Major online retailers such as eBay and Amazon have been established in Europe for many years. In addition, there are domestic German companies such as Zalando, which also focus exclusively on trading via the Internet. These giant concerns are gaining more and more market share, which is putting traditional retailers under more and more pressure. They, in turn, have reacted by setting up their own online trading presence which operates alongside their existing branches. However, such attempts to benefit from the growth of online commerce are rarely successful. So while purely online players – i.e. companies that focus exclusively on Internet commerce – are steadily increasing their sales, growth rates for mixed providers continue to be rather low.
Traditional Retailers Cannot Invest Heavily in the Online Market
It is estimated that classic high-street retailers still generate about 95 percent of their turnover from bricks-and-mortar retail – even if they also operate an online platform. Thus income from this sector still represents the most important source of company profit, which no investment manager would wish to put at risk. That’s why the majority of resources continue to be channelled through their branches to meet the cost of retail spaces, personnel and classical marketing. So there is only a small proportion left to develop online platforms. As a result, the competition from online-only players is overwhelming. They are free to invest all their resources in this arena and thus are in a commanding position in this growth market.
Radical Reform is the Only Way to Compete against Dedicated Online Players
Traditional retailers now find themselves in a truly desperate situation: In-store sales continue to decline, but still remain the mainstay for these companies – even though they consume the lion’s share of resources. That means there is no funding left to take advantage of the great boom in online trading. There is really just one option available to escape this dilemma – to risk a radical change. Only companies that are willing to switch a large volume of resources away from supporting in-store trading – even if this initially causes a further reduction in sales – can hope to challenge the dedicated online players over the longer term.
This article was originally published on LinkedIn.