Friday, March 12, 2010

The end of the world is nigh, and other news

My mother probably gets frustrated that when she asks me any question along the lines of “where would I find...” I roll my eyes and reply “Google it” or “look on eBay”. My mum is no slouch – and no technophobe, but it takes time to learn new habits. I noticed myself doing something strange last week. I went online to buy a light bulb. It was an unusual type and I’m fed up of trailing round B&Q/ Asda failing to find the right ones and then coming home with the wrong thing. But even so, it was a very small purchase – online has historically been perceived to be cost effective only for bigger spends.

In fact, I looked back at my online shopping over the last year and was amazed by the number of transactions of less than a fiver. Crucially, the cost of delivery has ceased to be a limiting factor – presumably because it’s less than the cost of running a physical store. I don’t think I’m alone. MasterCard’s February SpendingPulse report claims that overall online spend rose 16.7% in the last year, while average transaction value online dropped 3.7%. They attribute this to a fundamental change in habits. (It’s US data, but the UK won’t be far behind).

Once every household is online (something governments across Europe promise to facilitate even for the disadvantaged), and we’ve all learned a few new habits, what will we do with all that empty high street? Apart from clothes shops, and impulse shops will we need actual bricks and mortar retail? How many consumer goods brands are really confident they can win new shoppers solely online? Brands like Apple and Nike have had flagship stores for years – masquerading as retail but really offering a good dose of brand experience. But a lot of categories will have to work very hard to create a true brand experience (what would actually happen in Ariel-Town?)

Worrying news for many, made worse by evidence emerging that the downturn has resulted in apparently permanent changes in consumers’ attitudes to ‘value’ – i.e. the importance of price. We are more willing to shop around for a bargain (as noted by the Wall Street Journal) and we place less faith in the quality promise of brands. Marketing Magazine reports a study showing 67% of people think store label products are as good as branded ones, with the same number saying they had switched to store label brands to save money, and 64% saying they wouldn’t switch back even if the economy picks up. It was always inevitable that the economic upheaval of 2009 would change the rules forever – I think we are just beginning to see the signs of what that means.