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The factors driving change in UK retail

UK retailers are working steadily to improve their performance online and across retail channels as they trade at this time of ‘retail crisis’. Yet a challenging environment appears to be fostering both innovation and a fresh commitment to giving shoppers the retail experiences that work for them, whether they prefer to buy and browse in-store or online from desktop or mobile websites and apps, or social media, or across all the channels that are relevant to them.

Setting the context

Stores are currently closing across the UK in what the Centre for Retail Research (CRR) has termed a “retail crisis”. It predicts that 17,556 shops will close this year – up from the 16,073 that it recorded closing during 2019. In January 2020 alone, department store Debenhams and nursery retailer Mothercare both shut stores that had been a familiar presence on UK high streets for many years. Professor Joshua Bamfield, director of the CRR, says the closures come at a time when customers are spending less while retail costs are rising. “The commercial pressures of higher labour costs, business rates and relatively weak demand will continue to undercut profits and force the weakest companies to close stores to enter administration,” he said. “The high street and suburbs will continue to decline.” Some retailers opt for Company Voluntary Arrangements (CVAs) that allow them to trade through their difficulties, renegotiating costs such as property rents and lease lengths. But research from real estate company Colliers International shows that of 23 UK retailers that have gone through a CVA process since 2016, 13 have later gone into administration. While CVAs aren’t helping every retailer that uses them, they may be having a wider effect on the retail landscape. David Fox, co-head of retail agency at Colliers, has said that CVA usage has lowered rents, threatening the viability of shopping centres. One international retailer, IKEA, is reported to have benefited from bargain prices to buy a London shopping centre. It now plans to open its own small format store in Hammersmith King’s Mall.

According to the British Retail Consortium, last year was retail’s worst year on record, marked as it was by the first ever overall decline (0.1%) in annual retail sales, while online non-food sales grew by just 2.6% on its index.
This comes as shoppers continue to change the way they buy, opting to shop more often online. The BRC found that by the peak shopping months of November and December 2019, 34.2% of retail sales took place over the internet – 1.8 percentage points higher than at the same time in 2018. The BRC cites factors including CVAs, shop closures and job losses over the course of 2019. Political and economic uncertainty also played a role. In 2019, BRC chief executive, Helen Dickinson, said, “Twice the UK faced the prospect of a no deal Brexit as well as political instability that concluded in a December general election.”

This political instability is set to continue through 2020, as the UK waits to see what leaving the European Union will mean in practical terms both for retailers, who are used to managing European supply chains, recruiting European staff and selling cross-border into the EU free of tariffs or customs – and for the customers who buy from them. If UK shoppers feel they have less money to spend, they are likely to cut back on what they spend on retail.
Factors affecting UK retailing also include a new level of environmental awareness among consumers, especially younger generations, and a move towards buying more sustainably. That might mean buying fewer retail products, or opting to buy items that have a lower carbon footprint. Retailers certainly appear to be responding to those concerns and are opting to use less packaging and to replace plastics with recyclable alternatives. The popularity of replacements to single-use items, from bamboo coffee cups to shopping bags, is growing.

Dickinson said, “Looking forward, the public’s confidence in Britain’s trade negotiations will have a big impact on spending over the coming year. There are many ongoing challenges for retailers: to drive up productivity, continue to raise wages, improve recyclability of products and cut waste.” She noted it was essential that the government make good on its promise to review, then reform, the broken business rates system which, she said, “sees retail pay 25% of all business rates, while accounting for 5% of the economy.”

How retailers are responding
The “challenging retail environment” has become a common refrain for retailers reporting financial results both in 2019 and into 2020. Yet they are working hard to adapt, as Jason Hargreaves, chief executive of Top150 value fashion retailer Matalan, said in January, when the business reported its latest, third-quarter, figures. Hargreaves cited, “unprecedented levels of political uncertainty” that had hit overall sales and profits. But also, Matalan’s online business had grown by a quarter. This was a time, he said, for retailers to adapt. “In the ever-changing landscape retailers are now faced with, it’s more important than ever to evolve and be agile, efficient and deeply connected to our customers,” he stated.
His comments describe a pattern that is visible in this year’s Top500 research. From graphics that illustrate the performance of the Top500 over the years (see page 9), it’s clear that performance has improved steadily over time to reach its best yet in 2020. It’s notable that this year, some services that were once considered cutting-edge are now used by most of those selling in this market. Almost all (94%) retailers now offer easier ‘hamburger’ style navigation on their mobile websites, for example, while most (61%) offer next-day delivery and more than half (52%) offer click and collect services. More than two-thirds (69%) show fulfilment options on their product pages, while 65% offer autocomplete search suggestions for those looking for a product on mobile. Almost all are using social media to some extent, with 97% on Facebook and 90% on Instagram.

Individually, these incremental improvements might not seem significant. Taken together, they represent a steady shift towards building a highly capable retail sector empowered by digital technologies to offer fast-improving services to their customers. We can see a sector moving on from a moment in which Elite and Leading retailers moved much faster towards joined-up and seamless service. More recently, retail performance is seen to be improving more widely and across the board.
Some of these improvements are smart and highly targeted, with traders moving back from offering services that may not proved as popular or profitable as hoped. Fewer now offer next-day collection, for example, while same-day and nominated day and time delivery are also in decline.

In the coming pages, we explore the six Dimensions that inform our Top500 listings, and we then go on to look in more detail at what exactly retailers are doing to improve the way they operate. We see how they are improving delivery services (see page 37), as well as how they are investing in experiences that they hope will keep their stores relevant (see page 39).

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