We all know that the decline of the high street is not a new story. Even before Covid-19 many seemingly impregnable retail giants – Woolworths, Mothercare fell.
Covid-19 has accelerated this trend. Yet, consumers are still buying – despite everything 2020 represented for the retail sector, are only marginally down. That aggregate figure however reflects physical retail being replaced by e-commerce with many retailers moving online.
The acquirers of Debenhams have announced the plan to move the Debenhams’ brand online – perhaps the most high-profile example of this trend. For many retailers this appears simple. Replace “bricks and mortar” with “clicks”. However, sensible this may appear, retailers have to recognise that building an online platform may lead to disappointing sales and negligible returns. Negligible sales could be an outcome of retailers not understanding the legal regime – having to deal with returned goods and struggling with processing personal data.
This article looks at the legal and commercial constraints that the acquirers of Debenhams and other retailers face. None of these are insurmountable. Retailers know that opening a new store will only be a success if there is prior planning. The same process needs to be replicated before moving online.
Any new store needs to be publicised. Similarly, with a platform there are plenty of ways to market digitally – search engines; affiliate marketing; social media – but which will generate the best return? Digital marketing will always cost but will it guarantee profit? Are your browsers genuine consumers or bots?
As with a store people will visit a platform but it does not mean they will necessarily buy. For platforms, this is the bounce rate, calculating how easy it is for browsers to identify what they want. Any visitor needs to be several “clicks” from the home page to make a purchase. People automatically look to the left-hand top corner for information – as if they were reading. Do your cookie prompts put browsers off? When moving to e-commerce retailers need to consider these questions to create a smooth transition to point of purchase.
Will your warehouse and delivery infrastructure cope or will it lose future sales from disappointed consumers. Are you able to handle 24/7 enquiries?
The reality is that for some retailers moving online to e-commerce has barely covered their costs.
With a store people know who they are buying from and can see the goods before making a choice. This is not the same with e-commerce and as such, any platform has to disclose its owner and provide the registration and VAT number to ensure consumers know who they are dealing with.
Consumers must also know what they are buying. The goods have to be displayed accurately with the correct information about them, including: the main characteristics of the goods, complete transparency as to price (including taxes and delivery charges) and delivery arrangements. If you do not do this then it may breach advertising law, but if you fail to do this, then you are guaranteeing more goods being returned. Dealing with returns erodes margin. Consumers have cancellation rights which disappointed consumers are only too aware of.
To avoid this, your sale terms have to set this out. If not, all returns are at your cost and the cancellation period is extended. You are also exposed to action by Trading Standards and the consumer regulator; the Competition and Markets Authority (CMA). Contractually, you may become obliged to sell goods offered on your platform that you no longer have access to. There will always be the temptation to work from a competitor’s sale terms. But do your competitor’s terms reflect how you work and are those terms correct? Be wary, as once you have adopted those terms then you are bound by them.
When a customer visits a store, leaving CCTV aside, there will be no record of the visit, unless they make a purchase- where there will be a record of credit card details or if the customer agrees to enter a competition or receive marketing emails.
Trading online is different. Cookies are likely to record every visit to the store and every sale will disclose the buyer’s name and contact details. So, the GDPR plays a role with platforms that it does not necessarily do with stores.
You have to:
- Register with the Information Commissioner and pay an annual fee. The Information Commissioner can fine up to £4000 for non-compliance;
- Publish a privacy notice. This document sets out how personal data is being processed and will give your customers the right to scrutinise how you process their data;
- Avoid using all this data to conduct a random, unsolicited direct marketing campaign. These are on the top of the Information Commissioner’s list of don’t dos;
If you ignore the GDPR then the Information Commissioner could become involved, which will involve management time, may lead to reputational damage and fines of up to 4% of annual turnover.
And what about Brexit…
If you sell to EU consumers then you have two further issues to consider:
- Exporting to EU involves extra paperwork and costs;
- The GDPR gives EU citizens the right to hold companies to account regarding the processing of their data. However, they have to deal with a representative you will need to appoint based in the EU. The fine for not making this appointment may well be 2% of your turnover.
Too good to be true?
For many retailers, selling goods without the considerable overheads of physical stores and being able to sell outside their locality, is a no-brainer. Yet, the reality is that careful planning and proper advice can make the reality of moving online too good to be true. We will watch mark two Debenhams with interest.
By Alexander Egerton, Partner at Seddons LLP