‘Retailers have difficult decisions to make now to future-proof their businesses’

There is significant pent-up consumer demand, reopened hospitality venues should support footfall, and the vaccine programme continues to roll out at pace.  

The truth is, however, that we cannot predict how long these factors will buoy the market. The long-term impacts of the pandemic are still relatively unknown and whatever the ‘new normal’ looks like, it will be remarkably different to 2019. 

The last 12 months have polarised the retail industry, accelerating the shift to online faster and with more force than many would have expected. For businesses with a strong online presence – we typically classify this as those with more than 30% penetration - it has been a year of relative success. 

On the flipside, we’ve seen a shakeout of weaker players with outdated ecommerce capabilities through restructuring and M&A. For those still standing, the approaching end to the furlough scheme (currently supporting over 530,000 retail employees) and the moratorium on eviction bans for commercial tenants mean the months ahead will present fresh challenges. We expect a renewed spike in restructurings.  

Store location still a key factor

Though the market is still very much in a state of flux, retailers have difficult decisions to make now to future-proof their businesses. And a key priority must be considering what blend of physical and online is right for their brand, business and customers. 

This includes a close look at store portfolios to call time on those that are no longer profitable or are in decline. Store location will be an important factor in these plans, and we can expect to see a streamlining of estates, with retailers focusing on flagship or major branches in vibrant areas with the socio-economic surroundings to support them. 

We expect this smaller base of stores to become a key platform for retail businesses to demonstrate brand value, build loyalty and capture the imaginations of prospective customers. 

Selfridges has long championed its Oxford Street store and its recent acquisition of a wedding licence shows how stores are evolving to be destinations in themselves, while beauty brand Lush has created a number of ‘Naked Shops’ in response to consumer concerns about plastic waste, offering refill stations and kitted out with artificial intelligence. 

But while there will always be some consumer demand for physical spaces to shop – particularly where it is helpful to browse, touch or try on – there can be no dispute that the shift to online will not be reversed. 

Health and safety concerns will also linger for some time after social distancing measures end, preventing some consumers from returning to in-store shopping at scale.

As a result, successful retailers are and have been steadily adapting their customer journeys to become more digitally led – something that must continue as a priority. 

Some have moved towards more of a hybrid model, blending their online and physical offerings as closely as possible so one complements the other. Here, we’ve seen retailers give shoppers the option to order clothes online and have them delivered to a store of their choice, free of charge. This offers the convenience of online shopping without the hassle of postal returns and provides further in-store sales opportunities for retailers. 

Others have capitalised on the growing trend towards fashion subscription services, offering their products to many of these new services available to consumers, while at a much bigger scale, major retailers such as John Lewis and Next are also leading the way in creating multi-brand platforms. A major turning point for these retailers, showcasing competitor products is hugely effective in increasing their online presence and creates a one-stop-shop for both existing and new customers, driving web traffic and sales volume. 

The pandemic has changed the landscape forever

As consumer demand continues to evolve, behind the scenes, retailers also need to carefully evaluate where stock is sitting across their supply chains to ensure they can respond and react effectively. 

There may be improvements to be made to distribution networks, and retailers could consider maximising efficiency by using stores as additional warehouses, a model that is taking off in the grocery sector.

It will take a while for the market to normalise, but significant changes are afoot for retailers to ensure they are best positioned when it does. 

Ultimately, the evolution of the industry kicked into force by Covid-19 is good news for the consumer, who will benefit from a better store and online experience, whatever their personal preference. For those retailers that can keep up, there are opportunities to be had.