Retailers fighting for survival in an era of rising e-commerce are scrambling to shift business strategies to avoid the fate of enterprises such as HMV Canada, Videomatica and Book Warehouse, which have all closed doors in the past year.
Even successful clothier Lululemon Athletica Inc. (TSX-LLL) is preparing to be nimble.
“We’re negotiating shorter term leases,” said Lululemon vice-president of store development Wynn Spencer. “We want to have the flexibility, if e-commerce takes a large chunk of business out of the retail industry, to have [smaller stores.]”
Thomas Consultants managing partner Michael Penalosa believes store sizes are likely to shrink for Lululemon and other retailers because they will be free to carry less inventory.
He pointed to Best Buy Co., which plans to close 50 big-box stores in the U.S. while its Burnaby-based Canadian division adds stores to its 33-location chain of small-footprint Best Buy Mobile stores – outlets that exclusively sell mobile devices and accessories.
Penalosa said that one way to survive in the retail business is to manufacture what you sell.
Sales at Best Buy’s big-box stores have sagged recently because people can find the same products at Amazon.com and other online merchants for less money, he explained.
That is in contrast to retailers such as Apple Inc. (NSG-AAPL) and Lululemon, which both manufacture and sell their products and can therefore guarantee to customers that they are offering the lowest retail price.
Penalosa believes e-commerce will increase dramatically in the next five years as Canadians get increasingly comfortable sharing credit card data online and appreciate the resultant cost savings.
One trend could be Canadians renting U.S. post office boxes.
Penalosa has a post office box at TSB Shipping in Point Roberts, and he said sends his e-commerce purchases there to avoid duty and tax. “As long as your purchases are under $350, [customs officers] don’t tag you,” Penalosa said. “I spent $300 on sporting goods from Utah and saved about $200. So why would I go to Sport Chek here?”
Boston Consulting Group found that Canadians spent $18 billion online in 2010. At about 3.4% of total sales in the country, that’s less than in the U.S., where 5% of sales are done online.
But online sales are ramping up. So are sales made via smartphones (m-commerce).
ComScore Inc. statistics earlier this year found online sales were growing at a 15% annual clip whereas brick-and-mortar sales were rising a more modest 4% annually.
Spencer said Lululemon’s online sales growth is far outstripping that rate. He forecast that Lululemon would generate about 15% of its revenue from Internet-based sales in 2012. That’s up from 4% of total sales in 2009.
Harry Rosen regional director Wes Purdie would not reveal exact sales figures but said he expects online sales to double in 2012 after increasing 60% in 2011.
And while his company has invested heavily to have a slick website that displays a regularly changing collection of clothing, it has yet to evolve to the point where customers can insert measurements, click a button and have a tailored suit delivered in the mail. That business model has made Vancouver-based Indochino one of the world’s fastest growing 100% e-commerce companies.
“We look at our online sales as being part of a holistic approach,” Purdie said. “Ultimately, you need a relationship with your customer. The contact may be virtual, but the lion’s share of the business is based on the relationship.” •
