Sorry about the long gap since my last posting. Despite it being very trendy, Your Life Your Style hasn’t gone bust, I’ve just been very busy with Christmas and the January aftermath.

The new year has brought quite a few retailers to their knees. Winchester High Street features all of the big names in the frame- HMV, Blockbuster, Jessops and Milletts- having already seen the back of Game, Clintons, JJB Sports and Past Times last year.

HMV is said to be in trouble because of competition from the internet. Given all the attention it’s receiving, you might be surprised that only between 10% and 13% of retail sales that are online. However it is much higher than other countries like the USA (9%) or France (5%) and therefore having more impact. In particular, music and video are estimated to be responsible for over 20% of all online sales, by far the biggest category.

HMV may have been hit particularly hard. For mostretailers, online sales are still a small minority of sales but a loss of say 11% of one’s sales on top of the blows from supermarkets and out-of-town centres is catastrophic for most of shopkeepers. You need growth just to keep up with inflation. When that loss is combined with the still rising cost of trading on the high street, in terms of business rates, rents and energy costs, I don’t find it surprising that very few retailers are finding their shops profitable.

I think the biggest worry for British stores is that online may not turn out to be the saviour of retailing. There are many retailers reporting fantastic increases in online sales but they’re not making much mention of profits. Shop-based retailers who have gone seriously into online (like ourselves) are still only seeing a quarter to a third of their sales coming from that area. And at what cost? Competition is so intense that margins are really squeezed. Where a retailer might previously have expected to make a 50% gross profit on selling something in their shop, they can be looking at 20% for an online sale.

In other words, to succeed online, you have to achieve large volumes. If online is only responsible for 11% of all retail sales, that suggests to me that most online retailers are not achieving the volumes they need and are speculating that there will be some future profit when online accounts for a much bigger percentage of the market. (Forecasts suggest it could be 16% by 2020 which still isn’t huge.)

Our own business reflects this. Our business has grown thanks to online sales but our profitability remains the same. So, for Your Life Your Style and many other retailers large and small, the uncertainty continues. Most high street shops are struggling to survive on reduced sales and margins but online isn’t sufficient to generate significant profits. We are, in effect, between a rock and a hard place. It’s possible that the majority of customers who still want to buy their goods in a real shop will be able to continue to do so but only if rents and rates reduce dramatically. I don’t see that happening. I predict that in a few years not only will the high street be very different, so will online retailing.

On the high street, top end (Harrods) and bottom end (Primark and Poundland) retailers will trade side by side with service outlets like hairdressers, nail parlours and coffee shops. The middle market, which is still much bigger than online, will be the preserve of the richest players like John Lewis and Marks & Spencer. At the same time, there will have been a shake down online that will eventually leave the handful of retailers who have the deepest pockets to divide up such spoils as there are. It’s a Lose Lose situation for most of us retailers and all of us consumers.

In my next posting, I’ll look at which companies will be battling for the soul of British online retailing.