More than a third of online retail firms in the South East are at greater than normal risk of failure – a higher proportion than high-street clothing, footwear or general retail stores, according to research by insolvency trade body R3.
It says the figures challenge the common perception that selling online is a safe alternative to running a ‘bricks and mortar’ store. They show 34% of regional e-commerce businesses are at higher than normal risk, compared with 24% of ‘bricks and mortar’ stores, 29% of clothing stores and 30% of footwear or leather goods stores.
Mike Pavitt, chairman of the southern committee of R3 and corporate restructuring and insolvency partner at Paris Smith solicitors, Southampton, said that while to some extent the figures reflected the high proportion of small firms and start-ups operating in e-commerce, they also demonstrated the particular challenges that e-commerce firms faced.
“Today’s technology allows even the smallest firms to sell online but with such low barriers to entry, there is intense competition,” he said. “There is a danger that retailers can become engaged in a ‘race to the bottom’, trying to undercut each other to the point their business becomes unsustainable. We have seen cases where they are now competing directly with the importer or manufacturer from countries like China which are selling directly to their UK customers at prices they cannot hope to match.
“Online retailers may also face distribution problems and high levels of returns and, as e-commerce becomes ever more sophisticated, they need the skills to drive traffic and constantly enhance the user experience to keep up with rivals.”
However, Pavitt said that for the ‘bricks and mortar’ retailer, there was the sense of a ‘two-track economy’. For example, in Hampshire the ‘big three’ shopping destinations of West Quay in Southampton, Gunwharf Quays in Portsmouth and Festival Place in Basingstoke had fared better than their more traditional town-centre counterparts. While UK retail sales growth reached a 14-year high in November, there was also some evidence that sales might be starting to slow as inflation pushed up prices.
The R3 figures confirmed home furnishings stores, which suffered badly during the last recession, had staged something of a comeback with just 25% at higher than normal risk in the region, while bookshops – another early victim of the internet – continued to be affected, with nearly 29% of businesses at elevated risk.
Pavitt added: “Bookshops were one of the first casualties of the internet but those which have survived have successfully transformed their business model, often becoming destination venues and attracting a new generation of book lovers. It demonstrates that high street stores which do adapt and embrace change management can still hold their own even in the face of tough online competition.
“The government’s proposed business rates rise is likely to have a particular impact for small and independent retailers in the South so if any regional businesses are concerned about their future I’d recommend seeking advice from a qualified professional, and sooner rather than later so that the widest range of possible solutions remains available.”