Is There a Huge Hidden Cost to Retail Innovation?

The mini-supermarket at the bottom of my road is closed for a couple of weeks for refurbishments (this may seem like an incredibly mundane topic with which to start a blog, but bear with me). The signs announcing this closure were only put up a couple of days beforehand, and somewhat surprised I asked the cashier - with whom, like many in my neighborhood, I have a friendly relationship – what was behind the chain. The shop is part of a very large national chain, but has a "local" atmosphere unlike, in my experience, most such establishments. She replied that the shop is being redesigned to include several self-serve tills - and was, of course, unwilling or unable to answer when I inquired if that means job losses amongst the current staff.

An elderly man being served next to me then said something which got me thinking: "It's computers, isn't it? Everything will be run by computers soon, and there'll be nobody left to talk to." In this particular instance, at least in the short term, that gentleman was of course being premature - that shop will still have a complement of human staff, and won't be entirely based around self-serve points of sale (POS) - but there as everywhere else in the country, technology is driving vast change in the retail sector, with ramifications that go far beyond that industry and which have the potential to affect the whole fabric of society.

Along with the introduction of self-serve tills, the store will also apparently be pushing people hard towards online shopping (presumably with goods being sent out from the brand's much larger store a kilometer or so away). Considering this is a convenience store by definition, I am not sure how successful that will be in the near future; however, the trend, and the company's intentions, are obvious and mirror what's been happening across the developed world for many years: the centralization of both storage and sale of goods, alongside a diminution wherever possible in staff numbers driven by advances in technology in both customer-facing and back-of-house areas.

This drive towards centralization and online retail within and among the large supermarkets is both a reaction to, and further fuel for, the ongoing and accelerating shift on the part of consumers from in-store to internet shopping which is transforming the retail sector around the world. Supermarkets, selling a large quantity of perishable goods, and with individual transactions typically involving quite voluminous (i.e., trolleys full of shopping) trades, might not on the surface be as suitable for internet retail as, say, books or appliances which can be dispatched in delivery-friendly packages - but the big chains have embraced the model with aplomb. According to Mintel the internet accounted for 6% of UK grocery sales in 2015, up from 3% in 2010; around 11% of British shoppers now do all their grocery shopping online. The impact of supermarkets on local, independent stores isn't exactly an unknown quantity, with many thousands having gone the way of the dodo; now the big chains are preparing for the obsolescence of their own bricks-and-mortar outlets as trade moves inexorably to the web.

Outside the supermarkets, in areas more obviously ripe for disruption by the online model, the trend is of course more marked. According to PwC figures, 15 shops a day closed on UK High Street (the metonymic equivalent of the USA's Main Street) in the first half of last year.  New openings, meanwhile, were at a level approximately 4/5s of that number: a net 503 High Street shops were lost over that time, the worst figure since 2012 but continuing a long-term trend going back to before the global financial crisis. Clearly, there are other factors at play here than technology - the general economic malaise affecting the west since the crisis has been augmented by issues specific to the UK, most recently of course concerns over Brexit and the subsequent fall in the value of the pound - but one doesn't have to be a Nobel laureate to put two and two together and correlate the explosion in internet retail (as evinced by the more than doubling of Amazon's net sales revenue from 2012 to 2016, to $135.99bn) with the graffiti on the shutters and boards of vacant shops on the High Street: 47% of vacant shops have now been unoccupied for a year or more.

Some sub-sectors are being especially badly hit, including areas which many pundits used to trumpet as likely being immune to the internet revolution. About a decade ago I attended a shared services conference where the impact of online sales upon retail companies' back offices was being discussed, and several experts were holding up fashion and apparel as being one area where the internet would have comparatively little success as "customers will always want the ability to come into stores and try clothes on." Clearly, while that is indeed still the case up to a point, such optimism on the part of apparel vendors was ill-founded: a Financial Times article from November last year quotes Local Data Company research which found that "clothes shops, under pressure from online rivals, disappeared at a faster rate than any other kind of shop in the first half of [last] year, with a net 129 stores closing down."

What is replacing these dead businesses? Anyone taking their information from the UK's popular press and its relentless focus on 'Broken Britain' might suggest that they've made way for a proliferation (or an "epidemic," in the language of former Labor Party leader Ed Miliband) of gambling establishments, which have certainly increased in number during this millennium but which are now on the decline, down 1.9% in the year to March 2016 according to the government's Gambling Commission. Instead, the main winners (in terms of new bricks-and-mortar outlets being put in place) appear to be restaurants and coffee shops - the kind of stores whose offerings simply don't fit the online retail model - along with jewellers and estate agencies (the latter of which is a sector which is certainly in the throes of internet disruption but where in-person assistance remains for the moment a must-have for buyers).

The fact that restaurants and cafes remain good High Street stalwarts is no surprise; this is an area where the internet remains primarily a marketing channel rather than a sales one, and though technology is driving change here as everywhere it's mostly to be found in the back office (though McDonalds' introduction of touch-screen ordering in stores is being emulated by a number of other brands). It's also the very point of such places to provide a social, human experience, in a way that simply isn't the case with clothes shops, electronic stores and the vast majority of other High Street establishments.

But restaurants and, especially, coffee houses don't exist in isolation. Their success depends on that of their environments: a bustling, thriving High Street means footfall for the cafes upon it, and to a certain extent for its restaurants too, particularly those with lunchtime service. However, that bustle mostly comprises shoppers: if everyone's shopping online, at home, who's going to be keeping the espresso machines busy?

For many decades, if not centuries, the High Street was the heart of any British town. People headed in from the suburbs and surrounding villages because that was the centre of commercial life - and even the advent of out-of-town shopping, with its definite impact on traditional businesses like butchers and bakers, didn't immediately lead to the death of the High Street. However, people need a reason to "go into town" beyond cappuccinos and muffins, and that reason takes another hit with the closure of every clothes shop and hardware store - and even if that closure makes room for another cafe or sandwich bar, commercially speaking there's only so much "room" (i.e., custom) to go round. A High Street comprising only cafes and a few scattered jewellers and estate agents will see most of those cafes go bust before it inevitably becomes the zombie heart of a ghost town.

The implications for civic life are tremendous. Isolation is already a huge problem for many people today (especially amongst the elderly: two-thirds of old people in Britain now claim TV as their main company)  and as home-working rates increase and with the traditional foci of nocturnal social life in the UK, pubs, disappearing faster than ever, there is growing concern that we are becoming an increasingly anti-social society. Meanwhile, more and more of our social interactions are taking place online, whether via social media or in the form of gaming or "virtual worlds."

"In-person" flesh-and-blood interaction, however, needs an environment in which to flourish - and it is this environment which is under threat from the rise of online retail. For all its obvious and tremendous advantages, internet shopping is a real danger to civic life as it contains within it the seed of the destruction of the High Street (and Main Street, the Einkauffsstrase and any other equivalent commercial center in the developed world) - more so, indeed, than out-of-town supermarkets, shopping malls and similar venues which also depend on the very footfall which the internet is steadily drawing away. Just as with the rise of smart automation, which (as I have discussed in other posts on this blog) endangers jobs and social stability as a result of the sheer power of its efficiency, so too the online shopping revolution is a threat not only to the stores it seeks to displace but also, by virtue of the law of unintended consequences, to the social life of towns all across the world - and their inhabitants.

What is to be done? That's a very big question - and one which, like the consequences of automation, needs to be brought right to the fore in political discourse today. Clearly, few if any of us would wish to see a reversal of the online retail miracle: at the level of the individual consumer it appears an unpolluted marvel and our behaviour indicates wholehearted support for all the advantages it brings. Yet it seems unlikely that we're also all hankering for the demise of our High Streets and our traditional social spaces (even if we're not falling over ourselves to keep them going). 

The lament of the elderly man in my supermarket that soon "there'll be nobody left to talk to" is, of course, mistaken: thanks to the internet, we have access today to more people, more potential conversation partners, than ever before in human history. But there is a difference between chatting online and talking person to person, between screens and microphones and a coffee table, and for some (especially members of older generations) the former presents a psychological barrier which is difficult to overcome. Surely the ideal would be to embrace the enormous advantages offered by the digital world, without losing the equally important yet unquantifiable benefits of the analog one? 

When Woolworths Group went under in the UK in 2009 there was much talk of "what a shame" it was that a much-lived British institution had gone to the scrap heap, and reams of heartbroken articles by authors reminiscing about childhood visits to buy sweets and teenage purchases of albums and posters. Yet pretty much everyone acknowledged that they themselves hadn't shopped meaningfully in Woolworths for many years, and while it was a "shame" the shops were gone, this was simply in the most abstract and distant of senses: consumer action spoke immeasurably louder than words, and the brand went under with barely a hint of an impact upon the average Brit. I believe there's a danger that this could be repeated on a much larger scale, with the High Street itself taking the part of Woolworths: we might observe the decline of our traditional commercial centers with a shrug and a few reminiscences about the good old days, while we click through our latest grocery shopping and buy something nice to wear on the weekend. But when that day comes, where will we be gathering as townsfolk to share our time as we used to? Where will be the point where our individual daily journeys coalesce, where will be the bustle which used to keep countless shops in business? Will we truly have become a society of individuals apart from one another, our paths crossing but never combining - and, if so, is this a development we would ever have requested, or rather one we will find one day has simply happened to us while we were busy doing other things online?

Let's be clear: as consumers we're not going to go to extra effort, nor incur extra cost, to keep High Street shops open. The laws of the market and of human nature make it impossible to believe that the internet retail model with all its convenience and efficiency won't continue its march towards global domination. If the High Street is to be saved as a social hub, it presumably won't be thanks to a resurgence in bricks-and-mortar retail. Nor will it be through the power of caffeine and fast food alone: those establishments currently beating the trend can only do so much, and will themselves suffer if and when the decline continues. So whence salvation, and by what means? Those aren't questions this blog, nor this author, can answer; perhaps it's something requiring the concerted attention of all of us, who by thinking about these issues will at least to a certain extent be taking ownership of a situation which stands so drastically to impact our way of life.

Jamie Liddell, Editor, Outsource

Jamie Liddell is the Editor-in-Chief of Outsource. He is a journalist with extensive B2B and consumer experience, particularly in the sourcing and international property sectors. A graduate of Cambridge University, Jamie worked as Chief Foreign Correspondent for property media company Blendon Communications before moving into full-time B2B journalism as launch editor of the Shared Services & Outsourcing Network. He took over the helm of the Outsource brand in April 2010 and has since overseen its transformation and evolution into the world's leading publication focusing on the sourcing, outsourcing and business transformation space.