David Prosser: If you can't beat 'em, join 'em: high street retailers must embrace the internet to secure their future

Small Talk
  • @davidprosserind

The writing is on the wall for small businesses on the high street: those that do not rethink their business model right now will not survive. It is no longer out-of-town shopping centres that pose the biggest threat to independent retailers – now it is e-commerce.

As online retail sales again soar in the run-up to Christmas, too many independent retailers are missing out on the party. Shoppers continue to talk loudly about their support for diverse and vibrant local high streets, but they do so from the comfort of the sofa while buying presents on an iPad.

Attempts to change such behaviour are futile. Small Business Saturday last weekend was a case in point. Independent retailers did benefit from an excellent initiative that got customers' support. But the exercise, mounted by volunteers with no budget, generated a fraction of the hype seen a few days earlier around Cyber Monday, a marketing triumph for e-commerce.

That's not meant to be a criticism of Small Business Saturday, or its organisers. But there's irony in the fact that the biggest spenders on the campaign were American Express and O2, two very large businesses that signed up as sponsors. Small independent retailers have as much chance of persuading people not to shop online as they do of convincing them to avoid shopping centres. At best, this is damage limitation, not a fightback.

So should independent retailers give up? Not at all: if you can't beat the online retailers, join them – and that is becoming much easier to do so. Until relatively recently, small retailers that wanted to go up against larger rivals found it very difficult to compete. It was hard to build the technology to sell online, or to generate the traffic to build sales. The emergence of online market places has changed all that, however.

Take notonthehighstreet.com, which serves as a market place through which about 4000 independent designers and retailers sell their products. It is forecasting a 15 per cent increase in sale on Small Business Saturday. MyHigh.St provides an online link between named towns' independent retailers and a national audience. Or there's Farmison, a marketplace for independent food retailers – particularly farm shops.

These sites enable small independent retailers to come together to build the breadth and depth of product offering necessary to mount a challenge to the largest players in e-commerce. They also do most of the practical stuff on behalf of the independents – from design and marketing to efficient, secure payment systems.

If these marketplaces gain traction, they stand a chance of tapping into the positive sentiment around small retailers. That may be wishful thinking, of course.

Perhaps shoppers will prove as unwilling to shop with independents online as they are on the high street. But independent retailers do have an opportunity – they just need to find new ways to connect with their customers.

Happy Days as Seedrs breaks new ground

Coming soon to a theatre near you: Happy Days, the musical. A team including Henry Winkler, the actor who played the Fonz in the original television series, has been putting together a new production after raising £250,000 on the equity crowdfunding site Seedrs. It's the first time that a theatre production has used this type of fundraising platform.

Doing so makes sense, argues Todd Ruppert, the producer of Happy Days. "[Raising money this way will] potentially aid ticket sales because if individuals are involved financially, they may talk about it with family and friends," he said. "We also knew there would be added press by doing part of the fund-raise through crowdfunding, which should also aid ticket sales."

The fundraising is another breakthrough for Seedrs, which this month announced it would become the first pan-European crowdfunding network for equity investors. While rewards-based crowdfunding platforms such as Kickstarter have raised money for the arts, sites such as Seedrs have been more focused on conventional businesses.

Rate cuts punish firms for building reserves

Small businesses have collectively lost almost £1bn over the past year because banks and building societies have cut the interest rates that they pay to commercial customers by a third.

This is the claim of the peer-to-peer lending operation Rebuildingsociety.com, which says the average rate currently paid on £10,000 held in a business savings account is now just 1.6 per cent before tax, down from 2.34 per cent a year ago.

Banking industry data suggests small businesses hold £126bn on deposit in savings accounts, which means the fall in rates has cost them £931m.

"Successful businesses will have money sitting on their balance sheets or in a savings account earning very little," said Daniel Rajkumar, the managing director of Rebuildingsociety.

The findings are particularly concerning because small businesses have steadily increased their cash balances in the years since the financial crisis, opting to build large buffers as protection against an uncertain economic environment.

Small business person of the week

Dougal Sharp; Chief executive, Innis & Gunn

"We launched the company in 2003 after stumbling across a great product by accident. I'd been working for a brewery in Edinburgh and was approached by William Grant, which wanted to buy beer from us to soak the barrels it planned to use for a beer-infused whisky. One day, William Grant, which was throwing away the beer after it had got the barrels into the right state, asked me to come down and taste it. The time the beer had spent in the barrels had transformed it, and we realised we had produced a great Scottish beer.

"The brewery I worked for wasn't interested in this as a product, so I set up a company to sell it. Initially it was a joint venture with William Grant, which worked really well for me because they taught me a huge amount about how to run a business. It was like having a business angel investor really.

"These days, we have four core products including a lager and an IPA, and 77 per cent of our sales come from the export market. We now own the business outright and we've spent much of the last year really gearing up for growth, hiring new people and investing in plant.

"It feels a bit like being at the start line waiting for the gun to go off – we think sales will come in at around £12m this year, which would be growth of 30 per cent, but we can do more. It's a really exciting time."