December 13th, 2013. Ben Lloyd
True running costs: eCommerce vs. High Street Retail
In recent years there has been a huge decline in the number of physical shops that once dominated Britain’s high streets. This was due, in part, to the global economic recession which meant that people were simply spending much less than ever before. However, many people have blamed the rise of eCommerce, or online stores, for the now derelict high street.
So what is the difference in running costs between the online stores and having a physical store?
Unlike high street shops, online stores can base their premises anywhere they like – drastically reducing the cost of rent or mortgage as they can take up space that isn’t considered a premium. Simply by moving out of the town centre you can reduce your overheads by hundreds, even thousands, every month on the mortgage – this also accounts for the increased number of retail parks popping up around the country. By moving out of town, these shops also have greater control over energy suppliers and are more able to tap into green energy – again reducing the cost of operation.
Thanks to these reduced overheads, the stores are able to pass on these savings to their customers as they don’t need such a high mark-up in order to make a profit. These savings are passed on in the form of online discounts, with products often being at least 10% cheaper than you’d find them in store. It is these savings, combined with the complete ease of online shopping, that has driven more and more people towards eCommerce sites.
Due to the nature of online shops, you do not have to hire as many staff to have a fully-working, organised store. There is no need to hire anyone specifically for front-of-house tasks, as it is not a customer facing business – the closest you’ll come to this type of role would be phone staff. It is this ‘bare minimum’ need for employees that has caused a huge increase in eCommerce stores, as anyone with a good idea and the cash to back it can start up a store.
Hold more stock
As online stores can be based anywhere, they are often located in a large warehouse which means that much more stock can be ordered in. By buying in in bulk you not only get a cheaper price per item, but you have more items available for purchase – so when all the high street shops are sold out of sizes, chances are the online stores will still have them in stock.
Cost of shipping
The one area where high street shops are cheaper to run, is the cost of shipping. Beyond bringing the stock into the store, physical stores don’t have to worry about shipping products across the country. On the other hand, eCommerce stores will have to pay for shipping out to their customers – many retailors include postage and packaging costs, however some offer free delivery on products over a certain amount.
Although the costs associated with eCommerce are much lower than their high street competitors, they cannot be solely blamed for the demise of city shopping. There are many other factors to consider, such asthe availability of commercial finance for shops from the government and banks. If financing was easier for them to achieve then it is likely that many stores wouldn’t have gone under during the recession.
Article By Ben Lloyd
December 13th, 2013
Ben is the Director and Co-Founder of the Pure Group and Managing Director of Pure Property Finance.
Following a career in Barclays, where Ben was in the real estate finance team for 8 years, he decided that the market needed a more forward-thinking type of commercial brokerage so founded Pure Commercial Finance (now Pure Property Finance), the first company within the Pure Group.
Ben has extensive experience across the real estate sector and has participated in over £2bn of real estate transactions during the course of his career.
Ben oversees the general strategy at Pure Group and works with the senior leadership team to drive the Group forward. Ben is also on the Executive Committee of FIBA.See more articles by Ben