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Expect more famous retailers to disappear

Services and experiences are key to retailers’ survival

Expect more famous retailers to disappear
Canalys says the growth of Internet shopping is creating challenges for consumer electronics retailers.

Market analyst firm Canalys predicts that many more consumer electronics (CE) retailers will follow in the footsteps of Surcouf, Best Buy Europe, CompUSA and Circuit City and disappear from the high streets of Europe and the United States.

It describes this as a result of the ‘strategic failure' of the CE retailing model and warns retail chains in other segments to learn quickly from the mistakes of the fallen.

"They were hit by a perfect storm of competition from the Internet and supermarkets. They lost too much business to competitors undercutting them on price and failed to respond to the many attractions of Amazon's online approach, such as its vast stock ranges, peer reviews, recommendations, free delivery and excellent returns services," said Canalys CEO, Steve Brazier. "Today's consumers are even willing to browse for a book in a local store then order it from Amazon at a higher price simply because they want Amazon to understand their entire library, to optimise future recommendations. This is more than ‘showrooming' - this signals a fundamental shift in consumer perception of value."

As well as online competition, Brazier said supermarkets have proved adept at running promotions for low-end products, and are often willing to sacrifice margins to bring customers to their stores.

"They have the locations and the parking facilities, which make them convenient for collection of heavier items," added Alastair Edwards, Canalys principal analyst. "Many have good online tools and make deliveries too. In many countries, supermarkets are the most efficient route for shipping a single product in high volumes."

Edwards pointed out that CE retailers in Europe saw their lucrative extended warranty business undermined too, by the EU's insistence that two-year warranties be provided as standard. Their content businesses have also collapsed: most have seen their vinyl, film, film processing, CD and now DVD businesses disappear.

He said Kindle and iPad apps are removing opportunities in books and magazines.

"The future for multi-specialists, such as the much respected FNAC in France, looks as bleak as for the more hardware-focused companies," Edwards continued. "CE retailers now offer very few benefits to consumers. They appeal to the rapidly shrinking proportion of people who are unable or unwilling to shop online. They enable impulse buying and they allow somebody to pick up a product immediately, rather than the next day. But that's about all."

Canalys says the growth of Internet shopping should not have come as a surprise to the retailers; the threat has been building for 15 years or more. According to the analyst firm, most now have online stores to complement their shops, but in nearly every mature market they are the distant followers, not the leaders, of Internet retail.

"The window of opportunity has closed; they will never catch up with the Internet specialists. They started late, under-invested and could not build a culture to excite talented programmers. Their Internet businesses were held back by them not wanting to undercut in-store prices," Edwards said. "They wrongly assumed the benefits of ‘touch and feel' would continue to protect them, but a new generation of consumers has grown up with a different way of thinking. The success of online fashion retailing is a strong indicator that no category is safe from this change in behavior; other retailers should take note."

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