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Retailing in 2018: opportunities and challenges

The Centre for Retail Research published its analysis of how UK retailing will have changed by 2018 on 28 May 2013.

 

The Retail Futures 2018 report forecast that total store numbers will fall by 22%, from 281,930 today to 220,000 in 2018 and job losses could be around 316,000 compared to today. The share of online retail sales will rise from 12.7% (2012) to 21.5% by 2018 or the end of the decade.

It is forecast that a further 164 major or medium-sized companies will enter administration, involving the loss of 22,600 stores and 140,000 employees. Many of these companies will survive but at the cost of closing more than half their stores.

In spite of the Portas Pilots the High Street will continue to suffer: around 41% of town centres will lose 27,638 stores in the next five years.

The overall verdict is that bricks and mortar stores will remain an important, although smaller, part of retailing in high streets, malls and retail parks as online continues to grow. The ‘normal’ retail model needs revisiting, under the combined pressures of high costs, consumer reluctance to spend, and rapid growth of online retailing.

UK retailing has the highest proportion of online retail sales, so what happens here is being analysed by foreign observers as Britain becomes a test bed for retail innovation.  Online as a percentage of all retail sales is now 12.7%, with plenty of growth expected from the food sector over the next five years.

It may take a year or two longer before online retail gains 21.5% of the retail market but many commentators feel that the online share will get to 25% by somewhere around 2020-2023.

Key catalysts for the looming retail crisis include the 20% rise (including rates) in retail operating costs since 2006, which outstrip the 12% increase in consumer spending. Many customers are also shunning the high street, which now receives around 40% of consumers spending compared to 50% in 2000.

As fewer customers shop in stores, online retail is set to account for 21.5% of total retail sales by 2018 from 12.7% today.  Retailers with a strong web offering now need just 70 high street stores to create a national presence compared to 250 in the mid 2000’s

Retailers will either make clear strategic decisions that permit online retail to coexist with other retail channels in a multichannel world – allowing bricks and mortar retailers to transform themselves – or will remain in denial about the rapidly shifting consumer landscape. So many multiple retailers are threatened by the ‘retail crisis’ a large minority of business categories will become dominated by purely online retailers

Much comment about retailing either sees shops as doomed (most shops will close as online takes over the majority of retail sales) or believes that online will peak, making the crisis shakeout in the industry (business as usual). In fact neither view is accurate, radical changes need to be made by retailers, town centres and the government to preserve what is best in retailing.

Across the country the situation varies drastically as disadvantaged retail pockets become more prominent. More towns will need some reduction of retail space because of the fall in the demand for shops. However Retail Futures 2018 predicts that more than a third of town centres (41% or 153 stores) could experience a rapid decline by 2018 if no action is taken. Just over a fifth (78 or 21%) of towns are declining in retail terms and 75 are stable but under pressure. The retail centres most vulnerable are those near low-income populations located on secondary or tertiary shopping areas.

Shops in some prosperous and tourist areas will continue to do well, but Wales, the North and the Midlands can expect a much higher proportion of stores to be shuttered.

The number of high street stores is expected to fall by 19.9%, but an even greater impact will be felt by neighbourhood stores. These will decline by 34,587 (-26.2%) as a result of the declining profitability of neighbourhood shopping in many areas, the unwillingness of multiple retailers to continue operating in small neighbourhoods and the move towards perceived lower prices and better availability of stores in town centres, retail parks and internet shopping.

Major retailers like Tesco, Wickes, ASDA and B&Q have also announced dramatic reductions in opening large new stores (though convenience is still massively important) and all have plans to subdivide giant stores, leasing space to other retailers.

Customers now ‘shop’ in multiple ways, checking a store’s website, visiting one or more stores, looking at product reviews, viewing the prices of competitors on a smartphone whilst standing outside a store, and choosing finally whether to buy the goods in-store or online and collect it in-store or have it delivered to a nominated address.

Retailers have to make clear strategic responses to the changing patterns of how consumers shop and how to integrate fully their physical stores, the online sites and other channels such as social media coherently.