What next for the online retail sector in the UK?
You would have to have been on a desert island with your head stuck in the sand not to have heard about the dismantling of some of the UK’s biggest high street names over the past few months. One by one, day by day, they have fallen; the pandemic being the final nail in the coffin for many.
But as you may expect to see when a nation is put in ‘lockdown’ for weeks – retail spending online rocketed across verticals as diverse as home improvements to gym equipment.
Food was also a big winner with many who pivoted online – or already had appealing online operations – experiencing strong sales.
Gousto – a meal delivery service – was one such brand and its leadership team recently announced publicly a huge drive to employ 1,000 people in the coming months.
This lead some to suggest that online retailers could pick up the slack of job losses from traditional retail, in what is set to be a gargantuan re-aligning of the UK economy.
But what about the numbers?
Interestingly, after months of growth, UK online retail sales fell 7% month-on-month in July, as the reopening of non-essential stores took effect, ONS figures published recently shown.
But as James Coker reported in Essential Retail, eCommerce spend remained high, with sales on this platform still 50.4% higher than in February, prior to the COVID-19 pandemic.
And online as a proportion of all retail sales was 28.9% in July, still significantly higher than February levels of 20%. This was lower than in June, however, when eCommerce represented 31.9% of all retail sales.
The month-on-month decline in online sales was observed across all categories, especially department stores (18.5%), household goods (17.3%), and textile, clothing and footwear (11.2%). In food, online sales fell by 6%.
Encouragingly, though, says the report, overall retail sales in July were 3% higher than recorded in February and grew by 3.6% compared with June, as the sector continues to recover. This is despite the recent news that the UK has officially entered into a recession, following two consecutive quarters of GDP decline.
What is it like being an online retailer at the moment?
To find out what the last five months have been like for an online retailer, Business Leader caught up with David Lawson, Managing Director of online electrical retailer AO.com.
On how the last five month have been, he comments: “Before the crisis started, AO was in good shape thanks to the efforts of the whole team over the last twelve months and we’d made real progress in delivering our strategic priorities.
“Covid-19 has only accelerated this, and we saw a shift in customer behaviour towards online shopping overnight, which in turn led to an increased demand in our retail business. That said, the last five months has not been without its challenges.
“For example, we had to re-engineer the whole of our warehouse and delivery operations to comply with social distancing guidelines and pause our installations services for a time to protect our people in front line operations and our customers too.”
Jonathan Bellwood, VP at Descartes – a solutions provider to the logistics sector with a lot of eCommerce customers, – says that the lockdown restrictions have created an irreversible shift.
He explains: “The imposed lockdown restrictions initiated an irreversible shift towards eCommerce, as high street stores shut and people had no choice but to turn to online ordering. Online retail was booming before the crisis, but the impact of coronavirus has caused many to change their shopping habits – probably for good.
“Online grocery shopping is expected to increase by 33% during 2020. The uptake may have started with coronavirus, but one reason it will continue is that people are still risk-averse and will want and need to continue social distancing to remain as safe as possible. They see going to stores as an unnecessary risk, especially when they can easily have the items they need delivered to their home.
“The experience of the high street is no longer what it once was and is certainly not what consumers are looking for anymore. Retail has become more transactional, with consumers only buying what they need, rather than spending time browsing.
“There’s also the added cost and inconvenience for consumers buying on the high street, such as travel and parking. But, with consumers becoming increasingly more cost-conscious – especially those that have been furloughed or made redundant – they will try to save money any way they can. And if they can purchase the same products online, at a lower cost and get them delivered cost effectively, when and where they want – why wouldn’t they shop online?”
On what brands or sectors have been the winners and losers during the last quarter, Bellwood comments: “We’ve witnessed Victoria’s Secret going into administration, John Lewis closing some of its stores and Cath Kidston shutting all 60 of its UK stores. These are all brands that had a great emphasis on the in-store experience.
“In the future, post-coronavirus environment, it’s not to say that there isn’t a place for some physical stores. But, it has to offer a truly unique experience, something that is bespoke and something that consumers cannot have all the time. Gymshark, for example, is one of the UK’s modern retail success stories and a consistent performer atop the Fast Track 100, and it hit the nail on the head when it opened its first pop-up store in London’s Covent Garden earlier this year.
“Consumer demands haven’t gone away, they have pivoted: it is brands like Gymshark and Lounge Underwear that have reset the standard within the online only world. To keep pace, luxury brands, for example, need to ensure that the aesthetic experience isn’t lost. When the parcel arrives, the final consumer experience is unwrapping a hand tied ribbon enclosed around a scented shiny box – something that can be filmed and shared on social media.”
Bellwood continues: “Brands with physical stores have been clinging to the argument that consumers want a great customer experience, and this is what keeps the high street alive. Of course, there is a place for these types of stores, but it’s limited to areas where there is high foot traffic, places like Covent Garden, London, for example. And during the current pandemic, even the stores that used to perform well, based on the physical store experience, have taken a massive hit.
“Consumer preference and priorities have now dramatically shifted and companies like Amazon have set the standard for the eCommerce experience.”
Impact of technology
With many arguing that the future is online or a hybrid model at least, it’s interesting to look at the role that technology will play in the consumer experience and advances in VR and AR.
Lawson comments: “As we’ve seen a continued shift to online retail recently, technology like VR and AR are becoming ever popular as it helps customers decide which appliances or electricals they want to buy for their home, meaning they can get what they want quicker and more easily.
“This technology offers a benefit to the retailer too, for example, at AO we see that one of the most common reasons for a product to be returned is due to the fact it doesn’t fit in the space, so AR helps to alleviate the number of returns we get. We’ve also recently adopted a new AI system at AO to generate insight-led data and enhance the customer experience, helping us to harness a game-changing proposition for all of our customers.
“This is one step in a range of exciting projects we have planned to look at how we can use technology to improve the customer journey. I’m confident adopting new technologies is a strategy that we will see increasingly being implemented across online retail over the next year.”
Bellwood argues further that equally important to the customer experience is a warehouse and logistics operation that is first class.
He explains: “For business warehouses, adopting a semi-automated process, which includes the collaboration with human workers, means that in times of peak demand, they can quickly employ more staff that can be trained up to accurately pick customer orders and send them out.
“Those businesses that have an optimised Warehouse Management System (WMS) can rapidly increase usage on the system and bring in employees to operate it – humans can upscale and downscale very quickly to adapt to changing demands and economic conditions. But, you can’t just bring in more staff without a WMS in place.
“Those without a WMS that are clinging on to paper pick lists, manual processes and other unscalable warehouse practices will not have benefitted from the surge in online orders so far because they weren’t in a position to cope.
“In the hyper competitive online retail ecosystem, failing to meet customer expectations with slow or inaccurate order fulfilment means losing a customer for life.”
It’s all about the customer
Mark Hook works for Brightpearl – a software company that supports retail companies – and the business has been looking at the online shopping experience for customers for years.
He says success comes from a mix of aesthetics and performance: “For an online retailer the balance between the aesthetics and performance of the eCommerce store, and the power of its operations is crucial. While most brands are aware of everything they need to do on the front-end, few seek to address the operational complexities that lie beyond the buy button, and which are vital for a good online shopping experience.
“Online brands that sell directly to customers are directly responsible for every single scenario in the buying journey, including pre- and post-purchase experiences, such as delivery and returns, inventory management and customer communications.
“Once brands have captivated customers enough to capture a sale, this is where the real ‘work’ truly begins to provide a good shopping experience.”
On how he sees the online shopping experience evolving for consumers, Hook says: “New stores created on Shopify grew 62% between March and April this year, compared to the year prior. More competition is great for consumers but it means brands must work much harder to stand out through engineering superior shopping experiences at every touchpoint in the buying journey.
“As Amazon continues to set the bar, brands will need to keep pace and for consumers the online shopping experience will evolve to be more ‘immediate’ than ever before.
“With regards to shorter-term evolution in online shopping, expect to see more blended online and in-store experiences, for example, a major uptick in brands offering zero contact ‘Click & Collect’ services, which allow guests to order their item online before collecting it safely from outside or via car delivery.”