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Tuesday, 6 February, 2001, 16:09 GMT
Traditional retailers eye online future
John Lewis hopes to buy itself internet credibility
John Lewis hopes to buy itself internet credibility
News that John Lewis has bought the UK arm of Buy.com is just the latest development in the shake-out of dot.com retailers.

More online and traditional retailers are expected to band together, as it gets tougher for internet shopkeepers to raise enough money to stay in business.


It is very hard, maybe even impossible, for a pureplay (internet only firm) to be profitable

Mike Godliman, Verdict Research

The advantages for traditional retailers are also clear.

While John Lewis may give Buy.com financial credibility, Buy.com gives one of the Old Men of UK retailing street credibility.

Advantage online

John Lewis isn't the first traditional retailer to buy an online brand recently.

Electrical retailer Dixons bought Gameplay while Great Universal Stores bought online computer retailer Jungle and ISP Breathe.

Typically, these marriages are referred to as "clicks and mortar", describing a union between internet growth and traditional levels of profit.

The logic is that traditional companies have a business which is based on a solid relationship with the idea of making a profit.

But they are seen to lack internet skills and strategies for success in the wired world.

"I think this is good for John Lewis, showing innovation here, showing they know the future is multichannel retailing," Mike Godliman, director at retail research company Verdict said.

Channel hopping

More and more retailers are realising that in the future, people will want to have a choice of places to buy their goods.

"It makes sense. The future is definitely multi channel," Jeffrey Young, a director at Allegra Strategies, an internet research company said.

Some shopkeepers will succeed by solely concentrating on the internet, but they will be few and far between, he suggests.

"There is no reason why in the long term a very slick operator who is just pure online won't be able to be profitable, just using normal business principles... Once the internet is completely mainstream, there is no reason why the pureplays won't survive," he added.

But until that day comes, the short-term future will likely be marked by tie-ups between online and traditional retailers.

The other options dot.coms face is to tie up with one of the bigger online retailers or become a niche specialist player.

Verdict's Mike Godliman is even harsher on the prospects for profitable pureplays.

"It is very hard maybe even impossible, for a pureplay to be profitable," he said.

Sales on the internet are often driven by price, and for this to be profitable, a company needs to have economies of scale.

"The pureplays are under a lot of pressure from their investors. It is increasingly difficult for them to get cash. We are seeing the best online retailers beeing snapped up by physical retailers," he added.

Slice of internet cake

The internet may represent just one retail channel, but it is a growing one.

Last year, about 0.66% of all goods sold were sold online, according to Verdict.

But by 2005, about 5% of all sales are expected to be made through the internet.

About 5% of sales will be made through catalogues.

The remaining 90% will be made by people who walk through shop doors and choose what they want from the shelves.

But this percentage will vary for specific sectors and it will be more important for companies who concentrate in specific sectors.

About 50% of computer games will be sold online by 2005, while about 20% of music, books and video will be sold online.

"In those markets, if you don't have an online presence, you won't survive," Verdict's Mike Godliman said.

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See also:

06 Feb 01 | Business
John Lewis snaps up buy.com
01 Sep 00 | Business
Jungle.com goes cheap
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