The Business World: Vital lessons for survival in the high street

Click to follow
The Independent Online
THE MOST dramatic shift of fortune in the past few months has been the collapse in the value of conventional retailers such as Sainsbury and Marks & Spencer and the corresponding rise in value of any business associated with electronic commerce. That those two retailers were stricken giants has been evident for a while, but neither seemed in such a mess they would become a prime takeover target. Now they are.

Another high street retailer, Dixons, turned this reassessment to its advantage by founding Freeserve, and others, most recently Boots, have tried to straddle the great divide by setting up separate e-commerce divisions.

What is happening to retailing is a particularly dramatic example of a trend that is sweeping the business world. But what can other businesses learn from the plight of the retailers? There seem to be at least four useful general lessons of the retailing saga - and one possibly damaging one.

Useful lesson number one is that the new technologies won't go away. It is a profound temptation when running any previously-successful business that hits an air-pocket to assume that as long as you keep your head and follow the old rules, you will pull through the difficult times. That isn't true any longer. If you don't move fast, there is no second chance.

So lesson two is that you have therefore to have a coherent e-commerce strategy, one that is complementary to your existing business. Retailers who linked e-commerce with their high street outlets have been particularly successful. The shops aid consumer confidence and provide an entry point for new users - witness the way in which Freeserve's disks have been distributed via Dixons.

Lesson three is that, thanks to the Internet, we are in a pricing revolution. One of the great fears of the markets appears to be happening - the margins of offline retailers are being squeezed by online competitors. But not much business has to be transferred from physical retailing to electronic retailing to have a disproportionate impact on prices.

For some products a large proportion of sales have gone online. For others, such as clothing and food, there has been hardly any shift.

What matters here is the information aspect of the Net rather than the commercial aspect: the knowledge that there are better prices out there changes the relationship between buyer and seller to the advantage of the buyer. This reinforces the previous trend of general deflation.

Lesson four is that the market is finding it very hard to price the revolution. Share values ought not to switch as fast as those of, say, Nokia and M&S. There is no real new information in the market, yet the former's shares have doubled in a few weeks to make it the largest company in Europe. The latter's have halved, over an only slightly longer period. This confusion will continue for many months.

Those four lessons can be used to advantage by all businesses. The speed of change means nimble managements can enter businesses from which they had been barred.

The most obvious recent UK example is the Prudential's founding of its Internet and phone banking subsidiary, Egg. True, banking was open to new competitive challenges even ahead of the Net's development. But the Egg experience will be replicated in a host of other areas. It is the sort of mantra they put in the business manuals - speedy change is an opportunity as well as a threat.

Lesson two - the need for a strategy complementary to the existing business - should strike a chord with every manager. Developing an electronic business arm is not particularly difficult. The problem is how to integrate it. Sometimes the old and the new reinforce each other, sometimes the new eats the old. Then the question is how quickly you allow this to take place.

Three is the squeeze on prices. The trick there is to use the cost-cutting potential of the new technologies to counter the squeeze. To generalise, there may not be much fat in the production, but, suddenly, here is a technology which offers enormous cuts in distribution costs. Look on the bright side: if prices are being destroyed by a new technology, at least that self-same technology provides a way of fighting back

Finally, market uncertainty. If the market is confused, overpricing some businesses and underpricing others, any company that has a convincing story to tell will get a hearing. Small private companies may be able to buy assets at a discount; large public ones can at least sort their ideas, a step towards explaining them to the analysts.

Then there is the negative lesson. In the hunt for the elusive "" branding in the financial markets, companies tend to hive off their e- commerce activities into separate subsidiaries, allowing the parent to sell stakes in the subsidiary at a vast premium. But it undermines the principle that the greatest gains from e-commerce will come from integrating the new way of doing business into existing activities.

Ten years from now there will still be high street shops; there will be supermarkets; there will be chains of speciality stores. Most of today's retail brand names will be around. But most of the new "dot.coms" will be dead. The over-riding lesson of what has been happening to the retailers is the need to adapt. That applies to business in general. The plight of M&S is a useful reminder that the bigger they come, the harder they fall.