The retail sector has undergone a period of profound change over the past two years. Following months of closure over the third national COVID-19 lockdown, non-essential retail stores reopened on the 12 April 2021. Pent-up demand was evident, with high-street footfall up 87.7% week-on-week, according to Springboard, as consumers were keen to splurge on new clothing amid the gradual relaxation of hospitality and leisure sectors.
While foot traffic was definitely an improvement on the three-month average decline of 61.2%, retailers are unlikely to see a return to pre-pandemic levels for the foreseeable future, despite the extension of store trading hours. According to the British Retail Consortium, high-street footfall remained 43.9% lower in April 2021 than the same month in 2019. This insight pieces looks at three key trends shaping the future of the retail sector and its recovery.
Online retailing and the future of the store
Despite government social distancing mandates and the ongoing vaccination roll-out, consumer concerns over the spread of COVID-19 remain high. As a result, consumers have been reluctant to partake in non-essential activities, shifting online instead.
According to the ONS retail sales index, internet sales as a percentage of total retail sales reached a peak of 36.3% in January 2021, 16.2 percentage points higher than the same month the year before.
While e-commerce’s share of expenditure is anticipated to temper as non-essential stores remain open, the pandemic has exacerbated the move online and IBISWorld expects online sales to remain permanently above pre-pandemic levels for both discretionary expenditure, such as clothing, and essentials such as groceries.
With the shift online, the role of physical establishments is expected to change and retailers will be forced re-examine the future of their stores, particularly with business rates relief due to end in June and mounting pandemic-related rent-arrears.
According to the British Retail Consortium, the retail sector accounts for approximately 50% of commercial rent arrears, at £3 billion over the three national lockdowns.
Meanwhile, according to the Centre of Retail Research, 54 retail firms entered into administration over 2020, a 25.6% increase on the previous year. This affected a total of 5,214 stores. Failure to assess the future of retail stores is expected to exacerbate existing financial pressures.
As a result, operators are anticipated to consolidate real estate portfolios, adopt a more flexible approach to stores, negotiate shorter leases and turnover-based rents and reduce capital investment. An increasing focus on behaving as quasi-warehouses to supplement online operations and showrooms offering click-and collect locations is also expected.
For instance, during the course of the pandemic, clothing retailer H&M secured rental holidays and moved the majority of its stores to turnover-based rents, while parent company Inditex announced plans to close up to 1,200 stores across the globe over the next two years and ramp-up click-and-collect operations.
Mission-visits and one-stop-shop formats are anticipated to regain popularity as individuals seek to minimise non-essential outings, providing further impetus to consolidate establishments. For example, clothing retailer Next has announced plans to open Homebase garden centres in six of its branches, while Waitrose is rolling out concessions of department store John Lewis in its supermarkets and Tesco has partnered with online electronics retailer AO.com.
Sustainability and health and well-being
The pandemic has accelerated the trend towards sustainability and mindfulness among consumers as individuals spend more time at home and re-examine their purchasing behaviour and consumption choices.
In a survey by the British Retail Consortium, 39% of respondents stated they would pay more for sustainable products and 65% intend to pay greater attention to the environment in their day-to-day decision-making.
This is expected to trickle through to retailers, which are increasingly adopting new sustainability initiatives. This includes the uptake of recycling and buy-back schemes, such as those adopted by homeware retailer IKEA.
Sharing some parallels with sustainability, consumers are placing greater emphasis on the provenance of goods and showing support for small, local retailers over larger counterparts. According to the ONS retail sales index, the average value of retail sales for small businesses increased by 8.2% over the year through March 2021, while expenditure at larger enterprises fell by 1.2% over the same period.
This preference for local operators is expected to continue. Indeed, 49% of respondents from the BRC survey also noted they are more likely to purchase products from companies that benefit society.
Attention to health and wellbeing has inevitably been heightened during the pandemic and spurred demand for organic and vegan products. This trend has not been confined to food items such as non-dairy milk, but also includes free-from cosmetic and toiletries, fuelled by the perception of natural ingredients and changing consumer attitudes towards safety, hygiene and transparency. To succeed, retailers are expected to ramp up sustainable and independent brand names across product ranges.
Price consciousness
Price has always been a core driver of demand for retailers. However, a growing proportion of the UK population facing employment and economic uncertainty, propelling price as a key demand determinant across all income brackets.
A OnePoll survey found that 60% of UK adults are more money-conscious now than they were at the start of the pandemic.
Retailers must adapt to survive, such as by introducing own-brand product ranges to appeal to a broader target market, loyalty programmes and price-matching initiatives.
For example, John Lewis has introduced the ANYDAY range spanning homeware, technology, baby care and baby clothing, at prices 20% lower on average than existing own-brand lines. Meanwhile, Tesco has introduced the Clubcard Prices and Aldi Price Match initiatives. In a post-pandemic environment, price will continue to be a key demand determinant, exacerbating existing profit pressures for retailers.
Conclusion
The COVID-19 pandemic has created an array of unforeseen challenges, from accelerating existing trends such as the adoption of online to undermining the strength of physical stores. Changes in consumer attitudes are here to stay and retailers must adapt their strategies in a post-pandemic landscape. Those able to meet shifting consumer preferences and adopt an agile approach to their online operations and stores will be best placed on the road to recovery.
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