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01 December 2020

Changing Consumer Habits

The life of the office worker has changed dramatically this year. Working from home became the norm, leaving city centres across the UK deserted, hitting the retail, hospitality and entertainment industries hard.
 
Since the initial lockdown began back in March, the habits of workers in all sectors have changed. Whether that be office-based workers, retail staff or those from the Building and Manufacturing sectors - every industry has experienced change this year. Pre-COVID-19, city-based workers worldwide would contribute to their local economies, purchasing morning coffees, dining out at lunchtime and partaking in a spot of retail therapy at the end of a busy day. As these norms grounded to a halt during that initial lockdown over seven months ago, businesses, hospitality venues and traditional stores were forced to adapt to avoid disappearing altogether. While some sectors are still at the mercy of the virus and are unable to operate in even socially distant environments, others are recovering, with some even performing better than before the pandemic.
 
During the first national lockdown earlier this year, non-essential retail stores were among the worst-affected business following their forced closure. As you would expect, this had a devastating impact on the high street. Footfall on the UK’s high streets fell 34.9% year-on-year in September 2020. In March 2020, overall retail sales fell by 5.2% as many stores were ordered to close by the UK Government on 23rd March. This decline was then dwarfed by the largest fall on record, with the volume of retails sales dropping by 18.1% in April 2020. When drilling down into this data, clothing sales suffered more than any other area, falling by 50.2% compared to the previous month when it fell by 34.9%.
 
Although the high street is regaining some of its previous popularity, there is no doubt that online retail became the new norm despite shoppers keeping a tighter hold on their purse strings due to the prospect of financial insecurities. Online sales as a proportion of all retailing reached a record high of 22.3% in March 2020 as consumers switched to online purchasing during lockdown. This impressive figure then rose to 30.7% in April and 33.4% in May before slowly declining as the year progressed.
 
With online retail excelling during the temporary closure of the high street, many brands took advantage. Online home appliance specialist AO.com reported a retail sales increase of 62.9% year-on-year during the 16 weeks to 31st July 2020. Similarly, other electrical, homeware and DIY retailers also profited as consumers used the lockdown period to make home improvements. For example, Kingfisher, the parent company of both B&Q and Screwfix, reported sales rising by a quarter in June 2020.
 
While demand in DIY was clear across the board, there appeared to be both winners and losers in the clothing retail space with brands boasting a strong online presence out-performing those who were slow to adapt. For example, BooHoo’s sales rose by 45% year-on-year in the six months to 31st August as consumers turned to online shopping. However, Matalan’s sales dropped by 72.5% year-on-year in the 13 weeks to 30th May as it was hit by the closure of all non-essential retail stores. Similarly, TK Maxx (-42.3%) and Next (-34%) both recorded concerning year-on-year drops in sales. Meanwhile, Cath Kidston had already agreed to close all of its stores for good as part of a rescue deal at the peak of the pandemic in April.
 
Another of the hardest-hit sectors has been hospitality. While overall high street footfall is down sharply on last year’s figures, evening footfall has seen the harshest fall. Between the hours of 5pm-8pm, the figure was down 42.1% in September year-on-year, and falling by 44.7% after 8pm.
The closure of non-essential shops and offices in our towns and cities has had a dramatic knock-on effect to the hospitality sector. Despite the revival of the sector brought about by the government’s Eat Out to Help Out scheme, the industry is still at risk. The Restaurant Group (TRG), which owns chains such as Frankie and Benny’s and Chiquito, slumped to a £235m loss for the 26 weeks to 28th June 2020, while the firm permanently closed 120 restaurants over the summer. Elsewhere, pub chain Greene King is set to close dozens of its pubs with 800 jobs at risk following a slump in demand.
 
In the entertainment sector, Cineworld recently announced that all of its cinemas would be closed “until further notice” due to the lack of demand and lack of new box offices titles. The release of the latest James Bond film, initially set to be launched in April 2020, has been postponed twice already, while Disney’s latest big-budget title, Mulan, was made available on streaming platform Disney+ immediately rather than launching in cinemas.
 
Without the millions of workers flooding the towns and city centres across the UK, a host of sectors are set for a bumpy ride in the months ahead. Despite Christmas fast approaching, further restrictions may limit consumer spending.
Please note that investments and income arising from them can fall as well as rise in value. This communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.
Changing Consumer Habits
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