It’s a sad reality that a record number of stores are closing, with more inevitably to come. Even as stores started to re-open post lockdown 1.0, the devastation of the retail industry is still evident (grocery and a few niche categories excluded), and that has led to a significant impact on the business of retailers. However, it is important to put this in context of what was already happening in the industry and to separate out the impact of Covid-19 in both the shorter and longer term.
Covid in effect was the colossal accelerator of a process that was already happening: digital transformation. In the years leading up to the pandemic, retailers were already struggling to make stores profitable and to maintain their store footprint. We’ve seen a litany of store closures over the years as the march towards eCommerce continued. Retailers that failed to optimise their store estate and to make the shift to online were going into administration and then along came a black swan event that had two massive effects:
- Inevitability: Retailers that were already struggling to keep their heads above water drowned once lockdowns were imposed. Any plans they had to recover their business, with the little capital they had left, were overwhelmed by a massive cut in revenue, the recovery was shelved, and the business went into administration. In effect, Covid killed any chance of recovery by any but those with the deepest pockets, and forced the implosion that was already happening, barring some amazing, but not impossible, turnaround.
- eCommerce shift: Covid-19 has also massively accelerated the move towards eCommerce by at least two to three years compared to the pre-Covid trajectory. Any slow, steady move to build out and grow an eCommerce channel was made redundant when Covid hit, requiring retailers to double down to survive, and putting the eCommerce champions and pureplays at a significant advantage. Consumer habits changed irrevocably, and retailers have to deal with a new reality. That’s not to say that as things go back to ‘business as normal’ that the percentage of eCommerce as a total of retail won’t swing back a little in the short term, but consumer habits will have fundamentally changed regardless.
It’s the latter point which is critical from a store closure perspective. In the pre-Covid ‘relatively’ slow-and-steady shift to eCommerce, retailers with significant store estates were able to cautiously divest themselves of stores in a gradual manner, minimising costs and aligning that to the growth in their eCommerce channel. They were able to experiment with new store models, new ways of using their store footprint and new services to offer consumers, while maintaining a semi-constant stream of revenue from the traditional in-store business. Even for the retailers that were failing, they were doing so slowly and had some limited amount of time to change. The economic pressure and shifting consumer behaviour brought about by Covid removed all of that. Stores that are not profitable (and which didn’t have a path back to profitability) are being abruptly closed in order to minimise costs as quickly as possible.
So what does that mean for the future of the store; is it ‘death of the high street’ and the future is entirely eCommerce? Of course not. The truth is that consumers will always want to shop in the physical world, they want to touch and see the products, they want the experience of window shopping; they want to browse, be inspired – all of that is as true today as it was 10 or 20 years ago. They just want to do it on their terms. Consumers don’t want to be forced to go to the store when they know exactly what they want and are happy to wait to get it. Consequently, the role of stores in the retail ecosystem is changing, which also means the placement and volume of stores is also adjusting and will continue to evolve as this trend plays out. We’re essentially experiencing a levelling of the channels as this ‘new’ eCommerce channel continues to take hold and the overall retail ecosystem evolves to accommodate it into the whole. Put simply, if store revenue used to be 100% of revenue and is now only 80% because eCommerce has taken 20%, then of course you need less stores unless the overall revenue has grown by more than the 20%, which in most cases it hasn’t.
Whether retailers’ revenues in the future will be 50/50 physical/digital or 80/20 (either way) remains to be seen, but a large part of that will be determined by retail’s ability to re-imagine the role of the store and tempt customers over the threshold. This means stores will need to be much more integrated into the overall customer experience and part of a seamless journey to build a relationship. There are many ways in which this will manifest, from the experiential, with more agile flagship stores offering greater services alongside products and constantly evolving, to the practical, things like clear visibility across the entire inventory and end-to-end customer relationship.
Whilst store closures are an unfortunate display of Covid’s harsh impact on the retail industry, it’s also a wake-up-call to retailers that they need to reimagine their business models to more seamlessly adapt to the consumer of both today and tomorrow. The store of the future, and indeed, the success of eCommerce channels themselves, will all come down to experience. However, this is less about complicated flashy experiences that draw a crowd who ultimately won’t stay and more about a simple, basic focus on customer value, and optimisation and connection of channels to take advantage of the retail assets that already exist. Retailers will need to maximise the value of their overall estate and offer value to customers whilst in turn, maximising their profit.
Unfortunately, I doubt we have seen the last store closures of some of our high-street favourites – only last week, US retailer GAP announced that it is considering closing all of its UK stores, but retailers still standing eight to nine months into the pandemic have the opportunity to reinvent themselves, address friction points and concentrate on customer experience and value to be in with a chance of not only survival, but prosperity in the future.