Tipping point for retail has arrived

Tipping point for retail has arrived

Retail apocalypse, retail Armageddon – we’ve all read about it for some time now. When will this happen in the Nordics? This is one of the questions I get most often these days.

Technology evolves quickly and changes in the retail industry are happening at a rapid pace. Now that the first half-year has passed, we can see that Sweden now has reached the tipping point in retail development, whereby growth in e-commerce is outpacing that of retail sales in brick-and-mortar locations.

diagram showing percentage of consumers that shopped onlineE-commerce sales accounted for the entire growth of total retail (excl. groceries) during this period. Thus, there is no sales growth in physical, brick-and-mortar stores. It is also likely that future growth will come from e-commerce. Why? Because we do not see any significant improvements in either household income, interest rates, etc., which could lead to price-insensitive consumers shopping more in physical stores. Also, we continue to spend more time on our mobile phones, and e-commerce is becoming easier and easier. Above all, new technology will make the shopping experience more realistic, accurate and inspiring.

Some industries stand out more than others in this relatively gloomy image of the future of physical stores. Above all, it’s tough in electronics and fashion. E-commerce in electronics has grown by about 15 percent during the first six months this year, while sales in physical stores showed negative growth. The same trend holds for the fashion industry. Fashion is the retail sector most exposed to global competition from China, the United Kingdom and Germany.

What does this all mean? One conclusion, apart from the obvious such as availability, convenience and lower prices online, is that the development pace of new formats and concepts for physical stores is too slow. Creating meeting places, highlighting the in-store shopping experience, and providing personal service is necessary if you want to stay in the market. Personally, I also believe in an ever-increasing interaction between the digital and physical world.

We’ll see if the second half of 2017 shows the same trend as the first half-year, or if the retail sector is able to catch up. If not, then we’re going to see a lot happening to physical stores. Retail apocalypse is a strong word and we are not there yet, but a tipping point has definitely been reached.

Carin Blom, retail analyst, PostNord

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