Does bricks and mortar still matter? – BLM investigates

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With the recent spate of high street closures, BLM investigates if bricks and mortar still matter.

The past few months has seen an incredible number of high street brands closing its doors such as electronics chain Maplin and toy chain Toys ‘R’ Us; and just yesterday it was revealed that Poundworld would be going into administration

The death of the high street has been highly speculated, and while nothing as of yet has materialised, there’s no doubt that online is growing and footfall is in decline, but are we being too quick to lament the death of physical stores?

BLM’s Darren Wood investigates the ongoing power struggle between e-commerce and physical stores, asking the question – does bricks and mortar still matter?

E-commerce has reached an unprecedented level, that there is no doubt. Statistics portal Statista has revealed a new report which states that in 2017 retail e-commerce sales worldwide amounted to $2.3tn (around £1.7tn) with e-retail revenues projected to grow to $4.88tn (£3.66tn) in 2021.

The findings from the Statista report can only be reaffirmed by the latest stats from the British Retail Consortium which states that overall visitor numbers to UK stores fell by 1.6% in January 2017.

It’s a worrying time for high street stores, and as footfall continues its decline, the temptation from high street brands could be one of a knee jerk reaction to shut-up-shop and move towards an online platform.

“Retail margins are being squeezed, particularly in physical stores,” explains Jonathon Ringer, head of retail practice in EMEA at Bain & Company. “Retailers are continuing to face cost pressure driven by rising labour costs, increasing store costs and growing product costs but some are struggling to drive revenue growth through their stores to compensate for it. As margins for these retailers are squeezed, some have to close their doors.”

Taking a store from the high street to online is not the answer

Online is here to stay, but it may not be the answer to anything. In fact, many retailers have sought a physical presence in stores to really bring their brand to life after launching and thriving online.

The launch by online womenswear brand Finery of a concession in John Lewis is a typical example.

Glen Tooke, consumer insight director at Kantar Worldpanel, comments: “The fashion market’s e-commerce offering is now well and truly established.  Over 26% of total spend in the fashion market is clocked in over the internet and, with this channel growing 7.1% year-on-year, the trend shows no signs of slowing down. 

“That said, bricks and mortar stores still hold their appeal for customers.  Shoppers enjoy the experience of trying on different styles of clothing to make sure that their outfit is just right and the social aspect of a day out with friends.  Though online shopping is undoubtedly more convenient, consumers are unable to try on their new clothes instantly to check that it’s the perfect fit. 

“However, high street stores are facing rising shopper expectations – whether that’s interactive iPads to allow them to browse the entire range of clothing available in a store, or the addition of a coffee shop to give them the chance to sit back and relax, customers expect shops to fully engage them.   

“Bricks and mortar stores can remain relevant, but they need to focus on getting the basics right.  Ultimately, if shops fall down on the little things – like not carrying certain sizes of clothes or a full range of accessories – high street stores will pay the price.”  

The example of Finery underlines the fact that both online and in store have a part to play in retailers’ success, it’s just a case of one being different enough from the other as to compliment rather than compete.

Another example of this is Oak Furniture Land, a company which started life as an eBay retailer in 2003, however, within just a few years it had become the auction site’s biggest retailer and was setting up its own website.

Soon that was not enough, and it has since started opening stores across the UK to keep up with demand.

Oak Furniture Land now does 65% of its trade in-store – and that has boosted its turnover considerably.

In the world of retail, price remains king; more than two-thirds of us will shop online to get the best price.

Striking a balance between having a nice store to visit and keeping your costs low is crucial.

E-commerce retailers are starting to realise this and have started out a new venture –– showroom store or guide shop.

Amazon have recently opened up physical bookstores, pop-ups and grocery stores to compliment sections of their business in which customers can make in-store purchase of books and gadgets.

Bad leadership

It seems too easy for high street brands to just blame online for closures on the high street. Accountability, should at times, be held by those in charge of the firms. Inefficiency by high street brands has in fact led to many closing its doors.

Maplin announced on 28 February 2018 that it was going into administration.

The company, which, had more than 200 stores across the UK and 2,500 staff, reportedly held an outstanding £100m in loans from Rutland Partners.

Loans and high-yield bonds are not uncommon in major brands all across the UK high street, there are, at least, seven heavily indebted big-name chains currently in operation.

These include brands such as fashion outlet New Look, department store House of Fraser, frozen food store Iceland, health chain Holland and Barrett, plus casual dining restaurants; Prezzo, Wagamama and PizzaExpress.

Together, these businesses are loaded with more than £4bn of high-yield bonds and leveraged loans.

New Look, in particular, wants its landlords to slash over 600 of its store rents by up 60% as part of a rescue plan to tackle its £1.2bn debt.

The fashion chain is seeking a company voluntary arrangement (CVA), a legal agreement which would enable it to jettison loss-making stores and agree rent reductions with landlords.

“The company has previously indicated that a potential CVA is being considered as part of a range of options to improve the operational performance of the business,” said a New Look spokeswoman. “No final decision has been made regarding a CVA, which would require consent from our creditors.”

For another example of a poorly run business, one needs to only look at the recent sale of Homebase for just £1 by Wesfarmers, owners of Australian DIY chain, Bunnings.

The group, which bought Homebase for £340m two years ago, saw losses and other costs bringing its total bill to about £1bn.

Its decline was said to be based on the group’s failure to understand the UK’s competitive DIY market.

Richard Lim, of consultancy Retail Economics, said the Wesfarmers takeover had been an “unbelievable disaster” due to “woeful management decisions, clumsy execution and a misguided perception of the UK market”.

The future

With the future of retail still firmly in the balance, high street retailers have relied heavily on discounting to drive footfall – and indeed this will work to a degree – but a more structured game plan is vital if shops want to hold onto their high street presence in the future.

When asked about where he sees the trend of retail heading, Ringer added: “The rate of change is not going to slow down. We expect to see continued innovation and turbulence.  We expect to see online channels continue to grow ahead of the market in most categories and for further disruptive technology to emerge (e.g. voice, data-fuelled decision making, automation). Retailers need to evolve quickly to stay ahead of these changes and remain relevant for their customers.

“We do see a continued role for stores and winning retailers will try to combine the best of digital and physical in service of their customers.”

It seems that retailers will need to hold their nerve as they aim to resist the urge to completely abandon retail in favour of online.

However, as in most cases for everything – it seems balance is key.

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