February 15, 2010 | Opinion

EYE ON THE SUPPLY

Cue Supply Chain’s Bob Auger takes a weekly look at recent events and asks what the retail world can learn from Scarborough

It was a good week for Scarborough, “Queen of the Yorkshire coast”, as a report revealed it to be the healthiest shopping town in Britain. It wasn’t the sea air that earned it the accolade but the fact that research by the Local Data Company (LDC) showed retail occupancy in the resort to be a record 97.6%.

Further down the East coast another seaside town, Margate, has occupants for less than three-quarters of its retail space, the hardest-hit small town in the LDC survey. The results revealed that towns and cities across the UK have an average of 12.4% of vacant retail space, with the worst affected areas being Kent, the Midlands and the North East.

The fact that one in four high street stores are shuttered in some areas doesn’t tell the whole story, since the premises that do have tenants don’t necessarily sell physical products. Gone are the specialist stores, to be replaced by discounters, mobile phone dealers, charity shops, and fast food outlets, catering for the apparently diminishing number of customers who are not yet shopping online.

At the British Property Federation (BPF) Retail Summit on Feb. 10, when the LDC report was launched, BPF Chief Executive Liz Peace commented, “Brits now do a lot more shopping over the web, so we’re seeing a fundamental reshaping of high streets.”

It’s a conventional view, which may hold true for some sectors, but does it apply across the board? At the same meeting, British Retail Consortium Director General Steven Robertson acknowledged that many of the problems have more fundamental causes.

“High street shops are often battling big bills for business rates and rents, parking and access difficulties, as well as failure to manage and invest in the area,” he told delegates.

So is blaming the internet for what has gone wrong just creating a convenient bogeyman? It takes the easy way out in assuming online shopping is a seamless and pleasurable experience that can no longer be matched by the high street. As many are discovering, virtual shopping is not a replacement for browsing in a retail store, whether you are looking for parsley, sage or a Blu-ray blockbuster.

Take security for example. Shoppers, who make a transaction in a typical city centre outlet or urban supermarket, have very little to worry about, compared with those who “click and buy”. A recent book by FT journalist Joseph Menn, entitled “Fatal system error”, includes this quote, “It's incredibly disturbing, the engine of the world economy is based on this really cool experiment that is not designed for security, it’s designed for fault-tolerance. You can reduce your risks, but the naughty truth is that the net is just not a secure place for business or society.”

Even as online losses mount, the average computer user remains ignorant of simple security precautions. It seems that people, who would never wander around dark inner-city alleyways at night, are ready to entrust their credit card details to the shadiest of websites.

It would be wrong, however, to put all the blame on consumers. The Wall Street Journal published an article last Monday, which claimed that cyber criminals are targeting the bank accounts of small and medium enterprises (SMEs) rather than individuals, since the pickings can be much more lucrative.

Quoting a new report from Deloitte, the story said that the average monetary loss for companies who reported a “cyber security event” was $395,000. Lost or stolen laptops and smartphones were cited as the sources of the security breach by 44% of respondents and in only 26% of cases was the crime committed by insiders. The open internet is a dangerous place to do business.

Around the world, governments are betting on broadband to bring an end to recession, hoping that easy access to the internet will create an entrepreneurial environment in which SMEs will flourish. France Telecom, for example, announced last Wednesday that it would invest $2.8 billion over the next five years to bring fibre to the home. Yet, even with the financial might of investors such as Time Warner, former Disney CEO Michael Eisner and Goldman Sachs, digital delivery start-ups can go badly wrong.

In September 2005, these and other venture capitalists put $70 million into the launch of video sharing site Veoh. Users were promised hit series from ABC, CBS and MTV Networks as well as content from Warner Bros., Sony Pictures and ESPN (the sports network). “With a simple broadband connection Veoh gives you free access to all of the great TV and film studio content, independent productions, and user-generated videos on the Web,” the company announced. Note the word “free”, which may have had some impact on subsequent events.

“Veoh turns the vast universe of internet video into an easy-to-use, high-quality, personalised experience that entertainment fans everywhere can enjoy,” the site boasts, a claim that evidently failed to convert consumers in sufficient numbers to make Veoh viable, since founder and CEO Dmitry Shapiro announced this week that it was filing for “Chapter 7” bankruptcy. The battle with YouTube for users — and, more important, the copyright infringement case brought by Universal Music Group — had drained resources beyond the point of no return.

“Veoh was delivering 240 million video streams a month to 28 million unique users and earning less than $1 million a month with that traffic,” wrote Dan Rayburn, principal analyst at Frost & Sullivan, after the collapse of the company. “Those are numbers that simply can’t add up to a successful business, no matter how you slice it.”

It’s a message that will not be lost on Arqiva, which will see its SeeSaw TV service swing into full operation this Wednesday. The company has high hopes that the advertising-supported video portal will generate substantial revenues from the aggregation of Channel 4, Five and BBC content within a single service.

The public launch of SeeSaw follows the release of December’s encouraging figures from digital analyst ComScore, which show that nearly 178 million US internet users watched online video during December, with a record 33.2 billion videos viewed during the month. There can be no doubt that these are impressive numbers but retailers who are quick to blame online delivery for the business downturn should take another look at the decline and fall of Veoh. It’s one thing to attract views, quite another to make money from the viewers.

Scarborough Fair ended in the 18th century, after 500 hundred years of existence, yet today the town epitomises retail vitality. Digital delivery might not take quite so long to make its impact on the way we shop but, for the moment, the revenues are a small fraction of those generated by bricks and mortar. We need to have faith in the high street to sustain the full potential of the entertainment supply chain.