Earlier this month, non-essential retailers in England and Wales were allowed to reopen as lockdown restrictions were relaxed. While many of them had been selling online throughout the pandemic, this was the first time they had been open since early January and a sign that thankfully things are returning to normal. What however is the new normal? The pandemic has raised a number of questions about the overall retail landscape, how consumer behaviour has changed and what brands need to do to ensure survival.
One of the biggest initial indicators of the challenge retailers face is footfall. For the first week shops were open, footfall was down 22.6% compared with the same week of 2019. For last week (18th - 24th April), footfall remained down 19.9% when compared to 2019. With the Bank of England estimating that households had saved £180 billion during the lockdown, many retailers had hoped they would experience something similar to China where the pent-up demand saw ‘revenge spending’ and a bounce in retail sales. While there were large queues outside some stores such as Primark, this was primarily due to the fact that they don’t sell online. Catesby believe we will not see a sustained bounce in the UK and other markets around the world especially in the short-term. The reason for this? Uncertainty.
The majority of Chinese consumers have not been exposed to a recession nor have they experienced austerity, so confidence for many never wavered as their economy continued to thrive despite the pandemic. In contrast, it is only just over a decade since consumers in other major economies experienced the fall-out from the Global Financial Crisis. With continued uncertainty about further waves of Covid, especially given the frightening images from India, together with the anticipation of a global recession, and the fact that in markets like the U.K. where the government’s furlough scheme is supporting the wages of 4.7million people, Catesby believe consumers are more wary and will adopt a wait and see attitude with their spending as they hold back to see what happens once the furlough scheme ends this September.
Catesby believe that in the short-term, consumers will become more price conscious decreasing their discretionary spending and instead shifting their focus to value in their shopping practices as they become more aware of their spending and engage in price comparisons. This is supported by a recent Euromonitor report that suggested how they expect shoppers to change to private label brands and off-price retailers, as well as seek out options like buy now, pay later and instalment plans, all of which tie into the consumers’ desire to have cash readily available for the unexpected.
While consumers shift to more value-for-money purchases, they are also becoming more value-conscious in their buying behaviour. While this was an emerging trend prior to the pandemic, the events of the past year are only expected to accelerate this movement. With most people stuck at home over the last year, it has allowed them the time to reflect, not only on their own health but also the health of the overall planet. While categories such as sportswear has been particularly successful, we have also seen sustainability move to the forefront - this is not only as a result of people becoming more sustainably conscious but also due to the emergence of a number of sustainably focussed brands pushing a more powerful message. Ethical retailers that offer a purpose-driven proposition whether it be social, environmental or both are expected to win consumers’ loyalty and money going forward. Brands that choose to ignore this in our opinion are going to suffer.
The global e-commerce market grew considerably during the past year as consumers were forced to shop online to purchase good and services as brick-and-mortar stores were forced to shut. The pandemic pushed UK e-commerce past 30% of Total Retail Sales for 2020, up 34.7% from 2019. The majority of consumers, even if not initially familiar with e-commerce, were drawn online. As more and more people become vaccinated and start venturing out to the shops again, online sales will decline, although in our view not to the levels before the pandemic. Even the most reluctant of consumers have come to appreciate the convenience and reliability of online shopping, and as a result we expect it will continue to play an important part of people’s shopping habits.
Given the popularity of online and its further integration into everyone’s lives, the role of the physical store comes back into question. The question that needs to be answered is whether all of a brand’s stores are necessary? It has been heavily publicised that the knock-on effect of this move to online would have a detrimental impact on physical stores. This is certainly one but not the only reason why you cannot now walk down a high street without seeing empty stores and ‘To-Let’ signs. The impact however will be felt in certain towns far more than others. With the majority of people across the country working from home during the pandemic, this has led to people spending more time on their local high-streets and as a result, these have fared better than the major cities. With the way people work having likely changed for good with most people continuing to work from home for part of each week, Catesby believe that local high streets could see a resurgence going forward, and we would not be surprised if some retailers review their store portfolios and close stores in some of the major cities; instead going to their target customer and opening on the local high-street. In addition, we believe many consumers will start to assist their local communities by shopping locally and supporting the independent retailers which have been so heavily hit.
At Catesby, we have always held the position that there remains a need for physical stores and our position has not wavered. Retailers are however going to need to work harder than ever to attract customers to their stores. While for some consumers they prefer shopping in-store due to personal interaction, many will be deterred from visiting stores due to being uncomfortable in crowded places; especially given the convenience of shopping online. Retailers need to appreciate this and work hard to make customers feel comfortable in their stores.
So what is the role of the brick-and-mortar store post pandemic? The purpose of the store will need to evolve. Retailers will need to think more broadly about the retail experience in order to woo customers back. With so much available online, consumers will likely see shopping in store as less transactional and more of an event or experience. Brands that bring an experiential environment where shoppers can immerse themselves in the brand will set them apart from the competition. Virtual activations in physical spaces and virtually enabled at-home experiences or the blending of the physical and virtual worlds will become the new norm. Retailers need to ensure that there are tools and services in place to facilitate their consumers wherever they want to shop.