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25-Jul-2018
From brick to click – BLM investigates

The death of the high street has long been predicted but why are some retail outlets thriving and others struggling?

BLM investigates

Statistics portal Statista has revealed a new report which states that in 2017, retail e-commerce sales worldwide amounted to $2.3tn (around £1.7tn) with e-retail revenues projected to grow to $4.88tn (£3.66tn) in 2021.

The findings from the report – that show the continuing popularity of online shopping amongst consumers – are particularly illuminating when considered against statistics from the British Retail Consortium which show that overall visitor numbers to UK stores fell by 1.6% in January 2017.

The numbers show that it’s a worrying time for high street stores, and as footfall continues its decline, the temptation from high street brands could be one of a knee jerk reaction to shut-up-shop and move towards having a sole online presence.

“Retail margins are being squeezed, particularly in physical stores,” explains Jonathon Ringer, Head of Retail Practice in EMEA at Bain & Company. “Retailers are continuing to face cost pressure driven by rising labour costs, increasing store costs and growing product costs but some are struggling to drive revenue growth through their stores to compensate for it.

“As margins for these retailers are squeezed, some have to close their doors.”

Taking a store from the high street to online is not the answer

Online is here to stay, but it may not be the answer to everything. In fact, many retailers have sought a physical presence in stores to really bring their brand to life after launching and thriving online.

The launch by online womenswear brand Finery in a concession in John Lewis is a typical example.

The example of Finery underlines the fact that both online and in store have a part to play in a retailers’ success.

Another example of this is Oak Furniture Land, a company which started life as an eBay retailer in 2003, however, within just a few years it had become the auction site’s biggest retailer and was setting up its own website.

Soon that was not enough, and it has since started opening stores across the UK to keep up with demand. Oak Furniture Land now does 65% of its trade in-store – and that has boosted its turnover considerably.

Price is king

One of the reasons for the rise of online has been price, with more than two-thirds of us shopping online in order to get the best deal, according to consumer knowledge specialists Kantar Worldpanel

Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel, comments: “The UK is well ahead of its European counterparts in e-commerce, but the levels of growth we’ve seen in recent years won’t necessarily be sustainable. Saying that, online sales have been an important source of growth at a time when bricks and mortar grocery sales have fallen by 1%.

“E-commerce retailers are bound by the limitations of the current delivery model. Home delivery is the norm for the British consumer, even more so since the growth in popularity of services like Deliveroo. However, this is an expensive option for retailers, and substantial delivery costs are an obstacle to completing orders at the quick turnaround shoppers demand. This hasn’t stopped retailers innovating to find new ways of satisfying this ‘right here, right now’ mindset, such as one-hour delivery from the likes of Tesco and Sainsbury’s, or Amazon’s up-front Prime Now subscription model.”

Striking a balance between having a nice store to visit and keeping your costs low is crucial.

E-commerce retailers are starting to realise this and are reacting. For example, Amazon have recently opened physical bookstores, pop-ups and grocery stores to compliment sections of their business in which customers can make in-store purchase of books and gadgets.

Bad leadership

Whilst the proliferation of online shopping has played its part in the decline of traditional retail, it is too easy for high street brands to just blame online for closures on the high street. Accountability, should at times, be held by those in charge of the firms. Inefficiency by high street brands has in fact led to many closing its doors.

For example, Maplin announced on 28 February 2018 that it was going into administration.

The company, which, had more than 200 stores across the UK and 2,500 staff, reportedly held an outstanding £100m in loans from Rutland Partners.

Loans and high-yield bonds are not uncommon in major brands all across the UK high street, there are, at least, seven heavily indebted big-name chains currently in operation.

These include brands such as fashion outlet New Look, department store House of Fraser, frozen food store Iceland, health chain Holland and Barrett, plus casual dining restaurants; Prezzo, Wagamama and PizzaExpress.

Together, these businesses are loaded with more than £4bn of high-yield bonds and leveraged loans.

New Look, in particular, wants its landlords to slash over 600 of its store rents by up 60% as part of a rescue plan to tackle its £1.2bn debt.

CVA

The fashion chain is seeking a company voluntary arrangement (CVA), a legal agreement which would enable it to jettison loss-making stores and agree rent reductions with landlords.

“The company has previously indicated that a potential CVA is being considered as part of a range of options to improve the operational performance of the business,” said a New Look spokeswoman. “No final decision has been made regarding a CVA, which would require consent from our creditors.”

Homebase saga

For another example of a poorly run business, one needs to only look at the recent sale of Homebase for just £1 by Wesfarmers, owners of Australian DIY chain, Bunnings.

The group, which bought Homebase for £340m two years ago, saw losses and other costs bringing its total bill to about £1bn.

Its decline was said to be based on the group’s failure to understand the UK’s competitive DIY market.

Richard Lim, of consultancy Retail Economics, said the Wesfarmers takeover had been an ‘unbelievable disaster’ due to “woeful management decisions, clumsy execution and a misguided perception of the UK market”.

And we need not even mention BHS and the Sir Phillip Green saga.

The future

With the future of retail still firmly in the balance, high street retailers have relied heavily on discounting to drive footfall – and indeed this will work to a degree – but a more structured game plan is vital if shops want to hold onto their high street presence in the future.

Creating a destination, that offers consumers a mixed used experience encompassing retail, leisure and food is also part of the future, as consumers gravitate towards experiences.

When asked about where he sees the trend of retail heading, Jonathan added: “The rate of change is not going to slow down. We expect to see continued innovation and turbulence.

We expect to see online channels continue to grow ahead of the market in most categories and for further disruptive technology to emerge (e.g. voice, data-fuelled decision making, automation). Retailers need to evolve quickly to stay ahead of these changes and remain relevant for their customers.

“We do see a continued role for stores and winning retailers will try to combine the best of digital and physical in service of their customers.”

It seems that retailers will need to hold their nerve as they aim to resist the urge to completely abandon retail in favour of online.

However, as in most cases for everything – it seems balance is key.

Mergers, acquisitions and consolidation

The future for retail could also see more mergers and consolidation – as companies join forces to sustain market share. A stand-out recent example is Sainsbury’s potential merger with ASDA.

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