BRICKS AND MORTAR RETAILING – THE FUTURE
07 March 2019
It is undoubtedly the case that retailing is changing at a rapid pace.
Once upon a time retailers signed 25 year leases with 5 yearly rent reviews and no breaks. Now leases are very flexible with hard pressed landlords lucky to get 3 years, term certain. In the USA Sears and JC Penney are having severe trading problems whilst here House of Fraser went into administration last year and Debenhams, Marks & Spencer and New Look, amongst others have been encountering difficulties.
Meanwhile Tesco have reported that they will be closing their butchery/deli counters but it is not just bricks and mortar retailing that has been affected. Online giant ASOS experienced significant trading problems during Q4 of 2018.
The BRC-KPMG Sales Monitor dubbed the overall Christmas period 2018 the worst since 2008. We may ask why?
During the 1970s and 1980 an over-supply of retail space was created and in the wake of the property crash in 2008 austerity squeezed demand for products.
During the past 10 years however, online competition accounts for £1.00 in every £5.00 of retail spending compared to £0.20 just a decade ago.
It is no accident that the world’s richest man is Amazon’s CEO and he replaced another tech giant, Bill Gates to take that position. But will online retail continue to the detriment of bricks and mortar retailing? I do not think so.
The government and particularly local government is so dependent on rates income that they cannot just allow high street retailing to die and consumer spending to be taken over by online operators who pay a fraction of the rates high street retailers pay.
When he was before the House of Commons Community Select Committee, Mike Ashley one of the UK’s largest retailers said that if the government didn’t act the high street won’t be there in 2030. He advocated for a 20% online sales tax to level the playing field.
As they normally do, the government is slowly realising that there is a potential problem and they have launched the “Future High Streets” policy where £675 million will be allocated to councils to transform high streets into modern community hubs.
But the high street is evolving in any event.
We see signs that the retail and hospitality landscape is polarising into experience and convenience retailing.
As part of this, the shopping asset class is diverging into convenience locations and the large centres such as Rushmere, Foyleside and Abbey Centre which create a destination appeal for consumers who want a big “shopping day out”. If large retailers such as Tesco are giving up on butchery/deli we would expect this to provide opportunities for small local niche traders.
In addition, the advantages gained by large fashion retailers in getting their merchandise manufactured in Asia is falling away as countries like China become more prosperous and manufacturing costs there increase. This is likely to swing the balance back to the local trader.
It is interesting that barber shop, beauty salons and tobacconists are seeing a big increase in their numbers. A total of 624 new barbers opened in the UK during 2018.
Although millennials are the drivers behind online retailing, true spending power lies with older shoppers.
By 2050 those aged over 65 will represent 25% of the total population and the number of people aged 85 will triple.
The over 65’s hold as much as 37% of total household wealth which means that retailers will have to become more elderly retail friendly.
So if technology doubles every 18 months the older age group will be left behind by those advances and they will need to resort to bricks and mortar retailing as a consequence. Other changes will see programmes such as the Blue Planet impacting on our disposable culture so we may need to wear our fashion purchases more than a few times.
In conclusion therefore, retailing changes do not necessarily follow a pre-ordained trajectory. Variables, often unforeseen enter the equation not least of these will be government intervention to meet civic requirements. In addition, there is the anthropological need for humans, especially older groups, to interconnect with others by taking shopping and leisure trips.
As an example you see post-Christmas where people suffering from “cabin fever” pack retail/leisure locations in order to get out of the house.
So while appearances at present appear to indicate the death of the high street, for many reasons the words of Mark Twain resonate “reports of my death are greatly exaggerated”.
Happy bricks and mortar shopping!