Every cloud has a silver lining
This time last year we wrote “the retail sector is facing issues that won’t go away in 2020… as the challenges are long term and structural.” How right we were but how little we knew. Covid-19 and the lockdown measures put into place have exacerbated retail woes many times over, put existential pressure on a number of businesses and further accelerated the shift to online that was already driving a long term reduction in the demand for retail space.
The Spring lockdown is estimated to have cost non-essential retailers £1.6bn a week in lost sales. However, the continued increase in retail sales since the middle part of the year means that we are now in excess of pre-Covid levels on a monthly basis. Whilst our outlook for retail sales is negative due to unemployment concerns and consumer confidence is understandably diminishing, it is clear there have been some benefits captured from households ‘enforced savings’ and lack of overseas travel. Spending on goods continues to be significantly higher than ‘normal’ although the benefits have and will continue to be unequally distributed.
Spending on goods continues to be significantly higher than ‘normal’ although the benefits have and will continue to be unequally distributed.
No going back
The UK has long been one of the leading proponents of online retail. However, prior to the pandemic, online accounted for approximately 20% of retail sales. This year, we saw a giant leap forward in online sales with the peak of the crisis seeing online retail sales increasing to 34% in May. This was limited by supply chain and distribution issues arising from a sudden spike in demand – to which, many retailers have already adapted but does suggest a ceiling for online sales in the medium term. Whilst the rate of penetration softened in the middle part of the year, new lockdown measures and a now likely permanent shift in consumer habits will underpin the strength of online in the long term.
The removal of the VAT retail export scheme will be another hit to retailers who have benefitted from significant spending by visitors to the UK over the last 16 years. The changes to the scheme puts pressure on retailers to take on the extra cost of overseas shipping if they are to pass on the benefits to the consumer. Whilst London will no doubt continue to attract visitors, when it can, this may have a lasting effect on the UK’s reputation as a retail destination, as high-spending overseas consumers look towards other European destinations at the expense of London.
People have spent more time closer to home, in turn benefiting the local economy.
A changing landscape
Even during the months of recovery, footfall levels remained unsurprisingly low particularly in major cities which have been hit by a quadruple whammy (at least) of people’s reluctance to use public transport, the desire to avoid congested places, a lack of tourism and workers staying at home. As a number of companies review their office footprint, this has the potential to turn city centres which rely on a midweek trade risk being turned into ‘ghost towns'.2
The same drivers have resulted in a number of out of town destinations and local high streets being relative beneficiaries. People have spent more time closer to home, in turn benefiting the local economy. 62% of consumers saying they’ve been shopping on their local high street for non-essential goods according to a YouGov poll. Whilst the economic pain seen in many town centres and by many retailers should not be understated, a potential shift to working more flexibly and closer to home is a welcome boost to some local high streets.
Pretty vacant
In light of increased restrictions, Government support has been key in protecting the sector thus far. With this likely to diminish and the end to the moratorium on evictions likely to come to an end during 2021, we will see an increase in the number of business failures within the sector. Even those retailers who are not under existential pressure will likely face cost containment issues that will lead to rationalisation programmes. This will undoubtedly lead to an increase in vacant space across the UK’s retail sectors.
What is apparent now, if it wasn’t already, is that retailers need to adapt to the rupture that we have seen, casting a spotlight on the role of the physical store. We will see the store itself evolve as we see an increase in showroom concepts and a split between the experiential element of retail and the order fulfilment aspect via click and collect or local distribution. Retailers like Hobbs, Decathlon and Anthropologie have already done this, using stores to fulfil online orders whilst footfall is down, or stores were closed during the pandemic.
Looking forward we will continue to see a polarisation between the ‘best’ and the ‘rest’ of the UK shopping centre market, leading to a squeeze of the middle and more activity as landlords look to ‘repurpose’ in order to protect their assets - bringing together services, retail, leisure as well as components of residential and co-working spaces.
Pretty vacant
In light of increased restrictions, Government support has been key in protecting the sector thus far. With this likely to diminish and the end to the moratorium on evictions likely to come to an end during 2021, we will see an increase in the number of business failures within the sector. Even those retailers who are not under existential pressure will likely face cost containment issues that will lead to rationalisation programmes. This will undoubtedly lead to an increase in vacant space across the UK’s retail sectors. What is apparent now, if it wasn’t already, is that retailers need to adapt to the rupture that we have seen, casting a spotlight on the role of the physical store. We will see the store itself evolve as we see an increase in showroom concepts and a split between the experiential element of retail and the order fulfilment aspect via click and collect or local distribution. Retailers like Hobbs, Decathlon and Anthropologie have already done this, using stores to fulfil online orders whilst footfall is down, or stores were closed during the pandemic.
Looking forward we will continue to see a polarisation between the ‘best’ and the ‘rest’ of the UK shopping centre market, leading to a squeeze of the middle and more activity as landlords look to ‘repurpose’ in order to protect their assets - bringing together services, retail, leisure as well as components of residential and co-working spaces.
Footnotes
1. https://www.ft.com/content/4e467e5e-77ed-433e-9241-87133c1fc5c1
2. as Carolyn Fairbairn of the CBI declared this year.
