“The UK’s high streets suffered 5,855 store closures in 2017, more than in any year since 2010, as fashion retailers, shoe shops, travel agents and estate agents have been driven out by the rise of internet shopping.” The article goes on to say that an average of 11 stores open per day, whilst 16 stores close per day, thus driving a net loss of five stores per day. Game set and match to ‘clicks’ you might think, but if you dig deeper, it is not so cut and dried…
Current Market Conditions
There is no denying that the UK retail market is struggling – there was a boost in sales initially in 2016 but as the Brexit negotiations dragged on through 2017, consumer confidence, the pound, and real wages have all fallen, giving rise to extremely tough conditions for retailers. In June, House of Fraser became the latest in a series of retailers to announce store closures across the UK joining Marks and Spencer, Mothercare, Toys R Us (administration), Maplin (administration), Homebase, and New Look. But it isn’t just the minor stores in forgotten towns and cities being closed; House of Fraser announced that the Oxford Street flagship store will be closing before early 2019.
Rising food and fuel costs, coupled with the wages growth being below the rate of inflation, has meant that real earnings (adjusted for inflation) have been below nominal earnings (not adjusted) for some time in the UK.
As a final nail in the high street retailers’ coffin, there is compelling evidence that online shopping is on the increase – the percentage of internet sales as a proportion of total retail sales has risen steadily from 2.8% 2007 Q1 to 17.3% 2018 Q1 – and that it won’t stop there. By 2030 it is estimated that around 40% of UK retail sales will be accounted for by online shopping.
But despite all of this, the online shopping giant Amazon opened an exciting new concept store in Seattle “Amazon Go” and there are plans to open six more in America this year. The archetypal Pureplay retailer opening stores in the real world? Maybe the Clicks aren’t winning after all.
Why indeed, you might ask.
Modern eCommerce is fast, affordable and readily available. Where once we had to visit stores during opening hours, we now have 24/7 availability. Consumers can have multiple tabs open in their browser, creating a department store on their own device. They can browse from their PC, tablet or phone, with the majority of eCommerce sites now mobile friendly.
At the same time, online retailers benefit from streamlined costs, with no need for a physical staff and sales assistants, and substantially lower business tax. A shocking statistic was provided by the New West End Company, an alliance of central London retailers, hoteliers and property owners;it calculated that Marks & Spencer, a company with a turnover of £9.6bn last year, paid £184m in business rates, whereas Amazon, with slightly smaller revenues in the UK of £7.3bn, paid just £14m. Amazon UK, of course, operates from more lightly taxed warehouses and requires fewer properties.
A YouGov survey carried out in 2017 showed that 52% of UK consumers see next day delivery as their preferred option, but 20% of UK retailers fail to offer this service. Sometimes it just isn’t possible to wait until the weekend or next late-night shopping event. Unexpected invitation to a formal dinner? Tomorrow? Yikes, I have nothing to wear…
Adapt or Die
But according to an article in the Telegraph, only three of the Top 10 fastest growing retailers are Pureplay eCommerce companies. The remaining business on the list are proving that a sophisticated ‘bricks and clicks’ strategy, that amalgamates the two channels, can not only improve product availability in store, but can also benefit their ‘click and collect’ strategy.
High street expert Mary Portas warned that retailers needed to adapt or die by stating “We are going through a massive transition. Businesses that are going down are sometimes too big to be nimble and responsive, and sometimes they are just mediocre and they haven’t invested in what consumers want. It is about being innovative and creative.”
There are tactics that retailers can employ both in-store and online to adapt to a changing retail landscape. Despite all the benefits of eCommerce, 80% of UK consumers think that a physical store is vital and 70% of respondents actually enjoy browsing before 30% then go on to buy online. The opportunity to see, touch, feel and try out products is the main appeal of physical shops. To combat this, some online-only retailers have introduced a Try Before You Buy service. ASOS customers, for instance, can order multiple items, try them on when delivered and return those they don’t want for free. They only pay for the items they keep, with a 30-day window to pay after ordering.
Another major advantage, already touched on, is that physical shops offer immediacy: no matter how fast eCommerce delivery gets, it cannot match the in-store experience, where customers can take items home immediately. This, then, is the answer to the question why Amazon and other Pureplay retailers are stealthily going about creating a real-world presence.
When surveyed, Consumers said that “exciting use of technology would entice them inside a store, with 61% saying they would visit regularly to use virtual and augmented reality applications, smart mirrors and interactive gaming. Half (50%) said they would buy more if they received recommendations and personalised offers on smart devices.”
In response to this raising of the bar, Mango has partnered with Vodafone to roll out new digital fitting rooms, which will feature smart mirrors. The digital mirrors allow shoppers to scan clothes tags and contact store staff to request different sizes and colours of items. The mirror will also recommend additional clothes to complete outfits. The retailer aims to extend the fitting rooms to its top flagships across several countries, including Barcelona and New York, in a bid to merge customers’ online and offline experiences.
Mango said the initiative marks the first phase of its digital transformation project.
Smart Labels and AI store fronts are two more examples of digital technology adding value to the physical shopping experience – either for the retailer or the consumer. The opportunities to enhance retail milieus as this technology develops could excite even the most demanding, avocado-toast consuming Millennial.
In addition to technological transformation, now is the perfect time for retailers to take advantage of improving the in-store shopping experience as a whole. Tesco has added Harris + Hoole coffee shops, Next has introduced Costa coffee, while Sainsburys has integrated Argos into some of its stores (after acquiring the retailer in 2016), all in a bid to keep customers in stores for longer and increase the chance of purchases.
Impact on the Supply Chain
The logistics of an eCommerce operation is much more complicated than the logistics for shipping and trunking product into stores: the inbound, cross-docking and/or hub/spoke system into national or regional distribution centres will differ very little, but the Last Mile delivery is an ongoing challenge for many businesses; small truck, van or even car multi-drop rounds will increase and with it, efficiency per unit delivered will reduce over those last few miles. As free next day delivery expectations rise, how will this extra cost be absorbed in an already challenged industry sector?
That said, the development of the ‘hive’ organism for deliveries (think Hermes, think Uber drivers doubling up as amazon delivery drivers) could revolutionise retail transport and logistics as we know it.
Business opportunities could abound for Parcel couriers who are agile enough to offer same day and next day deliveries and are able to negotiate partnership deals with high street brand names as this is an area that is sure to grow along with the online shopping sector of the retail market. We may see fewer dedicated third party logistics providers and see a move to network operations; shared facilities on trucks and in sheds.
Peak times may see a rise in pop-up temporary warehouses; niche leaders such as Bis Henderson Space might benefit hugely from this; owner-drivers may forgo the expense of heavy goods vehicle licenses and units in favour of a short-wheel-base transit that can fit easily up and down rural roads.
So: Clicks or bricks?
Yes, net impact as it stands in the UK is that we lose five stores per day; but this analyst would be interested to see that figure as a percentage of NET RETAIL SELLING SPACE rather than a pure number of stores opened or closed. There is still development in new shopping centres, and many of these are bigger than the footprint found typically on a high street.
Yes, many town and city centres look increasingly neglected as their retail units stand shuttered and forlorn; but this is surely down to the lack of desire to embrace new ways of taxing businesses and as such, our Government and to a lesser extent, local Governments must bear this particular burden. Retailers can do nothing about this.
And, yes, consumer confidence is a little shaky because of doubt in the UK economy, thanks mainly to the ongoing uncertainty around Brexit. But April this year saw the first time the average wage growth had risen above inflation for over a year. This could signal an uptick in our economy and bring with it a much-needed break from ‘austerity measures’ in our households if not the country.
But. There is a wealth of references in this blog and they all point to the same conclusion: If Retailers are to continue to grow and thrive, then it is the ones who can most effortlessly navigate the changes that embrace a unified online and physical presence who will win out.
If stores can exploit their unique selling points of sensory stimulation – touch, sight, smell – and instant gratification, then increasingly the physical business could leverage the ’shopping experience’ with a little imagination and a budget for creativity. By embracing digital technology, with apps and offers and slicker delivery service offerings, then they can ensure that their brand is just as familiar in the cyberworld as it is in the real world.
Whilst there may still be trouble ahead in terms of economy, it is surely an exciting time to be a blue-sky thinker in Retail.
- Office of national statistics, CDID, j4MC, source dataset IT DRSI released 14-06-2018
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