As more British retailers succumb to competition from the Internet, a venture capital firm is underscoring the shift with its first investment in a fashion seller to develop its online business.
Scottish Equity Partners put 12 million pounds ($19.3 million) into Matches, which stocks labels including Alexander McQueen and Gucci, said Calum Paterson, managing partner at the Glasgow-based investment firm. U.K. shopping online reached a record 830 million pounds a week last month, the Office for National Statistics said in its December retail sales report today. That was 16 percent higher than a year earlier.
With more people making purchases from home or the office, investors are responding to the biggest change in the makeup of traditional British shopping streets since the proliferation of store chains. This week alone, HMV Group Plc (HMV), Britain’s biggest seller of CDs and DVDs, and movie rental chain Blockbuster Entertainment Ltd. both entered administration.
“For retailers that are going to grow substantially, having an effective online capability will be absolutely key,” Paterson said in a Jan. 14 interview. “Internet and online consumption have opened up fantastic opportunities and those who understand their products are well positioned to exploit that.”
The first casualty of the year was the 187-store Jessops camera retailer as the British economy dips in and out of recession. Last year’s collapses included the Comet electronics chain, JJB Sports Plc, Game Group Plc and Clinton Cards Plc.
By contrast, Asos Plc (ASC), the U.K.’s largest online-only fashion retailer, whose shares have soared 78 percent in the past 12 months, yesterday said December sales jumped 40 percent from a year earlier to 79.8 million pounds.
“If you don’t have a great online platform and a strong delivery proposition and product offering, you are in the worst place,” said Chris Chaviaras, a retail analyst at Barclays Plc. “This crisis has distinguished the good from the bad players.”
Retail sales overall fell 0.1 percent in December from November, compared with an estimated increase of 0.2 percent based on the median of 22 economists polled by Bloomberg.
Shopping online accounted for 10.6 percent of all retail sales in December, according to the ONS, down from a record 10.7 percent in November. The proportion of online sales in December was 1.2 percentage points higher than a year earlier.
“Feedback provided by retailers this month suggests that sales made via the internet helped to boost overall sales and provided a much greater proportion of sales in December than they were expecting,” the ONS said.
“It probably suggests that some of the bigger stores, unless they’ve got a big online presence, may be struggling to get people through the doors and to buy stuff once they get in,” said Peter Dixon, an economist at Commerzbank AG in London. “This change in trend in the retail market is clearly gathering pace.”
U.K. consumers may remain under pressure this year as gas and electricity prices rise and the government presses on with its austerity drive. At the same time, inflation, which was at 2.7 percent in December, is outpacing wage growth.
The potential closure of 1,400 shops as a result of the companies going into administration over the past month is the highest recorded in any four-week period since at least 2007, according to Matthew Hopkinson, director at real-estate researcher Local Data Company.
Existing town center businesses will have to change, according to the British Online Retailing Association.
“Retailers must realize that now the high street is here to complement their online operation and not the other way around,” Adrian Quine, director of the association, said in an e-mailed statement yesterday.
Scottish Equity Partners’ investment in closely held Matches was in November and among the most recent for its latest fund, which raised 200 million pounds. The firm, which was founded by the state-funded Scottish Development Agency in 1990 before being spun out a decade later, has about 600 million pounds under management overall.
The money is to help with the development of Matches’ online business, Paterson, 49, said at his office in Glasgow. Online sales account for about half of the company’s revenue at the moment, he said. Matches has 13 stores in London, according to its website.
Other investments include Edinburgh-based flight-search website Skyscanner Ltd. Stakes sold for a profit in the past included Biovex, a maker of experimental cancer drugs based near Oxford, England, Paterson said. It was bought by Amgen Inc. (AMGN:US) for as much as $1 billion in February 2011.
“Going forward we have an appetite for more retail investments,” Paterson said. “Our focus would be on those companies that have a significant opportunity for e-commerce.”
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