How has COVID-19 affected the retail sector?

Coronavirus has dominated headlines across the world for months now, and the impact it has had on businesses in a variety of sectors has been devastating.

With the High Street on its knees, retailers of all sizes and industries falling into administration, and the wider impact on the ever-growing e-commerce sector – the state of the retail industry in Britain has been widely discussed

With the ongoing debate around rents, mass unemployment and very uncertain future for many businesses, the future looks bleak.

Business Leader spoke to some of the country’s leading businesses within the retail space to find out what has happened, and what the future holds.

Robert Lockyer at Delta Global (RL)

Nick Turk, Director in the Retail Agency, Out-of-Town, team at commercial property specialist Colliers International (NT)

Sarah Johnson, co-founder of The Akin – a firm specialising in assisting lifestyle brands in combining progressive consumer insights with trends to create future-focused strategies (SJ)

What impact has the Covid-19 crisis had on the high street?

RL: “Covid-19 has decimated the high street, but it has made the smart retailers think a lot more creatively and consider how to come out of it the other side.

“Brands have come to look at how to reengage with the customer during social distancing, as it may stay in play for some time. Good businesses were good before the crisis and they will be good after it.”

NT: “Research by Colliers International has indicated that the COVID-19 crisis is set to be a ‘watershed’ moment for UK retail property.

“We conducted a wide-ranging survey of landlords controlling more than 120m sq ft of space. The key findings showed 79% believed the pandemic will bring permanent changes to how retail property is leased and the terms on which it is occupied, and over 40% are now likely to consider including trading and footfall performance in the process of determining an asking rent.

“Colliers expects this trend to grow over time, but in order for it to do so two major hurdles need to be overcome, namely data and transparency. Two thirds of the owners we surveyed do not currently have access to the right datasets to measure who is visiting their assets, such as where they travelled from and the nature of their engagement. Furthermore, with the right data in place close to 40% would still not be prepared to share these insights with occupiers in return for sales data.

“The collapse of shops like Oasis and Warehouse show how tough the fashion sector was finding the market before CV19 and the variety of mid-market clothing brands will probably reduce as will the number of restaurants as discretionary spending reduces. This will lead to an acceleration in the reduction of the quantity of shops with only the more robust, attractive and entrepreneurial surviving.”

What impact has it had on online retail?

RL: “The exact reverse to that of physical retail. From what we are seeing, the uplift in online centric clients is that they are seeing robust trading, equally having to think creatively and fully angled from a customer experience perspective. It seems crucial that they remain consistent with their messaging at this time especially throughout their marketing outputs, it all must relate and connect with the consumer on another level.

“For instance, luxury gym wear brand Sweaty Betty has been working alongside fitness enthusiasts and influencers to bring consumers a daily IGTV video of an at-home workout and nutrition advice. They are keeping thousands motivated with free exercise routines and a daily challenge to keep people connected with them.

“During this time, while most of us remain at home, there is still a desire to ‘treat’ ourselves. With less money and pleasure being spent on external things such as eating out, people need to be uplifted with a purchase for themselves. More of us are looking for the feel-good moment of receiving something nice in the post, the experience of unwrapping a special gift for ourselves – and the online luxury sector brings that.

“You shouldn’t feel guilty if you pick yourself up with a purchase, everything is connected, and it creates a circular economy.”

NT: “Inevitably online retail has done very well out of the lockdown, with exponential numbers using the internet to shop for food and to order from sites such as Amazon.

“The biggest problem for online retail is that it has been a victim of its own success, in particular with supermarket online order and delivery services which have been unable to cope with the scale of consumer demand.

“For many people, online shopping during lockdown has been forced upon them, but the experience has not always been good with no delivery slots and goods not arriving. As shopping offline becomes possible again for non-essential items it is doubtful that people will continue to purchase items online at the same high level despite having become more accustomed to shopping online during the lockdown.

“Perhaps the real winners of the online CV19 boom have been small food producers with organic food and sustainability still core values that CV19 has not changed. Indeed local farmers and food producers who have a link to a community, have been able to provide the best quality meat and veg and those habits should survive and thrive in the new retail landscape.”

How do you feel this crisis will affect the retail sector in the long term?

RL: “Ultimately for the better, it’ll drive home some key principles for good retailing. For me, this is a people-first approach; across product quality and design innovation, value for money and the importance of both an online and offline experience.

“Throughout the crisis I’ve witnessed many stores forget the importance of the customer and the personal experience. As retail has fought to maximise their selling space due to the decline of physical stores and pressures on supply chains and deliveries, many retailers have lacked in customer service.

“Retail has forgotten the face to face interaction and humanised element of shopping. Digitalisation doesn’t mean we should remove human contact, in fact we should embrace it. If social distancing has taught us anything it is that conversation is key to strengthening the relationship between brand and customer, to help ensure they come back when you need them most.

“Online need to adapt to this human functionality even in-store, take Tommy Hilfiger’s Regent St store, a virtual mirror reads what you’ve taken in and upsells by making style suggestions of what clothing or accessories should be paired with it. I’ve seen brands ‘gift’ free personal stylists directly to a customer’s mobile phone in order to curate a collection of outfits to suit their style and shape. The more personalised the shopping experience, the more valued the customer feels.”

NT: “We predict that there will be a sea change in the way in which retailers pay their rents, with a move to turnover rents where the landlord takes a percentage of the turnover from each shop. This will require transparency and trust on all sides as it reflects individual store performance as well as how a particular location performs and is marketed. The strength of a retail property will no longer be determined by the length of the lease but by the location and other occupiers nearby.

“At Colliers we act for retailers who consider turnover rents as the only basis upon which they will take a new shop and landlords who want these tenants are having to agree this way of doing business. Indeed the Factory Outlet model works like this and hence it is not a completely new way of doing business. In addition we may also see a move towards a more European model where shorter leases will allow retailers flexibility to move and an incentive for landlords to keep a location attractive and welcoming to shoppers.

“Shops must also demonstrate how safe they are. Whilst government seems unwilling to provide strict advice, it is comforting to see supermarkets cleaning trolleys between shoppers (no baskets as trolleys automatically help keep people apart!), having hand sanitisers available and screens in front of cashiers. I was talking to a barber who had already ordered in masks and gloves in anticipation of opening – many people will be afraid to risk shopping etc unless they can see that the risks are minimised. I do worry about small convenience stores where space is tight and social distancing often impossible.

“Those stores which have not bothered with an online retail presence will need to remedy this in order to respond to demand from consumers who have become used to going online to make purchases during the lockdown. A hugely successful business such as Primark may even have to consider some online presence but this is probably one of the few fashion based shops that will thrive going forward – as long as people feel safe shopping there. Their decision to honour payments to suppliers in the Far East will resonate with their core customers.

“The COVID-19 crisis will also accelerate a trend that was already emerging, where sub-prime retail properties were lying empty, or were being changed to other uses such as residential and offices. What was a gradual change could happen very quickly – and will be more painful but only last a short time. There is, unfortunately, too much retail space in this country, and much of it is was already considered not fit for purpose because of issues such as limited space or being in a poor location.

“Another process which we feel will be accelerated will be the demise of department stores. The news yesterday that Hammerson are not agreeing new terms with Debenhams on five stores in their malls show that landlords are prepared to be hard-headed about those retailers who positively contribute to footfall and the fun factor which shopping needs – and those who don’t…

“Drive-through collection of food and click-and-collect of online retail purchases could also become increasingly popular. This is something that people would feel safe doing because of the limited human interaction, and its popularity became very clear from the lengthy traffic jams that formed when a drive-through Kentucky Fried Chicken re-opened recently near Glasgow.

“The latest national footfall figures show that retail parks were the most popular sector of retail with a 20% better footfall than on High Streets or in Shopping Centres. The convenience and ease of parking have been their traditional strengths but in a CV-19 world the spacious layouts and number of open shops in retail parks mean there is more shopping to do which feels safe. In the short to medium term this combination will prove popular with shoppers and added to the trends from the last few years of more High Street occupiers (the latest being Superdrug) expanding out of town, I see this sector being the most robust.

SJ: “The retail sector will need to rethink its strategies. How people spend their money, how retailers make us shop, rethinking online retail, including technology that serves a real purpose: all the points (more details on each below) need to be kept in mind as they will have a continuous effect on how people will shop and interact with retailers.

“Going back to how things were pre-Covid-19 is not an option. We are entering a new world and retailers should look at it with positivity and see the opportunities it brings. It will allow them to do a hard reboot, rather than a soft restart.”

What government help is needed in order for the sector to survive this crisis?

RL: “I feel it’s about government collaboration. We can’t look to them to bail everyone out, we have to look within to ensure we are doing the best job possible as a business. Have we looked at every option to help ourselves? It’s about modelling and planning and looking at different scenarios, preparation and analysing situations.

“Look at Next for example, to ensure they could fulfil orders and comply with rigorous social distancing measures to ensure the health and safety of staff, they decided to sell in lower volumes, ensuring that they only did 90 minutes of daily trading to ensure only a small number of warehouse staff were required at any one time.

“Of course, this works hand in hand with the government’s ability to be flexible on taxation and business. Business rates have been cited as one of the biggest killers of the high street, to reduce these or even pause these in some instances would help soften to fall.”

NT: “Support has already been provided to tenants through the rating relief, and this may need to be extended further to support them as lockdown is eased but social distancing protocols mean retailers continue to be impacted as a result of reduced footfall. Bars and restaurants are particularly vulnerable as they rely being busy to generate profit – but being busy and social distancing do not work and as a result many bars will not be able to make a profit despite being allowed to open.

“Many landlords are finding business tough because some tenants regard the owners of the properties they are in as somehow akin to banks and believe that it is acceptable not to pay rent owed. The reality is that those with an interest in receiving rent from a property are often funds managing our pensions, a business with interest to pay or people’s only income and support from government is vital for those affected. A sharing of the burden between government, retailers and landlords is being tried in Ireland and we hope similar plans can be used here.

“Finally some definitive advice to all retailers about what the government and their advisors expect to see in a shop to make shoppers feel safe. Other practical measures apart from those already mentioned such as self-scanning at the point of sale, masks being the norm, one way systems in smaller shops and contactless click and collect will need to be enforced by government as a way of encouraging people back to our shops.”

Should people be spending if they can?

SJ: “When confronted with a situation such as COVID-19, riddled with uncertainty and fear, it is hard to decide when to spend money and on what.

“If you then add the headlines reporting potential “mother of all recessions” to the mix, the natural reaction in regard to spending is to immediately stop – putting all non-essential purchases on hold and only focussing on those that are really needed to get by.

“However, knowing that our economy is currently undergoing an unprecedented crisis, shouldn’t we be spending money if we can in order to help?

“The answer to this is yes, we must at present choose local over global companies, retailers and brands, and differentiate smartly between functional and pleasure purchases.

“One US mass-media company helping this process is Gannett who launched a new website, Support Local, that allows users to help save their local businesses by purchasing gift cards for them to use at a later time.”

When will people want to spend again? 

SJ: “People are still spending money, just the way they are spending their money has changed and might continue to in the future.

“Many are looking to China for answers. On one hand a Hermès’ flagship store pulled in $2.6 million in one day after lockdown ended. On the other, a recent report by Highsnobiety highlighted that their audience, which is normally heavily influenced by the latest fashion drops and hype items, is turning its back on hype fashion, with 35% stating that they are now more interested in furnishing their apartment than buying new pieces of clothing for themselves.

“We can see a definite movement towards an aversion of the unnecessary and an appreciation of the necessary. The time when individuals will start spending money is personal and coexists with the personal experiences made during this pandemic and their lookout on the future. We hope that more people will question rather than splurge, challenge capitalism and give it a much needed shake-up.”

Is this the best moment for retailers to stop pushing products at us? Should they take an active stance at making us think more about our purchases so we can make better decisions together?

SJ: “Yes, retailers should use this time to pause and do a review of their offer, their no. of SKUs, their purpose and make an active decision on their future plan for their companies. They need to catch up with consumers that have had time and in some categories been forced to re-think their purchasing behaviours.

“So the challenge for retailers, now more than ever, is that consumers evolve very very quickly, organisations less so, so companies need to figure out how they get to the forefront.”

How can online retail be used to finally excite shoppers and move away from filling moments of boredom?

SJ: “The infinite scroll is real, and the boredom it creates is universal. Retailers should make us look forward to exploring their site and purchasing their products.

“We at The Akin have encouraged businesses to explore positive friction in shopping journeys – creating moments where shoppers are diverted from a quick ’select-add to basket-checkout’ process, to a more experiential process; pushing them to explore other avenues and products they might have not thought about before purchasing. Our online shopping experiences have become too easy and unmemorable, reducing the moments to connect with retailers.

“A great example of this is Net-A-Porter. Earlier this year, the e-commerce platform collaborated with Nintendo to create a new version of Animal Crossing, in which avatars are wearing designer pieces which are shoppable online. The aim of the game is to get you to play, try on different looks and think before you buy. This interaction and experience is so simple, yet powerful. It creates the needed moment of fun and reflection, which has been removed out of so many shopping journeys. The retailer has time to connect with the customer and the customer has time to make a deliberate purchase they will look forward to arriving at their front door. Even if they don’t end up purchasing anything, they will remember the experience, but they won’t remember page 10 of 100 of your “just in” collection.”

How can retailers include technology that serves a real purpose to consumers?

SJ: “Retailers, for too long, have adopted new technologies or ‘trends’ just for the sake of it. Often branded as ‘innovation’, it is more often executed clumsily, appearing gimmicky and with no real benefit to the customer.

“Due to Covid-19 we are in a radically new retail space, where the shops of the future will need to be redesigned. It has forced retailers and brands to rethink their online presence. An interesting innovation coming to the forefront is haptics, making an online experience more immersive, and more emotional. A great example is Fulu, a sensory projection interface, which allows the user to feel the slightest subtleties of certain organic materials, from the texture of sand to hair.”