By Graham Cooke, chief executive of QuBit
The decline of high street travel retail is well documented and was underlined recently with Thomas Cook’s announcement of a major retail downsizing.
The reasons for this decline are equally well known – intense online competition has cut margins to the bone and the physical cost of rent and infrastructure mean that the high street model simply can’t compete.
The industry’s response to this has been straightforward – a mass shift to online, placing all of the eggs in the internet basket.
However, all is not well in the online travel world either. Traffic costs are unsustainably high and conversion rates are falling, leading to intense margin pressure across the market.
Many will point to year-on-year revenue growth across the industry to evidence the rude health of the online travel market, but this doesn’t tell the whole story.
ECommerce as a whole is still in a growth phase – new customers are still making the switch from offline to online buying, flattering the growth curve of online businesses.
Two thirds of internet users already use online travel and accommodation services and as soon as the other third adopt online, as they soon must, then this external growth will cease, leaving a fixed customer base on which to grow revenue and margin.
This market pressure has been driven by the dominant online model – discounting. The online giants of travel retail have coalesced around the strategy of pile it high, sell it cheap, countering a thin margin model with massive volumes.
The same has been true in other areas of ecommerce, with Amazon effectively owning much of the value retail market online.
So what is a travel retailer – online or offline – to do in response to these challenges?
If the high street is dead, and online is being swallowed up by a few massive players, how can an independent travel player hope to succeed?
The answer lies, perhaps unexpectedly, on the high street. The retail players that are thriving in this cold winter for general retail are those that have rejected the value model.
Instead of trying to attract customers with a race to the bottom on pricing, they’re working a different margin model, based on superior and differentiated service.
The standard bearers for this approach offline are Apple, with their revolutionary and differentiated retail experience or, closer to home, John Lewis, whose service, guarantees and value-added offers mean that customers are willing to pay that little extra for their products.
Online, you only need to look at Fab.com to see how the higher margin model can translate. Their combination of unique product, great design and social integration make them stand out from the crowd, and their success is evidence of the value of this approach.
Another feature that stands out from the Apple example is the cross-fertilisation of online and offline.
Apple – to a certain extent – treats high street retail as a marketing window to the website, letting users experience the brand and product in-store and then purchase online. In this way, the additional costs of physical rent and infrastructure start to become a marketing cost for the online presence.
They have recognised that a great location, combined with fantastic in-store service, has the potential to be a winning model when backed up by a great online offering.
But what does great service look like online?
It’s easy to understand that well-trained assistants and a delightful retail environment make the difference on the high street, but how can you make your website the equivalent of the best Apple stores?
The answer isn’t simple. You need to ensure that you integrate social into your offer, letting customers share their shopping experience with their friends as they might on the high street.
You need to be agile and responsive, understanding the latest consumer trends and delivering the product and experience that matches it. You need to be convenient and accessible, removing any barriers to purchase from the online experience.
Perhaps most importantly, you need to be personal.
In the same way that shop assistants understand the shopper and offer them the products or deals that best suit them, your website needs to understand its visitors and respond to their requirements implicitly, building an experience that automatically meets their preferences.
In this scenario, your data analyst is your shop assistant – understanding behaviour on the site and constantly adapting your offering in response to what it’s telling you.
It’s true that travel retail is going through a turbulent time as the high street as we know it declines and online tries to establish a new value chain.
However, the signs are that – whilst it might not all be plain sailing – profitable margin models remain open online and offline to those that can grab their place in the consumer’s hearts and minds.