With the latest news that non-essential retailers in England can exit lockdown and reopen from April 12 at the earliest, the retail sector has been given a sense of hope.
Retail empires such as Arcadia Group, Oasis & Warehouse Group, Edinburgh Woollen Mill Group and Debenhams have struggled over the last year. Exasperated by the Covid-19 pandemic, their respective administrations have left behind vast amounts of vacant space on high streets up and down the country. Not to mention the thousands of job losses.
Arguably, retail empires place the wellbeing of their business and assets above all other stakeholders, occasionally resulting in revolt from shareholders, landlords, employees and even customers. Empires also tend to operate according to an arbitrary set of enforced standards and penalties, and given the long term trend of shoppers switching to online retail, they also run the risk of falling behind on digital innovation – or not striking a profitable balance between their high street shops and online.
This begs the question: is the UK witnessing the fall of retail empires?
The retail industry was already embroiled in uncertainty and plagued with challenges prior to the pandemic. But in the last year alone, the sector has seen almost 177,000 jobs being scrapped, according to the Centre for Retail Research. It has since predicted that more than 200,000 positions are at risk in 2021.
It’s no secret that many retailers are staring over the precipice when they look at what is ahead of them. Despite attempts to try and soften the series of major blows they have faced in recent months, a third lockdown has again heightened a frantic desperation to stay in business.
However, with news of the vaccines being distributed across the UK, the lockdown exit roadmap for England announced on Monday and Scotland today, there may be light at the end of the tunnel.
Andrew Banks, former Matalan head of ecommerce and chief executive of growth agency Venture Forge, argued that the demise of some of major high street chains was a “triple whammy” for UK retail.
“With fewer reasons to visit the high street, there will be less footfall for the remaining retailers and with less footfall comes lower revenues,” he said.
“UK retail was already struggling with consumers shopping online in greater volumes and typically only the out-of-town destination retailers benefitting from stable footfall.
“Smart retailers are already re-thinking their expansion strategies in light of Covid-19”
“Covid-19 didn’t cause the downfall of these retailers – it simply rapidly accelerated a process that was already underway with consumers changing how and where they shop.”
Banks added that the new retail world was going to be about moving more towards quality rather than quantity, although quantity still has a role to play.
“Strategic locations and brand stores are about much more than retail sales,” he said.
“They’re about putting the brand on the right level propositional and awareness level to drive sales across all channels, so a shift towards quality over quantity is likely to happen both for pure profitability reasons and strategic reasons.
“Quantity has a role to play, to ensure the brand is seen and sold nationwide, but the approach to this is likely to be very different with a move towards a more concession and shared risk model on the property rather than independent stores per brand.
“Whilst the department stores seem to be dying out, smaller brand partnerships and shops within shops are likely to be the way forward, as they are proving to be online with the ever-growing marketplace and multi-brand models of Next, Zalando, Asos and Amazon.”
As retail empires such as Sir Philip Green’s Arcadia Group and Debenhams collapsed – party due to high property costs that come with too many stores amidst a dramatic shift to online shopping during the pandemic – the retail industry can expect a re-think of expansion strategies as businesses scurry to think of ways to avoid a similar fate.
BRC business and regulation director Tom Ironside said that without an extension to the rent moratorium, full access to the grants already announced, and business rates relief for those impacted beyond April, “the recent high profile closures may just be the beginning – costing jobs and harming communities”.
“The administration of several large retailers is further evidence of the extremely tough trading environment that the retail industry currently faces,” he told Retail Gazette.
“With rent bills mounting and in-store sales back to zero for those in lockdown, many retailers are on a knife-edge.”
During the fourth quarter of 2020, Amazon delivered its largest quarterly revenue of all time. Together with Asos buying Topshop and shifting it online to its own platform and Boohoo buying the website and brand assets of Debenhams plus the other half of Arcadia Group, this arguably cements the accelerating shift in retail towards ecommerce.
John Lewis Partnership has also laid out a new expansion strategy in light of the pandemic. The firm is shutting down some of its stores of the same name and opting for a more experience-based path, alongside diversifying into other areas such as home improvement services and converting store space into office spaces to lease out.
Just this week, speculation arose that it was looking to undergo a fresh round of store closures as the pandemic continues to adversely impact bricks-and-mortar retail as whole. John Lewis is considering eight stores for closure as the partnership pushes on with a strategy to become less reliant on its store estate. The move would come after after John Lewis shut down eight stores last summer, a move that reduced its store portfolio to 42 sites and resulted in 1300 job losses.
Meanwhile, supermarkets may need to review their online presence and supply chain in the future as consumers become more inclined to do their food shopping online.
Kerry Bateman, chief executive of retail agency VCCP Retail, said the “smart” retailers were already re-thinking their expansion strategies in light of Covid-19.
“This is the time to fill the gap the others have left behind,” he said.
“John Lewis has already announced plans to shift from stockroom to showroom, and this feels like the right direction for their brand.
“It may enable John Lewis to expand further across the country whilst using less square footage per store.
“In this way they can focus on facilitating the knowledge sharing of their expert staff and enabling customers to touch and try.
“The challenge however, will be convincing customers to buy from them versus a cheaper online competitor.”
Arguably, independent retailers have a brighter future, especially since customers leaned more towards their local stores during the pandemic – especially during each of the lockdowns that have been implemented.
In December, research commissioned by American Express – supporter of Small Business Saturday UK – found that Brits planned to spend £6.2 billion shopping with independent businesses. At least 47 per cent of those shopping with small businesses said they would do so because they wanted to support local jobs.
British Independent Retailers Association (Bira) chief executive Andrew Goodacre said independent retailers were resilient. He they have different business models to their larger competitors, namely less debt and more agility in being able to meet customer needs.
“Independent retailers tend to do better in smaller towns, tourist areas and suburbs, he told Retail Gazette.
“We hope therefore that indies will be an even stronger part of the high street and continue to meet the needs of the communities they traditionally serve.
“These businesses must also continue to evolve and improve their digital footprint.”
“It’s never been more important for the public to support small businesses”
Federation of Small Businesses (FSB) chair Mike Cherry said the closures of big retailers presented an opportunity to take a fresh look at a local area and how to revive it, especially with as the pandemic is brought under control.
“Councils should be looking at high street sites to provide local services to residents, which will also draw foot traffic in to support local small businesses,” Cherry said.
“High streets are always changing, so councils should aim to work with independent businesses who are looking to either set up bricks and mortar stores or trying to expand their premises by offering discounted rents.
“It’s never been more important for the public to support small businesses.”
Goodacre added that the impact of the store closures from the fall of retail empires would be felt most acutely in city centres and shopping centres where these retailers had large anchor sites. He also argued it would be extremely difficult to find new retailers to occupy these sites.
“Combine these closures with people working more form home, it highlights the urgent need to re-purpose the city centres,” he said.
“Because of the power of the internet, it is no longer necessary to have hundreds of expensive stores to achieve national coverage.
“Some flagship stores may exist, but they are increasingly expensive unless rent and rates are reduced. The acceleration to online shopping caused by Covid is rapid.”
Cherry agreed. He said these store closures would have a negative impact on small retailers that are already massively under pressure with the return of and impending rise in business rates in April, as well as other coronavirus expenses plus general economic uncertainty.
“Many of these big chains that have shuttered their doors for good would have acted as anchor stores for many high streets across the country,” Cherry said.
Despite all of this, the argument can still be made UK retail isn’t seeing the fall of empires just yet. One just needs to look at recent major acquisitions, such as EG Group’s takeover of Asda and Asos’ takeover of Arcadia Group’s flagship brand Topshop. Meanwhile, Frasers Group is often one of the first to the negotiating table for the potential purchase of other retailers – especially when the retailer in question is financially distressed or under administration.
With all of this in mind, it’s safe to say that the UK retail industry can still expect to see a wave of mergers, consolidations, or acquisitions in the sector over the coming months. Especially as struggling retailers look to grow back into profit after the pandemic.
There’s also a possibility that the national and global impact of the pandemic, combined with the UK’s recent departure from the EU, would see retail giants from overseas investing in the UK. Only time will tell.