In a research note published today, the investment specialist challenges how justifiable the current e-tail premium is, saying the future of retail is very much multi-channel.
For one, store-based retail is still growing. Since 1998, which is when amazon entered the UK market, chain stores have grown their footprints by 33,000 units.
As far as Edison’s concerned, the change in the UK high street isn’t so much down as the rise of internet as “the continuation of two longer-term trends”: the bigger retailers gaining a 21 per cent share of total retail since 1986 and large grocery retailers have now got a 7.7 per cent share.
Pointing to research from CBRE and Verdict Research, Edison suggests a slowdown in the rate of internet growth.
What’s more, it thinks the growth of internet retail is from unsustainable influences: “Most internet retail sales growth has been where goods and services can be transferred electronically”, and tangible retail’s seen surprisingly low internet use - it’s been tougher for online providers to penetrate, with people still choosing to go outside and shop.
So although 66 per cent of non-store channels were internet based by 2012, Edison explains, just 7.7 per cent of mostly non-food and only 3.1 per cent of wholly food store-based channels were.
A third point it makes - and one that isn’t immediately obvious - is how multi-channel retails actually give store retailers a competitive advantage. A multi-channel customer is worth 1.7x a store-only customer, it says, citing research done by Debenhams. But a store-only customer is worth 2.4x that of an internet-only customer.
For that reason, it thinks a well-invested store base will continue to have “a vital role in retail success or failure”. It also believes the obvious customer preference for 'click and collect' gives store-based retailers a strategic advantage - one that e-tailers won't be able to compete against by just having lots of collection points.
Brand identity will always be vital to retail success, and the strength of a brand will likely grow in importance for internet-only retailers, Edison says. Aside from the obvious success stories - think Ebay, Asos - many have struggled against bricks competitors, with the force of brand needing to go much further than just e-commerce.
Edison is querying the size of e-tailers' valuations premiums over companies focusing on a multi-channel model, or those with particularly strong track record when it comes to putting investment into their brands. In fact, as far as it’s concerned, there’s “significantly more valuation upside” (on a relative basis) to retailers who’re pursuing these strategies.