Will Silicon Valley robber barons really kill traditional shops?

Caveat: Harvey Norman chief evangelical in defence of bricks-and-mortar stores

Blaine Callard, chief executive of Harvey Norman in Ireland, argues that the dystopian retail apocalypse narrative is an invention of Silicon Valley and an awestruck media. Photograph: Robbie Reynolds

Blaine Callard, chief executive of Harvey Norman in Ireland, argues that the dystopian retail apocalypse narrative is an invention of Silicon Valley and an awestruck media. Photograph: Robbie Reynolds

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Blaine Callard, the ebullient chief executive in Ireland of Harvey Norman, strode on stage on Wednesday at a Dublin retail conference and looked his audience in the eye.

“You’ve been bad retailers,” he told them, clearly ironically. “You were supposed to behave like an algorithm. But you didn’t. People aren’t easily programmed.”

And so he set the tone for a stirring speech, purportedly rebutting the accepted narrative that online retailers such as Amazon are killing their bricks-and-mortar counterparts. The popular “retail apocalypse” theory, he proclaimed, is “fake news”.

Callard was among the final speakers at the annual Citywest “retreat” of industry group, Retail Excellence (it appears to have dropped the “Ireland” part of its moniker). For two days, the cream of the industry had listened to speeches about how to counter the online threat; how to ape the digital retailers. Some looked worried.

Then along came the Australian, Callard, one of the most colourful and outspoken characters in the Irish industry, with his impassioned call to arms, lambasting the robber barons of Silicon Valley for their “false narrative” of their own invincibility.

For a few minutes it was impossible not to get swept along in the fervour. Or perhaps it was just more fun. Callard stood before the huddled masses of Irish retailing, arms outstretched. We were no longer in the main hall of Citywest. We were on the shores of the Sea of Galilee. They were practically throwing themselves at his feet.

Callard’s message is that the dystopian retail apocalypse narrative, which holds that online will continue to strangle high-street shopping in an irresistible decline for the traditional sector, is an invention of Silicon Valley and an awestruck media. Newspapers truly are being killed by the digital behemoths. So it is not inconceivable that we journalists can sometimes overestimate the web giants’ power.

He says tech giants have a “Hobbesian” belief that they can disrupt every industry as their nerds, “Mozart-like”, hammer out lines of code. Callard first became suspicious of the narrative when it was fed to him “each time I got a sales pitch” for some digital investment or other designed to help him minimise the disruption.

Lofty valuation multiples

Wall Street, he says, has made a “big bet” that Silicon Valley’s omnipotence narrative is correct. This is reflected, he claims, in the lofty valuation multiples of digital companies, which can be justified only on the basis that, in the future, “some big thing will inevitably happen”, such as an economic cliff edge for retailers. It “sells fear” to traditional retailers.

Callard asked the room what proportion of retailing in the US is done online. Half the room thought it must be above 30 per cent. Last year, he revealed, it was about 9 per cent, and is on course to reach 11 per cent: “Good, but not in unicorn territory.”

He claimed the proportion of pure retailing online in Ireland, once you strip out all the “buying of flights, the buying of insurance and other stuff that isn’t retailing” is closer to 6 per cent, or about €3 billion.

Much of the data trumpeting the supposedly massive shift to online shopping is purveyed by credit card companies, which, he said, have a vested interested in spreading the narrative. They benefit directly.

Huge retailers, such as Toys R Us, that have collapsed recently are being killed by a “perfect cocktail” of too much debt and bad management, he argued. How do you explain, Callard asked, how Smyths, which has the same “big box” volume model as Toys R Us, is thriving at the same time?

He said the notion that shopping is buying is a “myth”. Shopping is a recreational activity, and retailers will “live or die” on their in-store experiences. He described as another “myth” the theory that online retailing is low cost.

What about the credit card fees, the data-protection costs, the fraud costs, the delivery costs, and the huge level of returns for online sales? Callard argued that returns for online are so high – up to one in three purchases goes back – because a flood of fake online reviews inflate consumer expectations.

Technology wants to “take people out of retailing”, he said, because people don’t always behave like algorithms expect. He implored Irish retailers to “invest in your stores and invest in your people”.

If Callard is a prophet, then what sort is he? Those at Citywest welcomed him like the Messiah. Perhaps that was just relief at hearing a message they wanted to hear. To others who weren’t present, he might be a Cassandra, cursed to roam the Irish store aisles selling a message that nobody believes.

If the apocalypse theory is correct, and online really does kill traditional retailing, then Callard may even come to be seen as a false prophet.

Here is one thing that his theory does not fully explain.

Retail performance is improving, but sluggishly when you consider the buoyancy of other economic indicators. Headline retail sales grew 2.9 per cent in 2017, says the Central Statistics Office, but that is expected to fall below 2 per cent in 2018.

The economy is basically back at full employment, house prices are rising like a Nasa rocket, consumer confidence indices are soaring and wages are up. Yet the shops are only ambling along and, in many cases, their revenues are under pressure. If the impact of online doesn’t explain the gap, then what does?

FOOTNOTES

A judge in a US bankruptcy court has this week given approval to the estimated €79 million sale of the central European assets of Toys R Us to Smyths, the family-owned retailing group from the west of Ireland.

The order basically gives the bankruptcy trustees of Toys R Us, which collapsed under the weight of a $5 billion-plus debt pile, free rein to take any corporate action necessary to get the deal over the line. It is hard to see the transaction failing at this stage, given that Smyths were the only ones to submit a binding bid.

The court is also being asked to give approval for the trustees to be allowed sell the intellectual property of Toys R Us in the US, which would include its Geoffrey the Giraffe mascot. The group’s creditors must have some neck.

Ray Coyle’s Tayto Park near Ashbourne this week hosted the spring forum of the International Association of Amusement Parks and Attractions.
Ray Coyle’s Tayto Park near Ashbourne this week hosted the spring forum of the International Association of Amusement Parks and Attractions.

– Ray Coyle’s Tayto Park near Ashbourne this week hosted the spring forum of the International Association of Amusement Parks and Attractions, which heard from executives from Disneyland Paris, Drayton Manor, Europa Park and Legoland.

When Coyle also controlled the crisp factory across the road, he had a habit of sending his visitors home with enough of his product to feed an army. Once, after I declined his entreaties to accept a bounty of crisps while interviewing him, Coyle left the room momentarily. A staff member then appeared and asked for my car key to move my jalopy, which was supposedly blocking a delivery van.

When I got into my car to drive back home, it was weighed to the ground with boxes of Tayto and King. I wonder did Coyle manage to engage the likes of the Disneyland guys in a discussion of the merits of cheese and onion versus salt and vinegar?

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