Online retail boom continues as high street struggles

It seems that online retail has finally come of age and is putting more pressure on traditional bricks and mortar rivals who are struggling to keep pace with the growth of internet shopping.

Online clothing sales have been particularly buoyant. Online only fashion site Boohoo is expected to grow nearly 40% in the four months to the end of December. Analysts say that sales at another online clothing retailer Asos are expected to have grown by 25% over the same period.

Meanwhile, footfall within the bricks and mortar retail environment is down. It fell by 7% on Boxing Day and 6% in the two days before Christmas. Shopping malls were the worst affected. Online is expected to be the primary driver of like for like sales growth, confirming the structural shift away from high fixed cost bricks and mortar retailing.

However, it's not all doom and gloom. Some of the more traditional high street names reported growth over Christmas. Of particular note are the grocers such as Morrisons and Tesco. Marks and Spencer appears to have halted clothing sales decline as well.

Online sales across the entire retail sector, excluding food, have been out -pacing in -store growth for some time now. They grew 18% last year and by 27% over the past two years. Over the same periods, bricks and mortar sales fell.
Asos is expecting to grow between 20 % and 25% this year to £1.75bn. They have a target of £2.5bn revenue by 2019.
Boohoo is also doing well with expected sales of £265m this year, up from £195m in 2016. They are aiming for over a £1bn in annual sales over the next five years.

The problem for traditional retailers such as M&S, Next and Debenhams is that whilst online sales are rising, this has come at a huge cost and is eating away at profit margins. Accepted wisdom is that as more traditional retailers with large store numbers develop online shopping channels, they are having to pay twice as much to serve customers. These companies are in essence moving customers from one channel to another rather than growing incremental sales. In contrast, pure online retailers such as Asos and Boohoo are benefitting hugely from this trend.

This dynamic shift is also being reflected in the companies' share prices. Asos was up 50% in 2016 whilst shares in Next dropped 30%. It will be interesting to see how things develop but it looks as though the online players will have the best of it for the foreseeable future.