How are Irish shops faring in the online retail apocalypse?
About 50% of Irish consumers shop online, according to Retail Ireland, compared with 80% in the UK
As the Christmas shopping season kicks off in earnest, the reality of the behavioural shift will become more apparent than ever before. For many retailers and their customers, it will be, at least partially, a digital Christmas and a cyber New Year. Photograph: Bryan O’Brien
You would have to search high and low to find a prettier market square than the one in Donegal town. It’s not really a square at all, of course, but is known as The Diamond, an oasis of calm in the town’s commercial heart. It’s the type of civic space we normally don’t do well in Ireland. They do it beautifully up there.
In the middle of the Diamond, there is an obelisk commemorating four Franciscan friars who in the 1600s wrote a famous text chronicling medieval history. As locals and tourists pass by to go the shops, it stands there, unyielding, a nod to the past.
Across the Diamond, you can also catch a glimpse of the future, albeit just in the retailing sense. It’s not what you might expect. The Donegal tweed brand Magee 1866 is among the vanguard of Irish retailers learning to harness the potential of online shopping. Tweed has gone digital.
While some traditional retailers fret about their survival in an age where online players such as Amazon threaten to overwhelm all, Magee simply got on with it. In 2016, it implemented a new digital strategy and overhauled its website and marketing, with a focus on appealing to foreign buyers who like traditional Irish goods.
Dominic Tracey, who runs digital strategy on behalf of the Temple family who own Magee, outlines the stunning metrics that prove its online success. It has long operated three standalone stores – one each in Donegal, Dublin and Kildare. But, Tracey says, its online sales have already garnered 20 per cent of group revenues.
A different way
Magee’s online sales continue to grow at 80 per cent per annum, with more than 4,000 transactions last year. It has sold to more than 60 countries and, remarkably, about 80 per cent of its online sales are exported, mostly to the US and UK. Online is not necessarily killing traditional retail – it’s just making it live in a different way.
Magee harvests a bounty of data from its customers, online and offline, and targets them with offers. It offers quick delivery using a high-tech order fulfilment system in partnership with ecommerce platforms. It has also installed iPads instore, so that its customers can browse the website while physically interacting with its products.
“We had to embrace technology,” says Tracey. “Digital marketing is now pivotal to the brand. Online is a key part of our growth for the future but it is important to note that bricks and mortar are also crucial. We don’t see each as mutually exclusive.”
Magee’s recent digital success has made it a darling of Ireland’s ecommerce community. Tracey, for example, sits on a small business council at Facebook, while Amazon recently invited him to take part in an ecommerce debate at the Irish launch of Amazon Pay. He is also due to receive training shortly from Google.
Silicon Valley’s “retail apocalypse” theory, which holds that these big online players will eventually destroy traditional retailing, is probably a trifle overblown. But there is still a major change under way in consumer behaviour – the clichéd “shift to online” – with which retailers of every hue must deal appropriately, or risk peril.
About 50 per cent of Irish consumers shop online, according to Retail Ireland, a division of the employers lobby group Ibec. In the UK, it says, this is 80 per cent, which shows the headroom for change in the Irish market.
A recent retail study from PwC said 38 per cent of Irish 25- to 34-year-olds now shop online weekly, while a fifth say they buy less in traditional shops because of Amazon. PWC estimates that as much as 67 per cent of Irish shoppers have bought directly from the online behemoth.
As the Christmas shopping season kicks off in earnest this month, the reality of the behavioural shift will become more apparent than ever before. For many retailers and their customers, it will be, at least partially, a digital Christmas and a cyber New Year.
“We are witnessing the collision of online and offline in a way scarcely imagined before,” warned PWC.
The buccaneers of the cyberworld constantly trump their ability to mine data. Yet, one of the difficulties facing the retail industry is a dearth of reliable statistics on the overall value of online retailing, and its distribution. Who is selling what, to whom?
Most estimates put the value of Irish online shopping at up to €5 billion, although some in the industry say it might be as low as €3 billion once you strip out non-retail online purchases such as flights. Between 60 and 70 per cent of Irish spend is estimated to go to retailers abroad, threatening some of the State’s VAT take. How to adapt to online shopping is now also an issue for policymakers, as much as retailers.
Much of the existing data comprises estimates from credit card companies and payment groups, who have a vested interest in hyping-up online and the apocalypse theory. But from next month, the Central Statistics Office will for the first time collect basic data from Irish retailers on their online sales.
“To date, it has all been finger-in-the-air stuff,” says Thomas Burke, director of Retail Ireland. “It’s hard to stand over most of the figures. The CSO move is a good start.”
The CSO’s new monthly data will give a basic picture of online sales made by Irish retailers to domestic customers, and sales exported from Ireland to customers abroad. But it will tell us nothing about the volume of retail goods coming into Ireland.
According to the Consumer Market Monitor, published by the Marketing Institute of Ireland and UCD Michael Smurfit business school, as much as €3 billion in Irish online retail sales in 2017 went to sellers overseas. That’s a huge economic leakage.
Parcel delivery sector
An Post is the biggest player in the parcel delivery sector with more than 30 per cent of the market, delivering 30 million packages annually. It has been boosted significantly by its partnership with Amazon, whose packages it brings to Irish doorsteps.
Gilles Ferrandez, An Post’s commercial director in charge of parcels, says the volume of packages it is delivering for online retailers grew over the past year at an annual rate of 46 per cent.
He declined to reveal the specifics of Amazon’s growth on the grounds of client confidentiality, but suggested it was “significantly ahead” of the 46 per cent.
“Amazon is our biggest customer. They are very demanding regarding our ability to react. We must be quick,” he said.
Other figures from An Post, however, further illustrate the leakage of Irish retail sales abroad, which might help explain why retail sales growth is lagging overall economic expansion. Ferrandez says domestic deliveries by Irish retailers grew at 20 per cent, but the corresponding figure for UK retailers into Ireland was 85 per cent.
Largest delivery platform
In essence, UK retailers are picking up online sales growth in this market at four times the rate of local retailers, on the largest delivery platform.
The Brexit-inspired collapse of sterling, which has made UK goods cheaper for Irish buyers, partially explains the phenomenon. But Ferrandez argues that some of the UK growth is also down to An Post’s operation.
“We have really improved our service for UK retailers. We’re the only delivery service that offers three attempted deliveries, and we’ve speeded it up to overnight in most cases.”
Retailers that have moved their parcel traffic to An Post include the British arms of Zara, H&M and Decathlon, says Ferrandez. Fashion items, sports goods and beauty products are popular online with Irish buyers, he says.
He also confirms that there is substantial growth in the volume of packages arriving from Chinese retailers. Discount online Chinese retailers such as Wish, which sells everything from €3 watches to €50 smartphones, are now a significant part of the market. Three years ago, PayPal suggested that one-in-four Irish online shoppers had bought from Chinese websites. That proportion is likely to have grown since.
“Chinese purchases tend to be for lower value items,” says Ferrandez. “They tend to be liable for customs charges, however. Other major retailers, such as big US players, have agreements to withhold Irish taxes.”
Customs staff work onsite at An Post’s parcel sorting centres. They check items from regions such as China for their value, calculate the duties, and generally charge them to An Post. It then recovers the duties from the end user upon delivery.
Primark/Penneys is probably the biggest Irish retailing success story internationally of the past decade. Yet it doesn’t do online sales at all, as it hasn’t been able to make it fit yet within its low-cost model. As consumers continue to look more online, it will be interesting to see how that policy ages.
From Magee up in Donegal all the way down to Dublin and beyond, all manner of Irish retailers are facing up to how to deal with the threat from online, and how to capitalise in its enormous opportunities.
Swedish furniture giant Ikea, for example, this week announced that it was pausing plans for expansion of its physical store network in Ireland, after the success of its online division launched a year ago.
Two of the biggest names in traditional Irish retailing are the Dublin department stores Arnotts and Brown Thomas, which are both owned by UK group Selfridges. The Irish stores are planning to spend €25 million between them over the next five years adapting to online shopping, although both insist that bricks and mortar retailing will always remain core to what they do.
“That’s a key point,” says Stephen Sealey, the managing director of Brown Thomas who will retire next May. “Omnichannel retailing [the confluence of online and offline retailing techniques] is sometimes presented in the media as online coming to the rescue. But we are investing to drive substantial growth in bricks and mortar, and to drive growth online.”
Donald McDonald, the managing director of Arnotts who will take over the running of both stores when Sealey retires, says that individual customers who shop both online and offline at the same stores tend to spend more than those who do it either one way, or the other.
“There are also opportunities for us to sell to new customers from abroad,” says McDonald. “Whether that is tourists who arrive at our door or who become familiar with the brand while they’re here, or if it is members of the Irish diaspora in the UK, US or Australia.”
McDonald says about 30 per cent of his instore customers check out products online first before they come in to buy. About 10 per cent of Arnotts turnover is currently derived from online ales, but McDonald says the plan is to increase that proportion to “20 or 25 per cent over the next three-five years”.
Magee has demonstrated that a traditional retailer can hit those sort of metrics with the right digital approach. Sealey says Brown Thomas and Arnotts have an “innovation stream” and staff dedicated to finding ways to harness digital technologies.
The group is working on further developing its suits of apps, and Sealey says Brown Thomas is also exploring ways to bring more of a “human touch” to its online sales. He floated the idea that staff members, with the permission of the digital customer, may even be able to intervene in online transactions to assist customers.
“If you’re buying a sweater online, how do you ask someone if the sleeves are a bit tight? We’re working on ways to make that happen using technology,” he said.
Online shopping may not bring the apocalypse for traditional Irish retailers. But it will bring change. Customers tooled up with smartphones appear to be ready for that change. It’s time for retailers to climb aboard, too.