It’s not the Internet that’s killing businesses…

…It’s businesses blaming the Internet that’s killing businesses.

We have seen more high street trouble in the UK than we have for many years. TJ Hughes, Jane Norman and Habitat closing and Thorntons closing half of their shops. Most seem to be blaming the Internet for their demise.

I think the problems that the design industry itself have had could also be/were also being blamed on the internet.

I’ve claimed it myself with articles that relate to buyers having perfect information and chasing the cheapest price.

But I think it’s simpler than that.

I think customers need three things.

1. Great prices – yes that’s a given. No-one wants to feel like they are overpaying, but i’m not sure it needs to be rock bottom, just equitable with the better prices on the Internet.

2. Differentiated products – A product with a barcode can be tracked and chased for the lowest price elsewhere on the Internet. A product or service that is clearly differentiated by a brand becomes one of one and people will seek it out and be prepared to pay more for it. Just look what Apple have done to Nokia in the last few years. It hasn’t been price driven has it?

3. Amazing service – This is where the real problems have been born in retail and lots of other service businesses. Crap service, inflexible exchange policies or surly staff who make you feel like they’re doing you a favour by speaking to you. Look at what retailers are being raved about online – It’s Zappos, Amazon and those who offer great service as well as good or even best prices.

So we can’t keep blaming the Internet for everything. We have to create better products, better brands and relevant pricing policies.

Then we all win.

Update

I got a note from John Jackson of Retro 36 with another good point to add to this. Firstly he pointed out some of my typos, oops sorry, hopefully corrected now, but also added these points.

“no it’s not just the internet. It’s supermarkets, obscene rent and equally obscene business rates… that’s the real killer.”

So John, I agree, rent is a real issue and business rates are just silly. Some of the rents in the centre of towns an cities must make it impossible for any retailer to make money. Add to this some greedy inflexible landlords and you have a recipe for massive retail failure.

Sadly, supermarkets and their oligopolistic power are a product of our lazy generation and are here to stay for a while yet. Supermarkets were born from bad service, inflexible opening hours and the silly pricing policies that local retailers employed, just as the Internet is doing to them in return.

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7 thoughts on “It’s not the Internet that’s killing businesses…

  1. Like you John, I don’t think the internet is killing business – but ti’s sure changing it.
    The only significant impact the net has had on consumer-facing businesses is exposing gaps in customer service for all to see – especially via blogs like this and review sites like Trip Advisor.
    One issue which some businesses are struggling with (the media being the key example) is how much you give away for ‘free’. I put it in inverted commas because there’s no such thing as ‘free’ – someone, somewhere has to pay for it, whether it’s an upfront charge or a subsidy from another income streamThios is why dear old Google is seen as such a double-edged sword. If you ant to get a better understanding of the deopth of this dillema I’d recommend Ken Auletta’s book ‘Googled’.

    1. You’re right Richard, service is being exposed horribly. There is a brilliant case where a man staying in a hotel in Blackpool was thrown out of the hotel for writing a negative review.

      http://www.blackpoolgazette.co.uk/

      Feedback does have a habit of finding out bad retailers and hoteliers that may have got away with it in the pre-internet days.

      So maybe it isn’t all bad after all.

  2. Whooooa! Greedy Landlords / outrageously high rents? Blimey. Perhaps a very brief reminder as to how the market works… Landlords have a product, tenants take (or not) that product. The price (rent) is a function of what one party will accept and the other will pay. Tenants aren’t forced to pay a rent – it is tenant demand and landlord supply which makes the market function.
    So the next statement will be – oh thats ok whilst the market is great but landlords are just greedy when the market falls. But it’s not quite that simple. During the good times when the retailers are making money do they offer their landlord a premium? Not in my experience. When it gets a bit tough – do they seek a reduction – yes – almost always!
    It’s not a simple relationship – and some landlords have been slow to react to the market – but they may also have some issues with loans which need to be paid!
    The market is as flexible as I have known, in many years….

    1. Tim

      Maybe greedy landlords is a bit harsh, perhaps it should be greedy landlords, landlords, landlords. There is no doubt in my mind (and it is possibly wrong) that if a building is developed and then immediately sold at an agreed yield, and then sometime later resold at another slightly lower yield, then inflexibility in rents will creep in very quickly.

      You only have to look at the pub sector to see this in action. Nomura bought up loads and then a few years later resold them at a different yield. This has left pubs with landlords who can’t afford to adjust the rent to allow the pub to adapt for market conditions and a landlord defaulting on their payments. Pubs are literaly being wiped out – not because of the smoking ban – no smoker minds going outside, but because of the prices pubs need to charge to recover the rent.

      I think we’re seeing that on the high street and in the shopping centres as well.

      I do totally take your point about the customer not paying a premium – perhaps this is a model to consider for the future – it works in the outlet villages, so why not the high street?

  3. John, generally speaking a property investment sells after the letting – so it is the rent that drives the yield. Reviews are based on evidence of historically agreed rents.

    Turnover rents are not generally popular – by either landlords or tenants. Famously it is only John Lewis in Nottingham who have such a rent!

    Outlet villages are different – they are not High Streets and you might argue are full of World brands?

    1. I can see why turnover rents aren’t popular, but do think that some landlords will need to find ways of being more flexible with tenants rather than leaving empty properties.

      We have already seen much shorter leases becoming the norm in the last few years, maybe some other changes are needed too, in order to fill the empty shops before they get hit with full business rates – It has to be better than more charity shops!

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