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11 December 2020

Death by a thousand clicks?

After another temporary shutdown, the UK high street has once again opened its doors to customers and, with Christmas just around the corner, the reopening may have come just in time. Compared to the same week last year, overall UK footfall fell by 44% year-on-year in the week ending 15th November 2020.

The near month-long English lockdown had such a dramatic effect on the high street that, as of 2nd December when restrictions ended, footfall had risen by 85.2% week-on-week. However, with organisations such as the Royal Mail warning consumers that “lockdown has led to a rise in online sales”, how has the pandemic and its ensuing restrictions impacted our urban centres and retail parks, and how can they now compete with online retail?

With non-essential shops closing in England on 5th November, essential grocery stores were the first to feel the benefit. Research firm Kantar revealed that grocery sales hit a record high in November as consumers started their Christmas shopping early and generally spent more during lockdown. In fact, some £10.9bn was spent after non-essential shops closed. Despite non-essential stores reopening, Nielsen predicts that UK grocery shopping will strengthen further in December, with customers spending £1bn more than the same month last year.

Despite supermarkets and homeware shops, among others, being allowed to stay open during lockdown, many of the stores in which we traditionally buy Christmas gifts were forced to close their doors. As a result, the high street was largely abandoned and e-commerce left to profit. 69% of UK respondents to a Gophr survey said they had shopped online in the past 12 months, with 36% spending up to £50 more per month than they had done in the previous year. Breaking this down further, the survey found that 72% of female respondents and 65% of male respondents had increased their online spending in 2020, while older consumers were also turning to online shopping. This is a significant and perhaps worrying development for bricks-and-mortar retail offerings as, typically, older demographics are more likely to favour physical stores.

However, this data doesn’t quite tell the whole story. According to another survey, this time conducted by Statista, the data shows that 12 of the most popular 17 online stores for buying Christmas gifts in 2020, including Argos, John Lewis and TK Maxx, also have a presence on the high street. In fact, Argos was the second most popular online store in the survey, with 42% of respondents doing some of their Christmas shopping on the Argos website. This would suggest that, although their physical stores have seen considerably less footfall this year, these retailers are still very much alive and competing in the world of e-commerce.

Of course, there are retailers on the web that the high street simply can’t offer a home for, the most popular of which is Amazon. A staggering, but perhaps not surprising, 87% of Statista’s respondents said they used the online giant for some of their 2020 Christmas shopping in November. As you may expect, its product range, customer service and fast delivery times make Amazon a firm favourite of consumers globally and this retail-disrupted year, of all years, has been no different. Amazon has clearly been a beneficiary of the closing of traditional shops, with net revenues rising from US$75.45bn in Q1 2020 to US$96.15 in Q3 2020.

These are figures that, at present, no high street retailer could be confident of matching. As it stands, there are concerns about the future of many of the UK’s traditional retailers after 11,000 outlets closed in the first half of 2020 alone. Add in the recent news around Debenhams, a long-time stalwart of the UK high street, and its struggle to save 12,000 jobs and it paints a bleak picture. To survive, the traditional high street will have to change, offering more than simply a shopping experience, perhaps by rallying together with other struggling sectors including hospitality and entertainment, as summarised by Deloitte way back in 2013 before any analyst could have predicted the impact the pandemic has had on the retail sector.

Deloitte argued back then that the UK high street could indeed survive, but it would need to play a very different role, one that is more agile and better adapted to the future retail landscape. Consequently, the opportunity revolves around differentiation, and a mindset more focused on offering a unique experience that simply cannot be replicated online.

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.
 
 
Death by a thousand clicks?
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