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RXUK Top500 Gaining the multichannel advantage

Ikea's Hammersmith store was its first small-format store in the UK. Image courtesy of Ikea

For the first time in eight annual editions of the RetailX UK Top500 index, all of the Elite retailers listed in the 2022 report are multichannel retailers. That’s not because an online-only retailer has lost its place in the highest ranking of this report but because the pureplay retailer that has appeared in every Top500 listing so far has now shifted to multichannel. Amazon now has 11 Amazon brand shops and counting, having opened in 2021 ten Amazon Fresh automated checkout-free stores around London and an Amazon 4-Star shop at Bluewater shopping centre.

Amazon wasn’t the only pureplay to have opened shops that year, just the most high profile one. Its move is emblematic of a wider shift towards multichannel retailing within the Top500. In all, the UK Top500 2022 includes 452 multichannel retailers, alongside 48 pureplay retailers, brands, of whom some are marketplaces. That’s up from 422 with stores a year ago, and 78 without. This 30-retailer change appears to have come about as pureplay brands and retailers have opened shops, as well as multichannel retailers winning places in the index at the expense of pureplays.

Half of the Top500 are now brands selling their own brand products, rather than retailers who sell third-party products. And most of those brands – from Nespresso to Timberland – have stores.

In the last two years of pandemic lockdowns and trading restrictions, the UK has had what amounts to an A/B test of trading with or without stores, imposed by non-essential UK shops being closed repeatedly over the course of 2020 and 2021. While online sales rose to a record share of the market in lockdown, they have declined steadily since then, suggesting that while people are more ready to buy online than before the pandemic, their appetite for in-store shopping remains.

Data from the IMRG Capgemini Online Retail Index suggests that when ecommerce grew by 36% over the course of 2020, the first year of the pandemic, much of that growth was from multichannel retailers (+57%) rather than pureplays (+9.1%), while mobile commerce grew strongest of all (+73%). When stores reopened from the third lockdown, IMRG figures for May 2021[2] – the first month fully out of lockdown – showed online retail sales falling sharply (-9.1%) compared to the previous May. Within that, multichannel retailers’ online sales fell faster (-13.9%) than their pureplay competitors (-1.34%). The figures appear to suggest that many still want to go in-store to shop when that’s available, although the appetite to buy online remains higher than before the pandemic.

The shift to multichannel

The trend for even the most established pureplays to open stores has been noted by property developer and operator Land Securities, which said in its latest results that it had seen a series of previously online-only retailers open city centre stores. “We… continue to see digitally-native retailers, big and small, seeking to take space in our centres as they develop their strategies to include physical retail,” the property developer said in its half-year figures to 30 September 2021. It cites Amazon, as well as fashion sneaker retailer Crep Collection Club and fashion brand Vanilla, which have all taken space at Bluewater in recent months.

When Crep Collection Club opened at Bluewater in September, two years after the high-end trainer retailer launched online, its founder Jamal Okubule said it would reach a new audience there, adding, “We are proud to have taken this next step into physical retail as part of our brand expansion.”

It’s notable that pureplays that open shops have relatively small numbers of shops compared to more established high street retailers. Amazon, for example, dominates online retail but only has 11 shops currently operating in the UK under the Amazon brand, while fellow Elite retailer Tesco had 3,465 UK owned stores as of August 2021. Of those stores, 2,544 were smaller shops, with less than 278m2 (3,000ft2) of space – although the 511,000m2 (5.5m ft2) of space that they account for was a small share of Tesco’s total 3.59 million m2 (38.6m ft2)of retail space.

The supermarket is very much an outlier, since the average Top500 UK retailer has 96.3 shops and the median has 22, suggesting that most leading UK multichannel retailers in the Index have a relatively small number of shops, while others – such as grocers, with an average of 261 and a median of 44.6 – have more. At the other end of the scale, software retailers have the fewest shops, an average of 26.8 but a median of 0.9.

The store attraction

In recent years, multichannel retailers have looked to ‘right size’ their store estates, arguing that shoppers who can buy from them online no longer need to have a store quite as close to them.

Value retailer Shoe Zone, for example, now says that long-term it is looking to reduce its store numbers to about 250, down from 410 at the end of the financial year to October 2021. At the same time, it is investing in online, following fast sales growth in a full year in which digital sales grew by 58% to £30.5m in the year to October 2 2021, accounting for 26% of its total sales of £119.1m.

Shoe Zone chief executive, Anthony Smith, sees its stores as critical to its future multichannel success, despite a downward trend (-14% to £88.6m) of in-store sales during a financial year in which its shops were only able to open for 36 weeks due to Covid-19 restrictions and lockdowns. That’s because of its online returns process, he says in the company’s latest full-year report.

“Part of the success of our digital operation is our very efficient returns process which is complimented by our extensive network of stores,” he says. “We have a returns rate of c. 9% and the vast majority of these are returned to store and our physical store network is critical to our future success even.”

This is just one example in a market where many have recently looked to right size their stores. High street stalwart Marks & Spencer is another example (see profile, page 10). When retailers close stores, they focus on keeping ones open in locations that suit their customers, whether those are retail parks or upmarket shopping centres. While this may be to the detriment of secondary locations, it’s also worth noting that separate research from Springboard and the Centre for Cities find rising footfall in towns and smaller cities as more people work from home, potentially making such destinations more attractive to retailers.

How ecommerce adds value in store

Returns are just one area in which stores add value for online retailers. M&S said in its post-Christmas trading update that its in-store fulfilment was driving online sales growth.

Gavin Peck, chief executive of discount retailer The Works said in its report for the half year report to the end of October 2021 that its store estate was, “the lifeblood of our business and the main way we interact with customers”. It plans to continue opening stores, while still investing in online and multichannel services such as ordering in-store and improving its click and collect service.

In Superdry’s latest half-year report, for the six months to 26 October 2021, its chief executive, Julian Dunkerton, emphasises the importance of stores to its brand awareness and showcasing the range. “Illustrating our long-term commitment to the high street, our new Oxford Street flagship store launched in November, showing the best representation of our style choices and how we plan to engage with our customers, wholesale partners and the influencer community,” he says. “It has been pleasing to see early trading performance, which has exceeded expectations.”

Rethinking stores

Multichannel retailers are rethinking the stores that they operate in ways that are likely to continue in the future. Aldi, for example, recently opened a small checkout-free store in a similar vein to Amazon’s, thus taking online and m-commerce technology into its stores. Ikea has unveiled images of its first small format shop in London’s Hammersmith, set to open next month. Visitors to the 4,500 m2 store will be able to view around 4,000 products and take away their choice of 1,800 items, with the rest available to order online for home delivery or collection.

At the time of the launch, Peter Jelkeby, country retail manager and chief sustainability officer at Ikea UK & Ireland, said, “As shopping habits evolve and city centres continue to be redefined in the wake of the pandemic, this new store format marks the next step in our business transformation as we trickle to make IKEA more accessible, affordable and sustainable.” In doing so, he summed up some of the key aspects that multichannel retailers will be considering as they plan for business post-Covid-19.

This piece first appeared in the RetailX UK Top500 2022. Explore the report further or download it here.

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