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Impact of E-commerce on Brick-and-Mortar Stores in London
Abstract
In the wake of the internet, the advent of electronic commerce and the growing popularity of online shopping, brick-and-mortar stores have become endangered and their future looks bleak. Modern cities renowned traditionally as shopping destinations are in danger of losing their reputation and economic contribution from the retail industry is shopping is conducted online. Already, major retail brands in London and other large cities are either under administration due to bankruptcy threats, are closing shop or are reinventing their business models. This study sought to identify how electronic commerce had impacted the brick-and-mortar street stores in London in a bid to understand the improved efficiency of online stores and project the future of the brick-and-mortar stores in large cities. A qualitative study using secondary sources was used to answer the research question on what is the impact of e-commerce on the brick-and-mortar stores in London. The study revealed that electronic commerce had presented challenges to many brick-and-mortar stores, with some shops closing down, increasing the vacancy of retail space in London. Moreover, while some retailers had exited the retail industry and laid off workers, others had embraced e-commerce by opening online shopping sites. Therefore, the omnichannel model was recommended to London high street retailers to remain competitive in the rapidly changing retail environment.
Table of Contents
1.1 Brief Description of the Background. 4
1.2 Research Aims, Question and Objectives of the Study. 5
1.3 Justification of the Study. 5
2.1 The Internet and Electronic Commerce. 6
2.2 Online Stores vs. Brick-and-Mortar Stores. 7
2.3 Advantages and Disadvantages of Online and Physical Shops. 8
2.4 The Retail Sector in the United Kingdom.. 9
4.0 Findings and Discussion. 11
4.1 State of Retail in London. 11
4.2 The challenges that confronted street stores in London. 13
4.3 How were street shops in London dealing with the challenges presented by e-commerce? 15
4.4 The future of street shops in London. 16
5.0 Conclusion and Recommendations. 17
Appendix 1: Factors driving the adoption of electronic commerce. 22
Appendix 2: Transformation of the retail industry. 22
Appendix 3: The changing role of the retail store. 23
Appendix 4: Distribution of retail areas in London. 23
Appendix 5: The density of retail units in London. 24
Appendix 6: Penetration of online retail in the United Kingdom.. 24
1.0 Introduction
1.1 Brief Description of the Background
The internet is a revolutionary technology that has impacted all spheres of modern life. Many aspects of daily life have been made simpler, more convenient and faster, courtesy of the internet. Besides, mobile technology and social media have made it possible for people to seek, create and share information and transact business at their convenience. As such, spatial and temporal barriers have been reduced or eliminated by these technological advancements (Laudon and Guercio Traver 6). The internet has become ubiquitous globally, with countries like the United Kingdom experiencing almost 100 % connectivity. As such, in the contemporary society, many adults are becoming accustomed to the digital way of doing things, while children are growing up in a digitized environment (Hagberg, Sundstrom and Egels-Zandén 694). Therefore, the younger generation is expected to become adults who are reliant on the internet for their daily activities in future.
Electronic commerce is one of the innovations based on the internet, with the traditional conduct of business being forced to adjust to the increasing popularity of online approaches. The retail industry has been especially transformed by the advent of electronic commerce, with the traditional brick-and-mortar stores struggling for survival. Notably, the shopping experience, purchasing decisions and customer behaviour have changed since the advent of electronic commerce. Shoppers are now able to click on a computer or smartphone to choose between different products and services, compare their prices, purchase them, share usage experiences and provide feedback to business owners (Piotrowicz and Cuthbertson 6).
The retail sector is digitizing rapidly and online shops are increasing at a phenomenal rate. In the United Kingdom, 20 % of the retail sales are attributed to online transactions currently, which is projected to reach 53 % in the next decade (Butler). Also, by 2028, online shopping is projected to more than double its retail market share (Butler). Already, the brick-and-mortar stores are experiencing the competitive pressure from online shops, with some of them opting to reinvent their business model, while others are closing down altogether.
1.2 Research Aims, Question and Objectives of the Study
This study sought to identify the emerging issues affecting brick-and-mortar stores in London due to the upsurge in electronic commerce, why online shops were more efficient and how the traditional street shops were addressing this trend to remain relevant and reduce damages. In addressing these issues, this study seeks to answer the question on what is the impact of e-commerce on the brick-and-mortar stores in London. Therefore, the objectives of this study included:
- To explore the challenges that confronted street stores in the retail sector
- To compare the efficiency of online and the brick-and-mortar stores
- To identify the approached used by street stores to address the challenges presented by electronic commerce
- To project the future of the brick-and-mortar stores
1.3 Justification of the Study
The purpose of this study is to outline the issues faced by the brick-and-mortar stores and determine how new electronic commerce technologies created online shops that are more successful than street stores. The rise of e-commerce is a global phenomenon that is experienced most in developed countries and cities that have a well-established retail sector. For instance, the United Kingdom, and specifically London, is a renowned retail centre in which many world-famed brands have a strong foothold. The streets of London have been lined with street shops that make the city a shopping destination. However, upcoming retailers and online startups are using electronic commerce to outcompete the traditional brick-and-mortar stores and transforming the entire retail environment, threatening the traditional street shop model. Already, renowned UK retailers such as Bathstore have been forced into administration to avoid bankruptcy, while others like Marks & Spencer, Topshop and Debenhams the plan to close their brick-and-mortar stores in future because of the pressure from online stores (Butler). However, many others have embraced electronic commerce, which has called for a reinvention of their business models to remain relevant and survive in the highly-competitive retail sector. Therefore, in these circumstances, it is important to understand why the electronic commerce retail model is more successful than the traditional street store model if the brick and mortar stores are to survive in London and other large modern cities in the world. Moreover, it is also pertinent to identify what street stores were doing to address these challenges to secure their future in the retail industry.
2.0 Literature Review
2.1 The Internet and Electronic Commerce
Electronic commerce (e-commerce) is the commercial transaction between people and organisations in society using internet technologies. The term is commonly used alongside internet retailing ad internet shopping (Visser, Nemoto and Browne 16). Due to the rapid development of the internet, e-commerce was integrated in business activities in the mid-1990, and has been growing ever since (Scarpi 233).
Awa, Ojiabo and Emecheta (573) described how the adoption of electronic commerce can be explained using theoretical frameworks such as the theory of planned behaviour (TPB), the theory of reasoned action (TRA), the technology acceptance model (TAM), and the technology-organisation-environment (T-O-E) model. According to TAM, the perceived ease of use and the perceived usefulness influenced the adoption of information technology. In addition, TPB added subjective norms and behavioural control to the technology adoption process. The two theories were tied together by TRA, which posited that the adoption of technology was a reasoned and deliberate process. The TOE framework posited that technology adoption was influenced by the industry environment, conditions that influenced business and organisational reconfiguration, and technology development. By combining these theories, Awa, Ojiabo and Emecheta (575) arrived at 18 constructs that ultimately influenced the adoption of electronic commerce by businesses as summarised in appendix 1. Hallikainen and Laukkanen (104) indicated that trust played a major role in the adoption of electronic commerce and influenced the distinction between online buyers and non-buyers. Besides, trust in e-commerce platforms increased purchase intentions and reinforced the relationship between website appeal and buying intentions (Liu et al. 752).
2.2 Online Stores vs. Brick-and-Mortar Stores
Hånell et al. (12) contended that online stores experienced few market entry barriers that enabled retailers to internationalise their business with ease. However, the online models used were influenced by competition, resources and institutions. Herring, Wachinger and Wigley (4) observed that physical store attributed their growth on the replication of proven store formats across new catchment areas. However, the advent of e-commerce and its virtual space concept had lessened the need for physical stores as illustrated in appendix 2. They also noted that retailers were conflicted in adopting online strategies, with the finance departments being sceptical about adopting new and unproven online technologies, while IT experts advocated the adoption of digital strategies. As such, the management of retail enterprises found themselves with excess physical retail space, while being hesitant to adopt electronic commerce models because of their fixed mindsets. Besides, Herring, Wachinger and Wigley (4) noted that online retailers such as Amazon had pressured traditional retailers by lowering prices by between 13 and 20 %, reducing the footfall and diminishing the return on capital on physical outlets.
However, physical stores were not obsolete; rather they played a different role in the retail sector as illustrated in appendix 3 (Herring, Wachinger and Wigley 5). Online retailers were using physical locations to display their wares in a multichannel business model. Allcock noted that 67 % of renowned online brands had opened brick-and-mortar stores in the 2014-2017 period.
2.3 Advantages and Disadvantages of Online and Physical Shops
Online stores present numerous advantages to the business and consumers. According to Madahi and Sukati (140), Piotrowicz and Cuthbertson (6) and Roy, the benefits to businesses include, firstly, the lowering of the entry barriers into the retail market and thus, easing access to markets. Secondly, they can widen markets by enabling retailers to sell their wares without time and distance constraints. Besides, they can grow rapidly because they can be easily scaled up without experiencing the traditional constraints associated the retail growth. Thirdly, online shops enable the use of tools to gather customer intelligence, which improves customer targeting and the personalisation of customer shopping experiences. Fourthly, online outlets can be cost effective by eliminating the need for retail premises and their accompanying staff. However, online retail stores present several disadvantages to the business owners. Firstly, establishing trust from customers is challenging because of the limited face-to-face interaction between the staff and customers. Secondly, they expose the retailer to numerous legal issues related to customer rights and protection. Thirdly, online stores are susceptible to cybercrime, which can lose retailers huge amounts of money, let alone the high cost of litigations and the fines and compensation that may result. Fourthly, online stores require a significant investment in infrastructure to support order fulfilment activities such as warehousing and delivery or collection points for customers (Jung, Cho and Lee 2080).
To the customers, online stores present benefits such as increased convenience because of the ability to shop in real-time from any location at any time. Also, online stores enable the comparison of prices across different retailers, thus enabling the customer identify and access discounts and special offers. The customer can also compare the quality of the product or service based on the reviews posted by previous customers. This allows shoppers to cut on their shopping expenditure and travel while obtaining value for their money (Piotrowicz and Cuthbertson 6; Suel and Polak 148).
Herring, Wachinger and Wigley (6) observed that physical outlets offered instant gratification to customers by satisfying impulsive buyers, enabled customers to interact with the brand and merchandise, provided sites for social interaction and entertainment and were convenient when in close proximity. However, the customer may be defrauded if cyber criminals obtain personal information related to bank accounts, credit and debit cards and other online payment modes. In addition, customers may be dissatisfied with the product or service if it does not match its description on the shop’s website. According to Allcock, physical stores were advantageous because they enhanced the shopping experience by allowing customers to interact with the brand and products, and provided an avenue for conducting market research due to enabling the observation of customers and their interactions.
2.4 The Retail Sector in the United Kingdom
Although online shopping was increasing in the UK, many Britons still preferred visiting physical shops (Butler). Meng (20) noted that the ICO Cookie Law and the data protection law of 1998, alongside other regulations, protected consumers from the misuse of electronic commerce. A study by Clarke, Thompson and Birkin (389) revealed that the usage of e-commerce in the UK was influenced the income and age of consumers, their distance from physical stores and whether they were located in urban or rural settings. Altogether, Britons aged between 25 and 44 years, living in cities or far from supermarkets, affluent and male were more likely to engage in online shopping compared to the rest of the population in the country.
However, Eley and Wright noted that the retailing sector in the country was in crisis because online shops had cased loss of jobs, particularly by women. They reported that about 60,000 retail jobs had been lost in the UK in 2018, threatening the retail outlets along high streets. Moreover, traditional retailers were either in receivership/administration, had been acquired by other retailers or had closed down due to the onslaught of online shopping. Examples such as BHS and Debenham’s were cited as victims of electronic commerce in the UK.
3.0 Methodology
3.1 Research Method
A qualitative research using secondary resources was used in this study. The qualitative approach was used because it gives in-depth information regarding a phenomenon using a wide selection of strategies. Moreover, it is preferable for investigating phenomena in their natural settings, thus providing enormous detail about events that cannot be studied in controlled or experimental conditions. Likewise, the secondary data was preferred due to its cost effectiveness, ready availability though online technology, wide variety of information and time-saving potential. Altogether, the qualitative secondary data approach suited this study by fitting into the time and resource constraints, while addressing the research question comprehensively.
3.2 Study Setting
London was chosen as the setting for this study because of its reputation as a global retail centre and a shopping destination of the world. Its numerous street shops that host world-famous brands made London a site from where the effects of e-commerce on brick-and-mortar stores can be studied. Besides, the competitiveness that pits brick-and-mortar stores against online stores is evident in London as street stores struggle with the rapidly changing retail environment.
3.3 Data Collection
Secondary data was obtained from online sources. Online search was conducted using Google Scholar search engine and the University of Westminster library. Academic journals, books, new articles and industry reports that did not exceed 10 years were obtained and perused for relevant secondary data.
3.4 Data Analysis
The information from these sources was sorted and analysed thematically to aid the answering of the research questions in this study. Emerging themes were identified, noted and presented descriptively, addressing the research question and attending to the study objectives.
4.0 Findings and Discussion
4.1 State of Retail in London
London is a leading international commerce and business centre globally covering an area of about 1,500 square kilometres with an estimated population of over 8.7 million residents. Being the capital of the UK, London has a vibrant retail industry, which was driving the city’s and the country’s economy. The city had about 43,000 retail outlets occupying about 17 million square meters of floor space (Barett 9). Although most of the retailing activity was concentrated in central London, each of its 32 boroughs has retail activity as illustrated in appendix 4. While some boroughs in central London have between 500 and 1000 retail units per square kilometre, the rest of them had at least one area with at least 50 outlets per square kilometre as displayed in appendix 5. The large retail stores in the city were found along New Bond Street, Regent Street and Oxford Street in central London (UNC-SBRP).
The largest retail floor space was found in Croydon, Kensington and Westminster, while the least was in boroughs such as Barking, City of London and Dagenham. The retail outlets served London households as well as tourist and commuters. While tourist frequented the high profile retail outlets located in Knightsbridge, west end, Ealing Broadway and Victoria Street, commuters preferred Bishopsgate, Liverpool Street and London Bridge because of their transportation connectivity. In addition, household spending was higher in South and West London, while commuter and tourist spending dominated the stores in central London. Adoption of e-commerce was most visible in the online sales of books and music, with consumer electronics and fashion gaining traction as illustrated in appendix 6 (Savills Commercial Research 3).
The retail sector of London contributed to the economy by accounting for about 40 % of the money spent in the city. It also supported other industries such as real estate, warehousing, transport, logistics, financial service, tourism, and construction. Moreover, the retail sector was a major employer in the city, employing about 400,000 people comprising mainly of the youth, women and part-time workers (Barett 8; UNC-SBRP).
London was attracting international brands into its retail market with 57 of them having set shop in the city by November of 2019, which were up from 55 new openings in 2018. The food and beverage segment led the new retail entrants accounting for 44 %, followed by the fashion segment, which attracted 37 % newcomers. For instance, the French-based Sezane’s, Rains from Denmark, and Bluemint from Turkey opened permanent physical stores along Westbourne Grove, Upper Street and King’s Road respectively in 2018. Other notable entrants included Blaiz from Latin America and Chloe from the United States. Notably, most of the new entrants came from the European Union, accounting for 63.6 % of new entrants into London in 2018. Retailers from the Asia-Pacific region increase four-fold in London accounting for 15.2 % of the city’s new entrants. Besides, many other large retailers had entered the London market as online retailers due to the ease of overcoming international barriers (Hånell et al, 6).
However, the city was also experiencing decline in occupancy of retail premises in its high streets. It was estimated that in the first half of 2019, 16 stores shut down, while only 9 new ones opened (Butler). This had resulted in an overall closure of 1,234 chain store retail outlets in the top 500 high streets of the United Kingdom (Butler). Besides, independent stores were closing at a higher rate, making these closures the highest since 2010.
4.2 The challenges that confronted street stores in London
The challenges confronting London’s street stores can be categorised as those emanating from the retail environment and those from customers. The secondary data revealed that the brick-and-mortar stores in London were experiencing lower profitability due to reduced margins related to the retail environment in the country and globally. Firstly, online stores were growing in popularity with their discounted offers, which was exerting pricing pressures on the brick-and-mortar stores. This forced the physical stores to lower their prices to remain competitive, which narrowed their profit margins. Moreover, the barriers to entry into the online retailing were low enabling new local retailers to emerge and established international retailers such as Amazon to penetrate the UK market, providing stiff competition to physical stores in the city. Many of these new entrants had online presence and therefore, their establishment of physical stores in London aimed to consolidate their gains from the online retailing channel in the UK. For instance, Sezane’s is a renowned online fashion retailer based in France, which opened its first physical store in London in 2018 (Haliday).
Secondly, operational costs for running physical stores were escalating, stifling profitability. Notably, the cost of rent was high in London, becoming unmanageable for stores that were already struggling with narrowing margins. According to Statista, the annual rent of retail space in prime locations such as the London west end was as high as 16,407 euros per square meter compared to locations in London whose rent was 2014 euros. However, these rates remained higher than in other UK cities where retail space in Manchester, Leeds, Birmingham and Cardiff was rented at 1766, 1550, 1302 and 1178 respectively (Cherowbrier). This means that rents in high-end streets of London was about 10 times higher than in other streets in the city and other cities in the United Kingdom. Further, scarcity of delivery bays coupled with restrictions on street parking due to the high cost of parking tickets challenged retail business, particularly the independent small retailers (Carmona 27). Moreover, the devaluation of the sterling pound had increased the cost of imported goods, which was detrimental to importers of retail (FTI Consulting 1).
Thirdly, uncertainties surrounding Brexit had caused retailers to lower their investments in the sector. Besides, this uncertainty has resulted in increased inflation and the devaluation of the sterling pound, causing retailers further anxiety (FTI Consulting 1).
Customers were also presenting challenges to physical retail stores by their changing characteristics and shopping habits. Notably, customers in London were increasingly well educated, from diverse cultural background and were aging progressively. As such, they were more conscious about product and service quality, and demanded information about the merchandise on offer. Therefore, although the younger shoppers were digital natives, the older ones were embracing new technologies, albeit cautiously.
Moreover, the behaviour of the contemporary customer was characterised by fragmented activities in which the shopping process was divided into discrete activities that could be undertaken in different places and at separate times. For instance, a shopper could discover merchandise from the recommendations of a friend over social media, research about the product on a smartphone while commuting and purchase the product from a store over the weekend.
These conditions suited the electronic commerce model of retail shopping, with online stores enabling customers to gather information about products, allowing them to shop at their convenience and delivering numerous savings for the bargain-conscious consumers. Moreover, contemporary consumers did not exhibit brand or retail outlet loyalty because of the wide choice of retailers offering similar merchandise. What mattered more to the customer was the ability to obtain a product of the desired quality at the preferred cost in the most convenient manner. Therefore, retailers that were able to fulfil customer orders according to or exceeding the consumers’ expectations gained customer confidence and bolstered retail sales.
4.3 How were street shops in London dealing with the challenges presented by e-commerce?
Retail outlets along London streets were responding to the challenges presented by electronic commerce in several ways. Firstly, physical stores were adopting the e-commerce retailing model by establishing their own websites. The click and collect model was the most popular approach that allowed retailers to combine their brick-and-mortar stores with online outlets. Customer would identify and purchase their desired items online and collect them from physical stores. Besides, the physical shops acted as showrooms from where customers could interact with their desired products before making their sales online, where prices were lower. Retailers like Next had adopted this model. This not only improved their in-store shopping experience but also staved off store closure, while enabling them to withstand the fierce competition from pure online retailers that had entered the London market. Secondly, street shops were reducing the number of outlets in the city that were performing poorly. This allowed to them to retain only those outlets that were profitable. Others were retreating to residential areas where they could remain close to their customers. Thirdly, some physical retail outlets were being acquired by other that had gained online experience and needed to expand their physical presence in the city. This enabled the acquiring retailers to use the physical stores as collection points for their online customers. Lastly, some street shops were closing their premises due to insolvency. This was after they were unable to remain profitable and transform their business models to address the headwinds in the retail environment. Some of those that had abandoned their physical shops had opted to sell their merchandise over online outlets such as Amazon Marketplace platform. Altogether, street stores in London could no longer continue with the traditional brick-and-mortar store model, with some adopting innovative electronic commerce strategies in their business models, while others were succumbing to the fierce competition and exiting the retail industry altogether.
4.4 The future of street shops in London
The future of physical retail outlets lay in their ability to digitalise their operations and therefore, adopt business models that were more suited for the digital retail market. Adoption of digital technologies, which when combined with physical stores to improve the shopping experience was pertinent for the survival of London’s street shops. Notably, by changing the role of the physical store to that of being a showroom and a collection point, alongside the adoption of the multichannel shopping model, the physical store could accommodate electronic commerce in their business models. Moreover, the contemporary consumer valued a personalised and engaging shopping experience that combined utility and leisure. The omnichannel model was the future of retailing because it combines online and offline channels allowing retailers to engage with their customers at all touchpoints of the purchasing process (Verhoef 176).
While adopting online retailing approaches was recommended, the brick-and-mortar stores needed to integrate new technologies such as artificial intelligence, virtual reality and augmented reality into their e-commerce models. Moreover, tests on drones, robots and driverless vehicles has revealed potential for improving the efficiency of retailing significantly, while lowering the operational costs once they are approved for use in the retail industry (Grewal 5). These technologies had the potential to improve the shopping experience, which facilitating that targeting of customers to endear their loyalty.
5.0 Conclusion and Recommendations
The study confirmed that the street shops of London were impacted heavily by the technological innovations that had caused the growing popularity of online shopping. Although the retail sector was performing poorly globally, its survival was predicated on how well retailers adopted and leveraged e-commerce technologies in future. It is recommended that retailers adopt the onmichannel model to leverage be benefits of online and physical outlets.
Works Cited
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Appendices
Appendix 1: Factors driving the adoption of electronic commerce
Appendix 2: Transformation of the retail industry
Appendix 3: The changing role of the retail store
Appendix 4: Distribution of retail areas in London
Appendix 5: The density of retail units in London
Appendix 6: Penetration of online retail in the United Kingdom
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Impact of E-commerce on Brick-and-Mortar Stores in London
Abstract
In the wake of the internet, the advent of electronic commerce and the growing popularity of online shopping, brick-and-mortar stores have become endangered and their future looks bleak. Modern cities renowned traditionally as shopping destinations are in danger of losing their reputation and economic contribution from the retail industry is shopping is conducted online. Already, major retail brands in London and other large cities are either under administration due to bankruptcy threats, are closing shop or are reinventing their business models. This study sought to identify how electronic commerce had impacted the brick-and-mortar street stores in London in a bid to understand the improved efficiency of online stores and project the future of the brick-and-mortar stores in large cities. A qualitative study using secondary sources was used to answer the research question on what is the impact of e-commerce on the brick-and-mortar stores in London. The study revealed that electronic commerce had presented challenges to many brick-and-mortar stores, with some shops closing down, increasing the vacancy of retail space in London. Moreover, while some retailers had exited the retail industry and laid off workers, others had embraced e-commerce by opening online shopping sites. Therefore, the omnichannel model was recommended to London high street retailers to remain competitive in the rapidly changing retail environment.
Table of Contents
1.1 Brief Description of the Background. 4
1.2 Research Aims, Question and Objectives of the Study. 5
1.3 Justification of the Study. 5
2.1 The Internet and Electronic Commerce. 6
2.2 Online Stores vs. Brick-and-Mortar Stores. 7
2.3 Advantages and Disadvantages of Online and Physical Shops. 8
2.4 The Retail Sector in the United Kingdom.. 9
4.0 Findings and Discussion. 11
4.1 State of Retail in London. 11
4.2 The challenges that confronted street stores in London. 13
4.3 How were street shops in London dealing with the challenges presented by e-commerce? 15
4.4 The future of street shops in London. 16
5.0 Conclusion and Recommendations. 17
Appendix 1: Factors driving the adoption of electronic commerce. 22
Appendix 2: Transformation of the retail industry. 22
Appendix 3: The changing role of the retail store. 23
Appendix 4: Distribution of retail areas in London. 23
Appendix 5: The density of retail units in London. 24
Appendix 6: Penetration of online retail in the United Kingdom.. 24
1.0 Introduction
1.1 Brief Description of the Background
The internet is a revolutionary technology that has impacted all spheres of modern life. Many aspects of daily life have been made simpler, more convenient and faster, courtesy of the internet. Besides, mobile technology and social media have made it possible for people to seek, create and share information and transact business at their convenience. As such, spatial and temporal barriers have been reduced or eliminated by these technological advancements (Laudon and Guercio Traver 6). The internet has become ubiquitous globally, with countries like the United Kingdom experiencing almost 100 % connectivity. As such, in the contemporary society, many adults are becoming accustomed to the digital way of doing things, while children are growing up in a digitized environment (Hagberg, Sundstrom and Egels-Zandén 694). Therefore, the younger generation is expected to become adults who are reliant on the internet for their daily activities in future.
Electronic commerce is one of the innovations based on the internet, with the traditional conduct of business being forced to adjust to the increasing popularity of online approaches. The retail industry has been especially transformed by the advent of electronic commerce, with the traditional brick-and-mortar stores struggling for survival. Notably, the shopping experience, purchasing decisions and customer behaviour have changed since the advent of electronic commerce. Shoppers are now able to click on a computer or smartphone to choose between different products and services, compare their prices, purchase them, share usage experiences and provide feedback to business owners (Piotrowicz and Cuthbertson 6).
The retail sector is digitizing rapidly and online shops are increasing at a phenomenal rate. In the United Kingdom, 20 % of the retail sales are attributed to online transactions currently, which is projected to reach 53 % in the next decade (Butler). Also, by 2028, online shopping is projected to more than double its retail market share (Butler). Already, the brick-and-mortar stores are experiencing the competitive pressure from online shops, with some of them opting to reinvent their business model, while others are closing down altogether.
1.2 Research Aims, Question and Objectives of the Study
This study sought to identify the emerging issues affecting brick-and-mortar stores in London due to the upsurge in electronic commerce, why online shops were more efficient and how the traditional street shops were addressing this trend to remain relevant and reduce damages. In addressing these issues, this study seeks to answer the question on what is the impact of e-commerce on the brick-and-mortar stores in London. Therefore, the objectives of this study included:
- To explore the challenges that confronted street stores in the retail sector
- To compare the efficiency of online and the brick-and-mortar stores
- To identify the approached used by street stores to address the challenges presented by electronic commerce
- To project the future of the brick-and-mortar stores
1.3 Justification of the Study
The purpose of this study is to outline the issues faced by the brick-and-mortar stores and determine how new electronic commerce technologies created online shops that are more successful than street stores. The rise of e-commerce is a global phenomenon that is experienced most in developed countries and cities that have a well-established retail sector. For instance, the United Kingdom, and specifically London, is a renowned retail centre in which many world-famed brands have a strong foothold. The streets of London have been lined with street shops that make the city a shopping destination. However, upcoming retailers and online startups are using electronic commerce to outcompete the traditional brick-and-mortar stores and transforming the entire retail environment, threatening the traditional street shop model. Already, renowned UK retailers such as Bathstore have been forced into administration to avoid bankruptcy, while others like Marks & Spencer, Topshop and Debenhams the plan to close their brick-and-mortar stores in future because of the pressure from online stores (Butler). However, many others have embraced electronic commerce, which has called for a reinvention of their business models to remain relevant and survive in the highly-competitive retail sector. Therefore, in these circumstances, it is important to understand why the electronic commerce retail model is more successful than the traditional street store model if the brick and mortar stores are to survive in London and other large modern cities in the world. Moreover, it is also pertinent to identify what street stores were doing to address these challenges to secure their future in the retail industry.
2.0 Literature Review
2.1 The Internet and Electronic Commerce
Electronic commerce (e-commerce) is the commercial transaction between people and organisations in society using internet technologies. The term is commonly used alongside internet retailing ad internet shopping (Visser, Nemoto and Browne 16). Due to the rapid development of the internet, e-commerce was integrated in business activities in the mid-1990, and has been growing ever since (Scarpi 233).
Awa, Ojiabo and Emecheta (573) described how the adoption of electronic commerce can be explained using theoretical frameworks such as the theory of planned behaviour (TPB), the theory of reasoned action (TRA), the technology acceptance model (TAM), and the technology-organisation-environment (T-O-E) model. According to TAM, the perceived ease of use and the perceived usefulness influenced the adoption of information technology. In addition, TPB added subjective norms and behavioural control to the technology adoption process. The two theories were tied together by TRA, which posited that the adoption of technology was a reasoned and deliberate process. The TOE framework posited that technology adoption was influenced by the industry environment, conditions that influenced business and organisational reconfiguration, and technology development. By combining these theories, Awa, Ojiabo and Emecheta (575) arrived at 18 constructs that ultimately influenced the adoption of electronic commerce by businesses as summarised in appendix 1. Hallikainen and Laukkanen (104) indicated that trust played a major role in the adoption of electronic commerce and influenced the distinction between online buyers and non-buyers. Besides, trust in e-commerce platforms increased purchase intentions and reinforced the relationship between website appeal and buying intentions (Liu et al. 752).
2.2 Online Stores vs. Brick-and-Mortar Stores
Hånell et al. (12) contended that online stores experienced few market entry barriers that enabled retailers to internationalise their business with ease. However, the online models used were influenced by competition, resources and institutions. Herring, Wachinger and Wigley (4) observed that physical store attributed their growth on the replication of proven store formats across new catchment areas. However, the advent of e-commerce and its virtual space concept had lessened the need for physical stores as illustrated in appendix 2. They also noted that retailers were conflicted in adopting online strategies, with the finance departments being sceptical about adopting new and unproven online technologies, while IT experts advocated the adoption of digital strategies. As such, the management of retail enterprises found themselves with excess physical retail space, while being hesitant to adopt electronic commerce models because of their fixed mindsets. Besides, Herring, Wachinger and Wigley (4) noted that online retailers such as Amazon had pressured traditional retailers by lowering prices by between 13 and 20 %, reducing the footfall and diminishing the return on capital on physical outlets.
However, physical stores were not obsolete; rather they played a different role in the retail sector as illustrated in appendix 3 (Herring, Wachinger and Wigley 5). Online retailers were using physical locations to display their wares in a multichannel business model. Allcock noted that 67 % of renowned online brands had opened brick-and-mortar stores in the 2014-2017 period.
2.3 Advantages and Disadvantages of Online and Physical Shops
Online stores present numerous advantages to the business and consumers. According to Madahi and Sukati (140), Piotrowicz and Cuthbertson (6) and Roy, the benefits to businesses include, firstly, the lowering of the entry barriers into the retail market and thus, easing access to markets. Secondly, they can widen markets by enabling retailers to sell their wares without time and distance constraints. Besides, they can grow rapidly because they can be easily scaled up without experiencing the traditional constraints associated the retail growth. Thirdly, online shops enable the use of tools to gather customer intelligence, which improves customer targeting and the personalisation of customer shopping experiences. Fourthly, online outlets can be cost effective by eliminating the need for retail premises and their accompanying staff. However, online retail stores present several disadvantages to the business owners. Firstly, establishing trust from customers is challenging because of the limited face-to-face interaction between the staff and customers. Secondly, they expose the retailer to numerous legal issues related to customer rights and protection. Thirdly, online stores are susceptible to cybercrime, which can lose retailers huge amounts of money, let alone the high cost of litigations and the fines and compensation that may result. Fourthly, online stores require a significant investment in infrastructure to support order fulfilment activities such as warehousing and delivery or collection points for customers (Jung, Cho and Lee 2080).
To the customers, online stores present benefits such as increased convenience because of the ability to shop in real-time from any location at any time. Also, online stores enable the comparison of prices across different retailers, thus enabling the customer identify and access discounts and special offers. The customer can also compare the quality of the product or service based on the reviews posted by previous customers. This allows shoppers to cut on their shopping expenditure and travel while obtaining value for their money (Piotrowicz and Cuthbertson 6; Suel and Polak 148).
Herring, Wachinger and Wigley (6) observed that physical outlets offered instant gratification to customers by satisfying impulsive buyers, enabled customers to interact with the brand and merchandise, provided sites for social interaction and entertainment and were convenient when in close proximity. However, the customer may be defrauded if cyber criminals obtain personal information related to bank accounts, credit and debit cards and other online payment modes. In addition, customers may be dissatisfied with the product or service if it does not match its description on the shop’s website. According to Allcock, physical stores were advantageous because they enhanced the shopping experience by allowing customers to interact with the brand and products, and provided an avenue for conducting market research due to enabling the observation of customers and their interactions.
2.4 The Retail Sector in the United Kingdom
Although online shopping was increasing in the UK, many Britons still preferred visiting physical shops (Butler). Meng (20) noted that the ICO Cookie Law and the data protection law of 1998, alongside other regulations, protected consumers from the misuse of electronic commerce. A study by Clarke, Thompson and Birkin (389) revealed that the usage of e-commerce in the UK was influenced the income and age of consumers, their distance from physical stores and whether they were located in urban or rural settings. Altogether, Britons aged between 25 and 44 years, living in cities or far from supermarkets, affluent and male were more likely to engage in online shopping compared to the rest of the population in the country.
However, Eley and Wright noted that the retailing sector in the country was in crisis because online shops had cased loss of jobs, particularly by women. They reported that about 60,000 retail jobs had been lost in the UK in 2018, threatening the retail outlets along high streets. Moreover, traditional retailers were either in receivership/administration, had been acquired by other retailers or had closed down due to the onslaught of online shopping. Examples such as BHS and Debenham’s were cited as victims of electronic commerce in the UK.
3.0 Methodology
3.1 Research Method
A qualitative research using secondary resources was used in this study. The qualitative approach was used because it gives in-depth information regarding a phenomenon using a wide selection of strategies. Moreover, it is preferable for investigating phenomena in their natural settings, thus providing enormous detail about events that cannot be studied in controlled or experimental conditions. Likewise, the secondary data was preferred due to its cost effectiveness, ready availability though online technology, wide variety of information and time-saving potential. Altogether, the qualitative secondary data approach suited this study by fitting into the time and resource constraints, while addressing the research question comprehensively.
3.2 Study Setting
London was chosen as the setting for this study because of its reputation as a global retail centre and a shopping destination of the world. Its numerous street shops that host world-famous brands made London a site from where the effects of e-commerce on brick-and-mortar stores can be studied. Besides, the competitiveness that pits brick-and-mortar stores against online stores is evident in London as street stores struggle with the rapidly changing retail environment.
3.3 Data Collection
Secondary data was obtained from online sources. Online search was conducted using Google Scholar search engine and the University of Westminster library. Academic journals, books, new articles and industry reports that did not exceed 10 years were obtained and perused for relevant secondary data.
3.4 Data Analysis
The information from these sources was sorted and analysed thematically to aid the answering of the research questions in this study. Emerging themes were identified, noted and presented descriptively, addressing the research question and attending to the study objectives.
4.0 Findings and Discussion
4.1 State of Retail in London
London is a leading international commerce and business centre globally covering an area of about 1,500 square kilometres with an estimated population of over 8.7 million residents. Being the capital of the UK, London has a vibrant retail industry, which was driving the city’s and the country’s economy. The city had about 43,000 retail outlets occupying about 17 million square meters of floor space (Barett 9). Although most of the retailing activity was concentrated in central London, each of its 32 boroughs has retail activity as illustrated in appendix 4. While some boroughs in central London have between 500 and 1000 retail units per square kilometre, the rest of them had at least one area with at least 50 outlets per square kilometre as displayed in appendix 5. The large retail stores in the city were found along New Bond Street, Regent Street and Oxford Street in central London (UNC-SBRP).
The largest retail floor space was found in Croydon, Kensington and Westminster, while the least was in boroughs such as Barking, City of London and Dagenham. The retail outlets served London households as well as tourist and commuters. While tourist frequented the high profile retail outlets located in Knightsbridge, west end, Ealing Broadway and Victoria Street, commuters preferred Bishopsgate, Liverpool Street and London Bridge because of their transportation connectivity. In addition, household spending was higher in South and West London, while commuter and tourist spending dominated the stores in central London. Adoption of e-commerce was most visible in the online sales of books and music, with consumer electronics and fashion gaining traction as illustrated in appendix 6 (Savills Commercial Research 3).
The retail sector of London contributed to the economy by accounting for about 40 % of the money spent in the city. It also supported other industries such as real estate, warehousing, transport, logistics, financial service, tourism, and construction. Moreover, the retail sector was a major employer in the city, employing about 400,000 people comprising mainly of the youth, women and part-time workers (Barett 8; UNC-SBRP).
London was attracting international brands into its retail market with 57 of them having set shop in the city by November of 2019, which were up from 55 new openings in 2018. The food and beverage segment led the new retail entrants accounting for 44 %, followed by the fashion segment, which attracted 37 % newcomers. For instance, the French-based Sezane’s, Rains from Denmark, and Bluemint from Turkey opened permanent physical stores along Westbourne Grove, Upper Street and King’s Road respectively in 2018. Other notable entrants included Blaiz from Latin America and Chloe from the United States. Notably, most of the new entrants came from the European Union, accounting for 63.6 % of new entrants into London in 2018. Retailers from the Asia-Pacific region increase four-fold in London accounting for 15.2 % of the city’s new entrants. Besides, many other large retailers had entered the London market as online retailers due to the ease of overcoming international barriers (Hånell et al, 6).
However, the city was also experiencing decline in occupancy of retail premises in its high streets. It was estimated that in the first half of 2019, 16 stores shut down, while only 9 new ones opened (Butler). This had resulted in an overall closure of 1,234 chain store retail outlets in the top 500 high streets of the United Kingdom (Butler). Besides, independent stores were closing at a higher rate, making these closures the highest since 2010.
4.2 The challenges that confronted street stores in London
The challenges confronting London’s street stores can be categorised as those emanating from the retail environment and those from customers. The secondary data revealed that the brick-and-mortar stores in London were experiencing lower profitability due to reduced margins related to the retail environment in the country and globally. Firstly, online stores were growing in popularity with their discounted offers, which was exerting pricing pressures on the brick-and-mortar stores. This forced the physical stores to lower their prices to remain competitive, which narrowed their profit margins. Moreover, the barriers to entry into the online retailing were low enabling new local retailers to emerge and established international retailers such as Amazon to penetrate the UK market, providing stiff competition to physical stores in the city. Many of these new entrants had online presence and therefore, their establishment of physical stores in London aimed to consolidate their gains from the online retailing channel in the UK. For instance, Sezane’s is a renowned online fashion retailer based in France, which opened its first physical store in London in 2018 (Haliday).
Secondly, operational costs for running physical stores were escalating, stifling profitability. Notably, the cost of rent was high in London, becoming unmanageable for stores that were already struggling with narrowing margins. According to Statista, the annual rent of retail space in prime locations such as the London west end was as high as 16,407 euros per square meter compared to locations in London whose rent was 2014 euros. However, these rates remained higher than in other UK cities where retail space in Manchester, Leeds, Birmingham and Cardiff was rented at 1766, 1550, 1302 and 1178 respectively (Cherowbrier). This means that rents in high-end streets of London was about 10 times higher than in other streets in the city and other cities in the United Kingdom. Further, scarcity of delivery bays coupled with restrictions on street parking due to the high cost of parking tickets challenged retail business, particularly the independent small retailers (Carmona 27). Moreover, the devaluation of the sterling pound had increased the cost of imported goods, which was detrimental to importers of retail (FTI Consulting 1).
Thirdly, uncertainties surrounding Brexit had caused retailers to lower their investments in the sector. Besides, this uncertainty has resulted in increased inflation and the devaluation of the sterling pound, causing retailers further anxiety (FTI Consulting 1).
Customers were also presenting challenges to physical retail stores by their changing characteristics and shopping habits. Notably, customers in London were increasingly well educated, from diverse cultural background and were aging progressively. As such, they were more conscious about product and service quality, and demanded information about the merchandise on offer. Therefore, although the younger shoppers were digital natives, the older ones were embracing new technologies, albeit cautiously.
Moreover, the behaviour of the contemporary customer was characterised by fragmented activities in which the shopping process was divided into discrete activities that could be undertaken in different places and at separate times. For instance, a shopper could discover merchandise from the recommendations of a friend over social media, research about the product on a smartphone while commuting and purchase the product from a store over the weekend.
These conditions suited the electronic commerce model of retail shopping, with online stores enabling customers to gather information about products, allowing them to shop at their convenience and delivering numerous savings for the bargain-conscious consumers. Moreover, contemporary consumers did not exhibit brand or retail outlet loyalty because of the wide choice of retailers offering similar merchandise. What mattered more to the customer was the ability to obtain a product of the desired quality at the preferred cost in the most convenient manner. Therefore, retailers that were able to fulfil customer orders according to or exceeding the consumers’ expectations gained customer confidence and bolstered retail sales.
4.3 How were street shops in London dealing with the challenges presented by e-commerce?
Retail outlets along London streets were responding to the challenges presented by electronic commerce in several ways. Firstly, physical stores were adopting the e-commerce retailing model by establishing their own websites. The click and collect model was the most popular approach that allowed retailers to combine their brick-and-mortar stores with online outlets. Customer would identify and purchase their desired items online and collect them from physical stores. Besides, the physical shops acted as showrooms from where customers could interact with their desired products before making their sales online, where prices were lower. Retailers like Next had adopted this model. This not only improved their in-store shopping experience but also staved off store closure, while enabling them to withstand the fierce competition from pure online retailers that had entered the London market. Secondly, street shops were reducing the number of outlets in the city that were performing poorly. This allowed to them to retain only those outlets that were profitable. Others were retreating to residential areas where they could remain close to their customers. Thirdly, some physical retail outlets were being acquired by other that had gained online experience and needed to expand their physical presence in the city. This enabled the acquiring retailers to use the physical stores as collection points for their online customers. Lastly, some street shops were closing their premises due to insolvency. This was after they were unable to remain profitable and transform their business models to address the headwinds in the retail environment. Some of those that had abandoned their physical shops had opted to sell their merchandise over online outlets such as Amazon Marketplace platform. Altogether, street stores in London could no longer continue with the traditional brick-and-mortar store model, with some adopting innovative electronic commerce strategies in their business models, while others were succumbing to the fierce competition and exiting the retail industry altogether.
4.4 The future of street shops in London
The future of physical retail outlets lay in their ability to digitalise their operations and therefore, adopt business models that were more suited for the digital retail market. Adoption of digital technologies, which when combined with physical stores to improve the shopping experience was pertinent for the survival of London’s street shops. Notably, by changing the role of the physical store to that of being a showroom and a collection point, alongside the adoption of the multichannel shopping model, the physical store could accommodate electronic commerce in their business models. Moreover, the contemporary consumer valued a personalised and engaging shopping experience that combined utility and leisure. The omnichannel model was the future of retailing because it combines online and offline channels allowing retailers to engage with their customers at all touchpoints of the purchasing process (Verhoef 176).
While adopting online retailing approaches was recommended, the brick-and-mortar stores needed to integrate new technologies such as artificial intelligence, virtual reality and augmented reality into their e-commerce models. Moreover, tests on drones, robots and driverless vehicles has revealed potential for improving the efficiency of retailing significantly, while lowering the operational costs once they are approved for use in the retail industry (Grewal 5). These technologies had the potential to improve the shopping experience, which facilitating that targeting of customers to endear their loyalty.
5.0 Conclusion and Recommendations
The study confirmed that the street shops of London were impacted heavily by the technological innovations that had caused the growing popularity of online shopping. Although the retail sector was performing poorly globally, its survival was predicated on how well retailers adopted and leveraged e-commerce technologies in future. It is recommended that retailers adopt the onmichannel model to leverage be benefits of online and physical outlets.
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