, need to switch their focus into investing in their existing portfolio rather than opening new stores.

Even Amazon, the world's most successful online retailer, has its own struggles. The retailer has warned that it expects to make a full-year loss this year.

It's much easier to pick up clothing, DIY equipment or big electrical goods from a store. McKenna at Asda says: "People browse in store but might choose to shop online. You have to think of a joined up offer."

Enormous stores may need rethinking, but they are unlikely to become extinct in the near future.

Source : Sarah Butler - The Guardian
www.guardian.co.uk/business/2012/mar/04/online-shopping-changes-hypermarket-strategy?newsfeed=true