2021 was undoubtedly an unpredictable and turbulent year for the UK retail industry.
Not only did it present some of the toughest trading conditions in modern history, leading to supply chain disruptions and job losses, but the breakneck speed of change exacerbated the void between those performing well and those struggling.
Some of the more prominent trends to arise during the year include the lorry driver shortages, a further shift to online shopping and the restructuring of retail.
Throughout the year, retailers have witnessed a continued shift to online, with many stores closing down permanently.
Frasers Group most recently announced it would shutter its House of Fraser flagship store on London’s Oxford Street, after being given notice by its landlord.
Department stores are an example of some retailers that have been slow to adapt to online since the pandemic accelerated a shift to ecommerce.
Oliver Vernon-Harcourt, head of retail at Deloitte, said online retail sales now account for 27% of all retail sales, representing a likely new baseline for online retail sales.
“Retail’s performance in 2021 reflects changing spending patterns with fewer consumers shopping on the high streets and more going online,” he told Retail Gazette.
“The majority of sales that have shifted online have been retained, even as stores reopened,” he added. “This is especially so in grocery and clothing categories. Having increased investment in online capacity and capabilities, retailers have made their online channels work better and, in some cases, more profitable.”
Meanwhile, the reinvention of the high street has been prominent during the past 12 months, with physical stores witnessing a decline in footfall due to Covid-19.
London Designer Outlet general manager, Daniel Tomkinson told Retail Gazette that while the situation looks grim right now, the signs are there that bricks-and-mortar retail will bounce back.
“We are seeing retailers rediscover the value of physical spaces, whether they are opening new stores like Gymshark on Regent Street or investing in existing ones, as we’ve seen with the likes of Adidas in London Designer Outlet,” he said.
“Our guests have demonstrated that physical shopping is irreplaceable by returning in droves following lockdowns in 2021, with average transactional values frequently higher than pre-pandemic levels, as they rediscover the joy of exploring items in-store and finding hidden gems.
Tomkinson also noted the significant increase in collaboration between tenants, asset managers and landlords to create “better outcomes for shoppers”.
“Digital services, such as rewards clubs like our new Wembley Park neighbourhood-wide scheme, are being embraced by retail destinations to increase footfall and linked visits between stores,” he continued. “More destinations are taking up turnover-based rents, something London Designer Outlet has long championed. More than ever, there is a sense that we’re in it together.”
Vernon-Harcourt argued that while online is unlikely to fully replace the customer experience of visiting a store, cross-channel shopping is likely to grow in importance; reflecting a wider debate as to how much physical space retailers will need in future.
“Retailers are already considering the experience their physical stores can provide and how it may need to evolve,” he said.
“Online may offer a better experience in some aspects of shopping; namely convenience and the ability to compare or to read product reviews.
“The retail sector’s performance in 2021 reflects changing spending patterns”
“However, physical stores offer other benefits that can be difficult to replicate online, such as being able to see product sizes or colours, and receiving in-person advice from sales assistants.”
Vernon-Harcourt added that retailers have redefined resilience during the year by battling the supply chain shortages.
“Capacity issues in the logistics sector have played a major role in supply chain shortages,” he said. “This has exposed some structural flaws and the need for retail businesses to rethink their ‘just in time’ business models to ‘just in case’.
“However, a shortage of supplies and reduced need for discounting has seen an unintended boost to the overall proportion of full-price sales.”
The unexpectedly high levels of demand then caused major supply chain disruptions. During the pandemic, as lockdowns forced closures and reduced social activity, government financial support enabled many businesses to continue trading and avoid economic ruin.
“Shortages in the labour market and in supply chains resulted in higher inflation,” Vernon-Harcourt said. “Early on in the pandemic, many people dropped out of the workforce and participation has yet to return to pre-pandemic levels.
“Consequently, many businesses have struggled to find workers, turning to higher wages and other incentives to attract new staff.
“With high demand, disruption of supply chains, and a shortage of workers, inflation has emerged as a problem for the first time since the 1970s.
“The question now is whether this will be a transitory or sustained issue for the retail sector. As supply chains gradually recover, and people return to the workforce, inflation should ease.”
Tomkinson expects the skills shortage in retail to be a longer-term challenge, despite the recent supply chain issues that have dominated the news.
“This crisis is resulting in high costs for brands as they look to recovery, and has high cost implications for workers who may not have adequate access to the training they need and are, therefore, unable to find appropriate work,” he said.
“Investment in skills and training offers the opportunities we need to build back better.
“Given the pandemic has reinforced how important our frontline workers are, maintaining essential services and keeping shoppers safe in-store, it should be clearer than ever that retail work is skilled work – and needs the resources from government to improve and develop training opportunities to create our future retail leaders.”
Martyn Cole, commercial operations director at retail management platform Retail Directions, said the effects of Covid-19 have split retailers into two categories – those that survived and thrived, and those that didn’t.
He argued that plenty of retailers have blamed the effects of Covid on them going out of business, but Covid only really uncovered the cracks that were already there, speeding up the process for those that didn’t move online and implement an omnichannel, connected retail strategy.
Cole predicts more uncertainty to occur in 2022.
“Inflation has emerged as a problem for the first time since the 1970s”
“The delivery experience and supply chain issues we’ve seen recently are likely going to get worse before they get better,” he said.
“At the same time, costs are also going to rise with increases in inflation, and all the debt that retailers may have run up has got to be paid back somehow. But arguably the biggest issue retailers will face in 2022 is their own staff. Retailers need to focus on their employees and hiring strategy just as much as they focus on their customers.
“The retail industry is typically seen as one which people fall into if they can’t get a job elsewhere, he continued. “Retailers have the opportunity to change the perception of the retail industry to be a desirable career choice.
“By making the retail industry a more attractive place to work, the customer experience will become a source of differentiation for retailers. So retailers will either need to invest more, or run a lot leaner through efficiencies than they are right now, while focusing on creating a more positive culture for their employees.
“If the issue of staff shortages can’t be solved, retailers will have to look into increasing their tech stack to streamline their processes. For example, investing in more self-checkout services or increasing the connected retail experience would allow consumers to order, collect, and receive their goods anywhere or at any time they choose.
“Fulfilment will also become an even bigger priority in 2022, especially if supply chain issues continue to disrupt. Retailers will have to find the right balance between streamlining current resources and making sure they have the right people able to deal with day-to-day tasks.”
With the current surge of the Omicron variant threatening to place the retail sector on hold once again, retailers are undoubtedly scurrying to implement the appropriate measures to keep visitors and workers safe.
Meanwhile, consumer confidence seems to be increasing, despite the surging levels of inflation. This could be down to the continued accumulation of savings and wage growth in 2021.
However, with newly introduced restrictions due to the Omicron variant, it remains uncertain as to how this will affect consumer confidence.