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April 23, 2024

Is uk e-commerce market growing? John Lewis and Brick and Mortar stores

Is uk e-commerce market growing? John Lewis and Brick and Mortar stores 

The state of retail and e-commerce in the UK in 2024

Hey folks, Michael from Amazing FBA. I’ve just been shopping in my new city, Welwyn Garden City at John Lewis, which used to be the company store here until the 1960s. And even now it’s pretty dominant. And I want to talk about my new set of shoes and reflect on the state of retail and e-commerce.

As part of my wanderings around Europe, London and the UK, I often like to reflect on retail experiences. I don’t personally like shopping by the way. I prefer e-commerce because I can just buy whatever I want and get out. But when I go shoot shopping because of very, very awkward feet, I need to interact with a physical shop.

Now, John Lewis. Let’s talk about John Lewis for a second. John Lewis is a brand, it’s a retail brand rather than a brand that makes things, although they do have their own lines, private label lines of things. We also have an interesting secondhand relationship with a couple of my clients in the 10k collective, both former and current have in the past sold a lot of stuff to John Lewis.

And they said you think Amazon is bad and capricious. You should try and talk into John Lewis buyers who will reject you or, you know, push you down on the price by two pence or two cents per unit or something ridiculous.

John Lewis has a, business model that’s very challenging. I think they’re letting go of quite a percentage.

Maybe it’s 10 per cent of the staff when they come in the year, they shut down some stores, they shut down a flag chick store in Birmingham or Birmingham, England is the Americans call it. So that sounds like it’s game over for John Lewis and it’s a win for e-commerce but a couple of thoughts.

In-person buying can make sense – especially for apparel

 First of all, the buying experience, I have awkward feet, as I said, and therefore I can’t buy shoes online and expect them to fit my awkward feet. I need to go and shop in person. So in-person shopping is not dead yet. And in fact, Thereby hangs a tale…

Personalised and human shopping experience

The second thing is the experience. I had a very pleasant person serving me and actually serving me, hanging around, looking patient, looking like he actually cared, instead of poking at his phone or just wandering off or giving me monosyllabic answers, which has been my experience of shopping in most places in Britain.

And the guys seemed to know their business, and he actually practically helped me by going and fetching different sizes of pairs of shoes.

Simple stuff, but in my experience, that’s not to be taken for granted these days. So, the experience of somebody seeming to care about you, the experience of somebody, well, maybe he actually cares, maybe he’s just polite enough to seem to care, but they’ve got quality staff.

The John Lewis/Waitrose model – the staff owning part of the business

John Lewis and Waitrose, which is part of one group, actually have very, very good quality staff.

Now, the interesting thing about them, that’s not necessarily the lesson to learn, but it’s a possible lesson, is that they actually, The staff are, of course, the owners. It’s a cooperative, very unusual structure these days. The so-called Cooperative Bank in Britain is no longer a cooperative bank and is about to be bought by Barclays, I believe, so another bank anyway.

So they’re a rare thing, but what it does seem to mean is that when I go into a John Lewis or Waitrose, the grocery store, as you call it in the States, or John Lewis is a sort of mid-price, I guess it’s like Sears or something like that in America, The people are generally cheerful and helpful. And quite consistently so, not just one or two people that you’re lucky to find.

So, reflections.

The High Street is not dead

First of all, the high street’s not dead. And actually, people have been In the industry that I suppose I’m in, e-commerce, I specialize in helping people in and learning about, educating myself about for the last decade. It’s not a given that it’s just going to grow.

E-commerce is a sub-sector of retail

So I would encourage people to think of e-commerce as a subset of retail and then look at that as a sector of the economy and think about whether is it growing, static or shrinking.

Well, I think the answer is that in the UK because of the cost of living crisis, or the inflation rate of normal costs, particularly then the massive inflation in housing costs, whether rent or mortgages, both of which have shot up in a recent year or two means that there is less disposable cash.

And so retail has been challenged. And actually, e-commerce as a percentage of retail is not growing very fast.

Reversion to the Mean

And that’s not surprising because there is a thing called the reversion to the mean, which means that when you have a trend, for example, e-commerce growing 10 per cent year on year, which is the kind of number that used to have knocking around for the USA or in the UK, maybe it was 10 per cent year on year.

UK Geography compared to the USA

Well, the UK had an incredibly strong adoption of e-commerce during COVID. But it already had a pretty strong adoption of e commerce as a percentage of retail, even compared to the United States, even though Amazon is a U. S. phenomenon. And the reason for that is their population structure and population density.

A lot of America is on the West or East coast in dense conurbations, similar to Western Europe and the UK. But a lot of America is in middle America with very dispersed populations in small towns that have their thriving shops. And are not yet primarily buying retail items online.

The UK is a small place. It’s highly, highly industrialized and urbanized. By this stage, there aren’t many small towns left and the shops are kind of dying in a lot of them. To a degree. And so e-commerce has already taken quite a big percentage of retail.

So there has not been growth. There’s been a bit of a, possibly a reduction in e-commerce growth as a market if you take it as a market as a whole. And I think that’s because retail as a whole is stalled and e-commerce isn’t growing its market share of e retail very much in the UK at the moment, because it’s probably reached a stage where I would say it’s in the late adopter stage.

The Adoption curve

So if you’re not familiar with it, there’s a very useful mental model, which is shaped like a bell curve, like a lot of things, in statistics. The vertical axis is the number of people adopting or buying or just revenue spent if you want to put it in simple terms. And the horizontal one of course is time.

The is in four segments.

Early Adopters

So you have your early adopters. So people who back in 2000 were spending money online when all their friends thought they’d be ripped off. And these internet things, all the big giant fraud, and it’s going to go away tomorrow, that kind of thing.

Early Majority

And then you got the early majority where people probably, probably like myself that well, I was then somewhat younger and a bit more technophilic, you know, more into their technology than the average.

And they tend to. Be the next wave of people when it’s becoming moderately mainstream, but isn’t really mainstream yet.

Late Majority

Then you have the late majority, which I think is what we had in Britain, really over the last few years with e-commerce, for example, and then you have the laggards.

Then you

So there are people like my mum, who’s 78 hates technology and doesn’t trust the internet.

And yet she bought stuff on Amazon for the first time during the pandemic. Now, that’s not a typical buying behaviour for her. She will occasionally still use it. And that’s a bit of a canary in the coal mine for me that says e-commerce is not only mainstream. It’s possibly past the peak of its adoption sort of flurry, .

Smartphones -from growth industry to mature industry

A bit like everyone bought smartphones and the Apple stock was a growth stock for many, many years.

And now it’s become a cash cow because of the rate of adoption of new handsets across the world. is slowed down because everyone’s got a phone now. As in a mobile phone or a cell phone. And so I think that e-commerce may be nearing that kind of point,

Is e-commerce really a separate sector?

which begs the question of, you know, what with e commerce and should we even talk about e commerce as a special thing?

I mean, one of the things that strikes me When I advise clients who are looking to buy his businesses and they’re considering e commerce and they’re often very, very smart business people, often quite successful, which is why they have the money available to make big purchases like buying a business for half a million dollars or what have you is that they think of it as a digital business and they’ve run other digital businesses or they’ve run physical businesses like a storage unit or educational businesses like a school of some kind.

And, either way they look at Amazon as a digital business. So the people who’ve run physical businesses think Amazon’s digital. So that means I can work from anywhere in the world, which by the way, I think is true as long as you’ve got a laptop and depending on how you set your team up.

And that it’s a digital business,

Inventory is a physical business!

which I think is incorrect because you’ve got this boring thing called inventory, IE, you know, stock for physical items. You not only have to buy it and tie your cash up, you have to ship it around the world, which costs you lots of money. And then you have to store it somewhere, which is expensive.

And also. a pain and then you have to fulfil it, i. e. send the goods to your consumers. Amazon does take care of a lot of that, but it will charge you a very hefty fee for that.

E-commerce is a subset both of digital business and of physical retail

And so really e-commerce is a subset of digital businesses, but it’s also a subset of retail. And so you can go either way with that in terms of, well, just thinking multi-channel, i. e. selling on Amazon and your own DTC website.

What are you expanding?

But If you want to expand further, what are you actually expanding? Is it a digital business or is it a retail business? Good question. And I’ve seen both answers.

Expanding your product footprint via bricks-and-mortar

I’ve seen clients who are great at product development get the goods into specialist kind of retail stores.

Not an easy route, not what I have experience of doing, but I’ve seen it done and that worked well for that particular client because they had the kind of background from their day job for decades. Developing products at the quality where you could put them into retail.

Expanding your product line with digital products

My old friend, Jason Miles from Omni Rockets often advises his clients who sell physical products to add digital products -and he should know about that because he and his wife Cinnamon have made a business for over a decade now, well over a decade, selling digital products and their specialist thing of course is haute couture dolls clothes patterns. How niche is that? Of course that works well for them and his clients have indeed added things like ebooks and other such items or even courses to their product catalogue, thus changing their physical product business, which is still kind of digital in its selling infrastructure into a more purely digital business in the sense they also sell digital products, either selling electrons or atoms.

And as they say, it’s easier to move electrons than atoms. Atoms need to be lugged around the world by people or machinery or vehicles. Electrons move via the wires of the internet.

An inflection point in e-commerce history

So all together, I find this a very interesting point in e commerce’s development history and I think John Lewis and its ilk is being challenged because they have the overheads of stores which expensive big things and they have the overheads of staff to serve people but those are also virtues if used in the right way not saying that John Lewis has got it cracked and they’re clearly struggling but I think that the crowing from e commerce needs to calm down as well e commerce is in an interesting sort of transition stage in the UK, I think.

What should you do if buying or running an eCommerce business?

So responses to this, what should one do if you’re considering buying an e commerce business or if you’re in that sector already? Broad brush stuff this, but I think first of all,

Choose your geography – the UK is struggling

be careful about the geographical exposure and the future of that that economy. I think that retail is struggling in the UK for very simple reasons, which is the cost of living.

And now that can be tricky everywhere. I know the latest. average of a long term mortgage rate in the U S for residential housing is about 7. 5%. Which is very challenging for those who don’t already have a mortgage. However, in the U S unlike the UK, they can get 30 year fixed mortgages. So a lot of people are going to be on very low rates for a long time to come and they’re going to have disposable income in a way that nobody in the UK has.

Demographics in USA are better than those of UK

Secondly, the demographics of the U. S. are healthier, they have more young people, so they are more likely to be consuming than the UK.

USA is one big consumer market

And thirdly, it’s one big integrated consumer market of 331 million people. I mean, all the babies probably aren’t consuming, but you know, it’s a big population and a growing population. The UK and Europe, every single country has different regulations, different languages mostly, and is not an easy place to crack.

Now, doesn’t mean everyone should rush to sell in the US, but I would say it’s something to consider if you’re based in the UK and partly because I think the adoption rates of e commerce have still got a way to go there as the percentage of retail it is lower and gradually middle America will start to adopt online shopping probably based on historic trends and that means there will be growth in the market, which means, you know, rising tide lifts all ships.

But also you want to consider whether you are a retailer or a digital product or digital business owner. And if you’re a retailer, maybe you want to consider physical outlets or becoming a wholesaler to other brands, going back to the old school way of doing things, which I mentioned at the beginning, not an easy option but a realistic one.

Beware of assuming that UK e-commerce will outgrow UK Retail as a whole

The assumption that e commerce will grow faster than physical retail is a dangerous one in the UK. You should test that assumption is what I’m saying. So enough rumbling from me. That wasn’t highly focused, but I hope it’s given you a few foods for thought. I’m going to go home and put on my smart new shoes from John Lewis also made by the way by Dune of London, a British brand.

I don’t know if they’re made in China. Let me open the box, a bit of live unboxing on the pavement here and find out what we see. One beautiful black British shoe that is in fact made in, drum roll please, Made in China.

There you go. So so much for buying British. China’s manufacturing sector isn’t dead yet either. That’s another one for another video. Thanks for listening.

Acquisition Audit

If you are considering acquiring an e-commerce business and you are not so familiar with the e-commerce markets, you could get some help from me as I’ve done for a couple of my clients recently. It’s quite a growing part of my consulting business,

 2 Perspectives on the business

which is that I can have a look at an e-commerce business from you from really two perspectives. And see if it would make sense for you to buy the thing before you get to the point of even putting in a, an LOI or letter of intent, or, a Heads of Terms, depending which side of The Pond you’re on.

And really that would be the commercial due diligence and some basic financial areas.

Now that the legal side, I don’t cover myself and I’m not an accountant nor do I play one on the internet, but the basic financials of it nevertheless, still tell you a bit of a tale, as I hope today illustrates.

Market Evaluation

And then what I can also do is look at the market you’re considering going into look at the demand, look at the competition and evaluate really, is this a growing market? Is this competition manageable? Does the business have a solid grasp on the market, even a dominance of the market that would make it a more attractive proposition?

So if you want some help with that, just go to myamazonaudit.com and I will be happy to give you half an hour of my time for free to look at that.

How to book an audit

And if you send me some documents, I’ll even. put in bit of time having a quick look at the financials. And a quick look at the market on Amazon as well, to give you a good early steer of whether you should consider buying the business or not.

 Obviously, if you own a business of your own already on Amazon, I can give you similar feedback as well.

Just go to www.myamazonaudit.com to book in

It may be with a view to selling it potentially. I tend to act on the behalf of people buying, not buying those selling, but the same insights apply in best cases. . Thank you so much for listening. And speak to you soon.

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Michael Veazey

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