Retailers ‘caught out’ by shift to online sales

Many struggling retailers could find they need insolvency advice after a bad Christmas and a tough 2011 overall, but the overall drop in consumer spending is not the only cause, according to a leading economist.

Speaking on the BBC's On the Money podcast, senior economic advisor to PricewaterhouseCoopers and former Bank of England monetary policy committee member Dr Andrew Sentance said the current picture in retail is a combination of "structural and cyclical things".

This means that as well as inflation causing customers to tighten their purse strings, there has been a significant shift from heading down the high street to online spending while enjoying the comforts of home, he explained.

Dr Sentance added: "Online spending is increasing very strongly. Consumers are starting to change the way in which they are conducting their spending and that is having an impact on established businesses like Blacks and Millets.

"Businesses in the retail sector need to move with the times and need to adapt to that. Those that have struggled in that area are finding that they have got quite a few challenges at the moment."

The mention of Blacks and Millets may offer a clear example of how even an established major force in a particular market – in this case outdoor gear – can lose its way. Competitors like Go Outdoors have had a more established online presence and have been able to sell goods this way.

And Go Outdoors has clearly done well, as it has managed to combine its online offerings with the opening of several new stores around the UK, with new outlets in places like Colchester, Inverness, Plymouth, Thurrock, Warrington and Erdington (Birmingham). A new store will soon be opening in Swansea.

And just to show that the situation for retailers is a tough one, the British Retail Consortium has revealed that the SRC-KPMG Scottish Retail Sales Monitor's figures for December were the worst in Scotland since 1999. The situation there was worse in the UK as a whole, with consumer confidence having fallen lower.

So for those who are not adapting to changed circumstances, the future could be very bleak – and short.