White Papers

Arguably, the retail industry has never faced such intense structural change heading into 2021, as the sector battles the Covid-19 crisis and changes to trading relationships under Brexit.

The impact of Covid-19 will remain inescapable next year. It has led to both temporary and long-term shifts in shopping behaviour. The next year will see certain consumer habits cemented, while others fall away as safety measures ease, leading to creative destruction.

Three underlying trends highlight this:

1. The channel shift towards online and local shops
2. A transference of spending towards home living
3. Lifestyle changes seeing more time spent at home

The accelerated shift towards the online channel since social distancing took hold in March has not been surprising. Nevertheless, the shift has led retailers having to transform operations in a matter of weeks – not years – to cope with online practically doubling in some categories such as Homewares.

This is seeing retailers fast track digital integration, using innovation to come up with cunning ways to leverage existing stores to support online sales. For example, Dunelm quickly introduced a contact-free ‘deliver-to-car’ click and collect alternative, while partnerships with third parties such as Deliveroo and Aldi continue to provide a lifeline to those dabbling in e-commerce.

A greater focus indoors has seen home categories outperform in recent months. But continued elevated levels of demand for home furnishings is unsustainable, given that the housing market continues to be dogged by low supply going into the new year.

When shoppers do venture out, they appear to be avoiding historically crowded places, with consumers re-discovering local and out-of-town shopping. In 2020, footfall in city centres was at around half the level of 2019 throughout the summer months as consumers avoided public transport.

With such unsustainable levels of footfall, retailers are reducing their reliance on costly stores. H&M is set to close 250 stores worldwide in 2021, while luxury label Aspinal of London is looking to shutter all its UK stores to move the brand online.

Retailers that are keeping the lights on in shops will be looking at rent reductions, as physical stores fundamentally generate less revenue. As stores move to turnover-based rents, the rebalance of power between retailers and landlords shifts in favour of the former.

Such cost cutting underlines a strong focus on balance sheets to ensure retailers do not burn through cash over the coming months. Unfortunately, fallout in the form of redundancies and administrations is inevitable. Also, the pressure on working capital remains severe. But it also provides an opportunity for M&A activity and retail partnerships.

With the UK’s departure of the European Union (EU), supply chain disruption is also likely to occur with elevated costs (especially for the food and drink sector) and new administration procedures.

Throughout 2021 as industry restructuring unfolds, there will be many opportunities for retailers to watch out for:

1. Gaps forming in the market as administrations occur
2. Points along the customer journey where relationships can be strengthened
3. Engagement of new customer segments online
4. Streamlining processes for greater efficiency
5. New partnerships to enhance propositions and capabilities
6. Innovation between in-store and online for new consumer experiences
7. Fostering genuine consumer relationships in challenging times
    

Harnessing these opportunities effectively requires a deep understanding of all the key factors.

Our ‘Outlook for UK Retail 2021 Report’ explores these opportunities and many other issues, delving into the necessary detail to help retailers (and retail-related industries) successfully navigate through these unprecedented times.
 

Report highlights

UK retail is experiencing a significant structural shift. Evolutionary processes have guided economic value from commodities to goods, services and now experiences. Technology has shifted the power balance from the retailer to the consumer, with customers now expecting more. This report looks at impact of the experience economy and the implications for retailers. 

The genesis of an emerging economy is rearing its head – the Experience Economy. This report enhances the concept, coined by Pine and Gilmore in 1999 (Figure 1), and applies the framework directly to the retail industry. While previous research has been conducted in the fields of tourism and festivals, where parallels are obvious, its application to retail has so far been superficial, despite its many references. 

Figure 1 – The evolution of economic value

The Retail Experience Economy identifies four key realms determining a customer’s shopping experience:

1. Environment 
2. Education
3. Escapism 
4. Entertainment  

Within the research (below), we look at each realm in detail and assess its impact to retailers and consumers.
 

Retail Economics conducts extensive research and analysis on the impact of coronavirus (COVID-19) on the UK retail and leisure industry. Our service consists of frequent, timely analysis and updates in a variety of formats so you can absorb the information quickly in a way that best suits you.

Retailers (and retail related industries) integrate key findings and insights from our proprietary research into their response strategies to the COVID-19 crisis which enables them to make more informed – and timely – decisions which helps them manage the associated risks and to plan ahead.

This service incorporates many dynamic components and explores relevant issues in an adaptive manner, responding to real events as they unfold and as consumer behaviour evolves.

Considerable political and economic uncertainty persists heading into 2020. The ongoing impact of Brexit dominates the political agenda and remains a key factor constraining business investment and dampening consumer confidence.

Against this backdrop, UK retailers face seismic structural challenges as the ongoing shift towards online shopping and the rising prominence of the experience economy collides with spiralling operating costs. The proportion of online shopping has now reached almost 20%, quadrupling in the last 10 years. We forecast that this figure could rise to 50% for internet shopping in the next 10 years.

Meanwhile, an abundance of physical possessions has caused consumers to re-evaluate the importance of material goods. Following two decades of falling prices, in real terms, for clothing, footwear, electricals and many other goods, UK households have arguably reached a period of ‘peak stuff’. The economic value they attach to material possessions has diminished, leaving them valuing ‘experiences’ more than ever before.

This perfect storm of behavioural shifts and rising operating costs (e.g. business rates, labour costs, logistics) has left many retailers with business models that are not fit-for-purpose. Exposed by too many stores, inflexible lease structures and legacy systems, business models are creaking under the pressure of spending shifts and the purpose of the in-store experience.

However, with great disruption comes opportunity. Those retailers who have ‘embraced, adapted and innovated’ have managed to thrive in this fast-paced environment where relevancy is vital.

The Retail Economics Outlook for the UK Retail Industry 2020 Report provides an in-depth analysis of the challenges facing both UK retailers and consumers as we enter a new decade of change.

A vast blanket of uncertainty engulfs the entire economic landscape at present. Attempting to accurately predict the immediate future for the retail industry appears to be a task beyond mortals.

I feel that 2018 will be a memorable year. Pervading structural change continues to rattle traditional business models and will undoubtedly intensify as we move forward.

A tough consumer environment will remain throughout the first half of 2018 as the debilitating squeeze on personal finances finally eases by Q4 2018. Nevertheless, confidence will remain a delicate issue with possible interest rate hikes, a tough labour market and political instability forming an unwelcoming backdrop.

Retailers will also face a continued pincer movement of rising operating and sourcing costs with soft consumer demand. Many retail business models will come under increasing strain as the unforgiving shift towards online and the experience economy collide with inflexible leases, high rents and excess properties.

Focussed work will continue behind the scenes to better understand the role of digital and social marketing in alignment with dazzling in-store experiences, while delivering a truly seamless omnichannel experience.

There’s no question - boardrooms across the UK will have to discuss the ‘embrace, adapt and innovate’ philosophy in order to thrive, or indeed, just to survive. 

The Retail Economics/RBS Outlook for UK Retail 2018 report contains:

To download your copy of the Retail Economics/RBS Outlook for UK Retail 2018, please complete and submit the form on this page.

Some of the early analysis of last weeks election suggests that it will now be more difficult for the government to drive through a hard Brexit. We disagree. In fact the opposite is the case a hard Brexit becomes more likely now.

When the UK submitted its Article 50 letter it set in train a process to leave the EU which now has its own momentum. This means that unless the UK and EU explicitly agree otherwise at the end of the two-year process the UK will be out of the EU and will have a trading relationship based on so-called WTO rules. In trade terms this is what hard Brexit means. This outcome requires no further decision or action on the part of either party and is the default consequence of the UK's decision to leave. As Michel Barnier the EUs chief Brexit negotiator told the Commission "... in any event the UK would become a third country on 29 March 2019." So hard Brexit is the road that we are already on.

We have entered 2017 in extraordinarily uncertain times. The political and economic environment has changed markedly over the last 12 months. It is difficult to remember a more challenging time to take a view on how these events will play out for the retail industry.

Despite the anxiety caused by the Brexit vote, consumer spending remained remarkably robust heading into the final quarter of 2016 and strong momentum delivered positive Christmas trading results for many retailers. Nevertheless, it strikes us that underlying conditions for households are more fragile than they appear. Disposable income growth is already slowing rapidly. As inflation surges towards our forecast of 3%, we expect real wages to start shrinking by the middle of 2017.

What’s more, consumer spending has become increasingly debt-fuelled with unsecured lending rising at the fastest rate since the financial crisis. As the impact of weaker business investment leads to an increasingly fragile labour market, rising unemployment is expected to bear down on consumer confidence in the months ahead.

Underlying the complex macro environment, retailers face a seismic shift in consumer behaviour with digital and online technologies forging an inevitable evolution in retailer business models. The speed at which retail spending has shifted online is putting strain on traditional business models — many of which are no longer fit for purpose. The winners will be those retailers who provide a seamless omnichannel proposition, who execute click-and-collect conveniently for their customers and embrace the continued shift towards online retailing. For others, 2017 is set to be a very challenging year.

The Retail Economics/Revo Outlook for UK Retail 2017 report contains:

Consumer Environment

• Inflation
• Labour Market
• Wages and Disposable Incomes
• Credit and Household Debt
• Housing Market and Assets
• Interest Rates
• Brexit
• Consumer Confidence

Retailer Environment

• Operating Costs
• National Living Wage/National Minimum Wage
• Business Rates
• Sourcing Costs
• Brexit
• Investment
• Behavioural Change

The result of the EU Referendum is clear. The implications that this will have on consumer spending, households’ disposable incomes, savings, confidence and the wider retail industry are not. Uncertainty over speed, breadth and magnitude of these changes are likely to weigh on our economic prospects and those of UK households for some time.

The focus on economic data and analysis has never been more important. In a period of heightened uncertainty, it will be critical for businesses to understand how the rapidly changing macroeconomic environment affects the retail industry as the repercussions of Brexit unfold.

In the short-run, households’ disposable incomes are unlikely to change significantly. It will take time for the knock-on effects of the vote to work their way through to the real economy in terms of jobs, higher inflation and lower economic output. Nevertheless, we expect elevated levels of uncertainty to lead to a sharp fall in consumer confidence which will trigger higher levels of saving as consumers rein in their spending.

It is argued that both the break with the EU and the uncertainty associated with it would be damaging for businesses and could undermine the UKs economic recovery.

In reality should Britain leave the EU the severity of the impact would depend on the new relationship that emerges between the UK and the EU after a vote to leave. Put simply no member state has ever left the EU so there is no precedent set for guidance. If the UK votes to leave the EU it is also unknown what arrangements will be agreed to replace the EU membership however there are likely scenarios which may develop.

Download our Brexit - A Retail Industry Perspective white paper to see the possible arrangements that may be negotiated and the possible macroeconomic effects and implications that Brexit could have for the retail industry.

The last 12 months has seen the UK retail landscape in continuous flux with digital and online technologies forging an inevitable shift in retail business models adapting to today's consumers. Underlying these sectoral challenges lie a complex macroeconomic environment which underpins consumer sentiment and spending power.

UK households haven't had it better in over a decade. The perfect storm of record low interest rates deflation across non-discretionary items rising real wages all-time highs in employment and robust consumer confidence saw a sharp recovery in households spending power. It resulted in the strongest growth in consumer spending since 2007 during the credit-fuelled boom.

So after a landmark year in the consumer recovery what does 2016 hold for the UK retail industry

Download our latest report for an in-depth outlook of the UK retail industry in 2016.

Retail has gone through enormous structural change over the last few years with digital ecommerce and technology at the heart of transforming the retail landscape in the UK.

The growth and adoption of digital and mobile technologies has caused a fundamental shift in the way consumers shop and interact with retailers of all sizes and types in all locations. The power dynamic between retailers and consumers has shifted and todays consumers are more empowered than ever before.

Download our white paper for the top 10 trends that are transforming the UK retail sector.

This is an exciting but challenging time for UK retail. The growth and adoption of digital and mobile technologies has caused a fundamental shift in the way consumers shop and interact with retailers of all sizes and types, in all locations. Transparency in price, service and quality has never been more ubiquitous. The customer journey has become infinitely more complex to measure, predict and understand, while shoppers’ expectations have never been more challenging to meet.

An informed and ever-connected consumer is empowered with multiple options for browsing, purchasing and product comparisons, while delivery and collection options are widening. Browsing on mobile in-store, buying online and picking up orders from a local collection hub is commonplace. Experiences, positive or negative, are shared with friends and online communities instantly. The power dynamic between buyers and sellers has altered dramatically with today’s consumers more empowered than ever before.