I watched some of the Gadget Show Christmas Special on Monday night, which amongst other things, had an item about shopping on the Internet. As is well known, it is possible to get significantly better prices on many items, especially in the consumer electronics field, however as the presenter said, you are effectively buying blind. To get around this he suggested going along the high street and going into stores to try things out and then go back home and buy off the Internet as it was cheaper. Whilst that is perfectly possible, the question comes up as to how long doing that would be viable. As more people buy off the Internet, there will be less sales for the stores to which you are going for a free demonstration, and ultimately they will not be able to make money and close. For example Dixons cited online retailers as one of the reasons it has closed 106 stores in the UK.
Similar effects have occurred in other markets, for example driving into Reading a couple of weeks ago, Beth spotted that the independent butcher in Shinfield had closed, and said what a shame it was. However, as I said to her, have you ever been in? Of course she hadn’t, like everybody else, it is a lot more convenient to buy packaged cuts of meat from a supermarket, and on the occasions that you want something special, go to the meat counter in the supermarket, which is perfectly adequate.
A similar effect is occurring in the car market. There are a number of online retailers who will sell you a new car at significantly below list price, however in order to get a test drive, you have to go to a main dealer. Unlike the other two examples it is slightly more competitive as it is common to haggle over the price of a car, for example although I bought our new Golf from a main dealer, using an online price I was able to haggle the dealers price so that it was only slightly more than the best online price. One of the reasons they are able to do this is that although they may not make money on the sale, for a car you have an ongoing relationship with the dealer through having the car serviced, so they can (and do) make money that way.
I guess ultimately all of these come down to a balance of price over service. In the case of the butcher, the supermarkets are winning out through convenience. By providing pre-packaged meat, and a counter service, they effectively offer a butcher within the store. In the case of the car industry it is the need for the ongoing service and maintenance that is allowing the car dealerships to continue, but what about consumer electronics? In the same way that Dixons, Comet and Currys have beaten many of the small independant stores, are they ultimately going to be beaten by the online retailers, and will we be better off if they are?
