Every day the news from the multichannel retail sector points to a very stark dichotomy in fortunes – on the one hand a growing litany of company administrations or downsizing of household name high street retail brands, and on the other an explosion of exponential growth in the pureplay online sector with Amazon and Ocado reporting record growth of sales since March 2020.
Prior to the onset of the Covid-19 pandemic many high street retailers were already struggling with unrelenting changes in consumer buying behaviour as online sales continued to grow unabated year on year. The recent global crisis, however, has turbo charged the growth in online sales with the overall percentage having increased from 21% to over 34% of all retail sales (source: Office of National Statistics) – a staggering increase of 50% in real terms over three months.
As non-essential retailers opened on the high street again under social distanced restrictions, an initial spike in demand has fallen back to an average of circa 40% year on year comparison in many cases. Whilst Government has decreased the financial burden in the short and medium term via assistance with both rates suspension and the furlough scheme for employees, the fiscal reality of ‘new normal’ trading conditions will return during the final quarter of 2020 as businesses are gradually weaned off this vital State economic support.
Whilst the pandemic clearly represents the biggest existential threat to high street retailers for those that have invested in a strong online multichannel presence, this has also been an opportunity for them to further migrate their businesses to digital. Many audiences, especially those in the mature sector, have been virtually forced to adopt buying online since March 2020 and are now likely to remain digital customers; further changing the demographics of this audience.
So what does the future hold for high street retail in the short to mid-term? Until a vaccine for Covid-19 has been established and widely distributed in the UK footfall and retail sales will inevitably be greatly diminished for the foreseeable future, but it is unlikely that operational fixed costs can be commensurately trimmed to manage this inevitable downside in revenue. Whilst the current Government is proving to be largely supportive with its fiscal policies, there is a limit to how far this can be realistically stretched and therefore we can only anticipate some further casualties especially in Quarter Four and this to be accelerated into the first six months of 2021 if the key Christmas trading period fails to deliver.
As Retailers grapple with the ‘new normal’ business model this will also have a massive knock on effect for many brands and product owners who have been very dependent on them for the majority of their sales in the UK.
Many Brands prior to the Covid-19 crisis have embraced the importance of the growth of their own direct to consumer digital activities and during the last quarter have reaped the benefit of their investment as consumers have exponentially migrated online.
As 2020 progresses the question for both Retailers and Brands is not whether online sales will continue to grow, but how can they manage this radically new commercial landscape and all its inherent challenges.