retailers: let s get digital but stay physical · and even the online fashion re-selling...
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Let’s Get Digital But Stay Physical August 2019
Retailers:
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The retail landscape has changed, and retailers need to change accordingly. Retailers need to adopt the digital and revise the physical to survive the ‘Retail Apocalypse’. We have provided some background to the changing retail environments, summarised some examples of current retail success stories, the ways in which staying or going physical can benefit your brand, and the current trends in the retail industry which could help you remain resilient to the changing retail landscape.
DIGITAL & PHYSICAL: SURVIVING THE RETAIL APOCALYPSE
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DEATH OF THE HIGH STREET? The number of physical shops in the UK has been decreasing year on year for the last century. The UK was once described as a ‘Nation of Shop Keepers’. Today, headlines regarding the ‘Death of the High-Street’ have labelled the current retail landscape. Numerous household name retailers, including New Look, Carpetright, House of Fraser, HMV, Maplin, Poundworld and Toys’R’Us to name a few, have either gone into administration, or had to seek store closure and rent reduction agreements with landlords. These have been caused by the strains of the current retail landscape, including high business rates, over-expansion, and squeezed consumer incomes. Despite the many significant challenges faced by retailers today, the principal culprit is often cited as the growth of Online Retailing. Online retailing has grown rapidly in the past few years, between Q1 2016 and Q1 2019 online retailing grew by around 5%. With the growth in online retailing, contemporary consumers look for and expect greater immediacy and convenience with their purchases. ‘Brick and Click’ or ‘Click and Brick’ omni-channel business models mean stores have become showrooms and collection points. Resultantly, Customer-Retailer relations have become increasingly complex. Online Pureplay Retailers (those with on ly an onl ine presence) are recognising the value of opening stores. As 80% of total retail sales are still in store, retailers must continue to adapt effectively and efficiently to engage consumers across all retail channels. Offering a unique store experience is one such way to engage consumers.
THE CHANGING FACE OF RETAIL
Source: ONS Retail Sales Index Time Series (DRSI) (1)
“The toughest time in 25 years in the industry” Managing Director of John Lewis(2)
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Good store portfolio decision-making and innovative ways to satisfy customers have helped many retailers remain resilient to the impacts of the turbulent retail landscape. Some example success stories:
SUCCESS STORIES
• Zara’s ability to respond to fashion trends,
both quickly and affordably, is exemplary. They opened a new flagship in Westfield Stratford in mid-2018 which focuses on experience and blending channels instore, with automated click & collect points and augmented hologram style imaging.
• Smyth’s Toys high-demand stock,
competitive prices, in-store experience and click & collect service have allowed it to survive in a way Toys R Us could not.
• Lush is renowned for it’s sustainable
attitude, knowledgeable staff, colourful and strong smelling products. Customers happily pay a bit more for Lush’s products and service than they might typically pay in supermarkets or other high street stores.
• Pets at Home offer a customer and pet
-centric experience. Instore specialist pet care advice and services keep customers returning to their stores. They have started opening concept stores with extra services such as vets, groomers and adoption centres.
• John Lewis offers in-store ’experience’
desks, ‘concierge style’ shopping and click & collect, amongst other things. Despite the challenges faced by all department stores in recent years and John Lewis’ difficulties in the last year, they still ranked third best in 2019’s ’Best and Worst High Street Shops’ survey by Which?.
• Primark is good at recognising what its
core customers want and is quick to introduce product lines based on key trends, such as its Friends, Harry Potter and Love Island ranges. Recently, they opened a Friends themed café in their Manchester store to engage consumers. New store plans include customer seating areas, free Wi-Fi and interactive video walls. They have stayed store-focused with their fast-paced business model and are yet to open an online sales channel.
• Sweaty Betty offer free in-store gym
classes in some of their stores. The popularity of these has helped to gain brand loyalty, as well as getting customers into the stores.
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There are numerous benefits physical presence can provide for a brand or retailer, besides direct sales, that online retail cannot. Store performance is not just about sales per m2 and is not just measured by what goes through the till. Stores offer:
• Face-to-face customer interaction
• In-store shopping ‘experience’
• Product tangibility (touch and smell)
• Reduced return rate
• Immediacy
• Impulse buys
• Channel blending (e.g. Click & Collect)
• Brand awareness
• A ‘Showroom’ to online shoppers
REASONS TO STAY PHYSICAL
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The UK retail landscape will continue to evolve. Therefore, it is important to consider the current and future trends and opportunities which will arise for retailers:
Pureplay retailers are those that operate through one channel. Online retailers are recognising the value of physical stores: online giant Amazon have been experimenting with opening ‘Clicks and Mortar’ stores, Made.com have opened showroom stores, and even the online fashion re-selling marketplace Depop has opened a physical pop-up in Selfridges. The effectiveness of acquiring customers through a physical location can offset the cost of the store. Executing your store location planning process effectively is a great w a y t o g a i n b r a n d awareness.
For the majority of brands today, the shopping journey may start online but be completed in store or vice versa. It is essential to consider the value your retail network delivers from an attribution perspective. It was reported online traffic increases by 37% when a retailer opens stores in a new market (3). The benefits from the ‘Halo effect’ of a physical store include increased brand awareness, trust and customer service. These ‘hidden’ benefits can ultimately offset the cost of opening a store.
Online ‘pureplay’ retailers going physical?
WHAT ARE THE TRENDS IN THE RETAIL LANDSAPE? WHAT DOES THE FUTURE HOLD?
“Online pure-play retailers are finding that it’s cheaper to open a brick and mortar store than to acquire new customers online” Shilpa Shah, Co-Founder of sustainable fashion brand Cuyana(2)
Omni-channel & the ‘Halo Effect’
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Retailers diversifying their brand mix? To stay innovative to keep up with the market, some retailers have diversified their brand mix offering. Current players are introducing new brands to the market, for example H&M have eight separate brands, each aimed at different target consumers. Will the likes of M&S consider revitalising their clothing label under a new brand fascia?
More retailers are forming strategic partnerships, utilising concession and hybrid formats in multi-functional spaces to save the cost on rents and gain higher footfall to their stores. Retailers are already starting to implement this approach:
JD Sports are merging retail and gym offerings
Poundland has partnered with clothing store Pep&Co
Next and Costa have long established relationships, and Next has also teamed up with Ford to open a retail dealership in Manchester’s Arndale Centre’s Next store, utilising the large floorspace.
With high business rates and greater focus on online sales, physical retailers will need to be savvier and consider sharing space with other sectors or brands, as such many other surprising relationships could arise.
Share space in retail?
Case Study: Poundland and Pep&Co
Poundland is rapidly opening Pep&Co fashion outlets as concessions within their existing stores or as standalone Pep&Co stores. This in-store only discount fashion brand wants to capitalise on the struggles of other retailers and take on low-cost fashion brands such as Primark.
“Pep&Co gives shoppers a major new reason to shop in our stores that we already
know is a hit with our customers” Barry Williams, Managing Director of Poundland UK & Ireland (4)
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Presence in key shopping destinations?
Temporary ‘pop-up shop’ units and shorter leases?
Increasingly, retailers are recognising the unavoidable need to locate flagship stores in high footfall shopping destinations for brand recognition, even if they are rationalising their network. Despite recent decline in the UK retail landscape, international retailers still regard London as a key destination in expansion strategies. The £600m extension of Westfield White City London has made it the largest shopping centre in Europe. With the John Lewis anchor store, how could key UK brands turn down this opportunity for greater brand visibility, or international brands to gain a strong foothold into the UK market?
Pop-ups within larger stores, temporary units within open spaces or short-term leases are likely to become increasingly popular in the UK Retail Landscape as the role of conventional shopping space has altered. Landlords of large vacant spaces have taken advantage of the container-community trend, renting on a temporary basis to multiple retailers. This has been advantageous for small businesses that would not be able to afford such expensive locations, but also useful for larger retailers to spread brand awareness and to identify whether to open a more permanent physical store location.
Crocs artist collaborations in their Boxpark, Shoreditch concept store is an excellent example of how creative temporary space can provide unique brand awareness.
Case Study: Urban Revivo
Chinese fast-fashion retailer Urban Revivo illustrated the importance of a physical presence by opening its flagship, and first store outside of Asia, at the end of 2018 in Westfield White City London. This was UR’s first step in its international expansion plans to have 400 stores globally by 2020.
“London is going to be UR's first step to expand into the European market and is a strategic priority for building a fashion empire”
Spokeswoman, Urban Revivo (5)
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Revival brands - haven’t seen you in a while! As with the resurgence in the popularity of Crocs, we are witnessing more brands making a comeback that have been big names on our high streets in the past. After previously closing their physical stores, some brands maintained an online-only presence and are now reopening. Other revival brands are opening standalone locations for the first time.
Retailers are predicted to spend £160bn on technology in 2019 (8). In-store technology investments can lead to increased customer engagement and satisfaction. As previously highlighted, Zara are using this approach with their automated click & collect and augmented hologram style imaging. In 2018, M&S partnered with Microsoft to advance their store offering. More retailers will do the same to get consumers visiting their stores.
Habitat & Ellesse These two brands have been patient in their revivals, waiting for the right conditions to open their own standalone stores.
“A really exciting time for Habitat as we launch our first major standalone stores in ten years. As our digital
business has grown, there has also been a real desire from customers to see Habitat on the high street”
Clare Askem, Habitat Managing Director (6)
Technological advances - how far will technology go?
M&S & Microsoft - Following recent struggles, M&S are focusing
heavily on improving their service offering. In 2018, they teamed up with Microsoft to
integrate AI technology into their operations and stores.
“This is the first store outside of Asia Pacific and represents a true statement of intent from the brand
– we aim to immerse all visitors in the fascinating history of Ellesse whilst also showcasing our
exclusive and latest collections”
Marc Greene, Ellesse Brand Director (7)
“The retail sector is one of the most challenging landscapes in the UK right now and we are thrilled to be working with M&S to explore how AI
can help such an iconic brand transform the customer experience”
Cindy Rose, CEO Microsoft UK (9)
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IS THERE A RECIPE FOR FUTURE RETAIL SUCCESS? Retailers have got to accept the retail market has changed and will continue to change. They must adapt accordingly, to ensure resilience and success. As a retailer in this challenging time, it is vital to assess your current business model, network and be agile to change. You need to know: who your customers are, are you serving them in the right locations and through the right channels, and what will happen in the future? We have evaluated some of the trends in the retail landscape that need to be considered in your business planning. Do you have the correct balance between physical and digital for the market you are competing in? Are your stores in the right locations and are you in the key retail destinations? Do your physical stores integrate with your online store? Do they engage customers and provide brand awareness? Alternatively, are you an online pureplay retailer that would benefit from offline stores or showrooms? Insight from GMAP can help you to strategise for the future success of your retail business.
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(1)https://www.ons.gov.uk/businessindustryandtrade/retailindustry/bulletins/retailsales/april2019 (2)https://www.forbes.com/sites/nikkibaird/2018/06/26/eleven-things-retailers-just-said-about-the-future-of-the-store/#55502fab7987 (3)https://www.retail-insider.com/retail-insider/2019/2/icsc-bricks-and-mortar-omnichannel-halo-effect (4)https://www.liverpoolecho.co.uk/whats-on/shopping/first-look-inside-one-poundlands-14298537 (5)http://www.urbanrevivo.sg/urbranddetail.htm?type=brandinfo&id=21 (6)https://www.retail-insight-network.com/news/sainsburys-expand-habitat-portfolio-two-new-stores-uk/ (7)https://www.retailgazette.co.uk/blog/2017/12/ellesse-opens-first-uk-store-seven-dials/ (8)https://www.retail-week.com/technology/data-retailers-to-spend-160bn-on-technology-this-year/7032033.article?authent=1 (9)https://corporate.marksandspencer.com/media/press-releases/2018/microsoft-and-m-and-s-launch-strategic-partnership-aimed-at-transforming-the-retail-experience-using-the-power-of-ai
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REFERENCES
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HOW CAN GMAP HELP YOUR RETAIL BUSINESS STAY RESILIENT? GMAP is a world-leading provider of innovative geographical analysis and objective location planning consultancy. We can assist you in addressing the industry challenges by providing actionable insights and solutions for your retail network, through market intelligence, bespoke analysis and consultation. Gain further intelligence through our RetailVision and MVPLUS product suites. RetailVision’s comprehensive Store Locations dataset and Retail Centre rankings can help you understand retail destinations across the UK. MVPLUS is our easy-to-use cloud-based Geographical Information System (GIS), use this secure mapping tool to visualise and interact with data supplied by us, or with your company data. Get in touch for more information on how GMAP can help you to plan for the success of your retail network!
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GET IN TOUCH CONTACT THE AUTHORS
John Chesworth, Director [email protected]
Joseph Murphy, Senior Consultant [email protected]
Alice Goddard, Analyst [email protected]
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