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Why disappearing shops aren't necessarily a sign of retail decline

25th Nov 2014
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The latest look at Britain’s town centres by PwC and Local Data Company last month confirms 964 more shops closed than opened since the beginning of the year, two-and-a-half times more than in the whole of 2013.

This is a trend we’ve seen coming. On average, 20 shops a day closed in 2012, up from 14 a day in 2011. One in five shops will probably close by 2018, with clothes and shoe shops disappearing the fastest.

Although some of these closures will cause pain to small vendors worn down by rates, rent and staff costs, shop closures don’t spell negativity for retailers, rather a shift of where they’re putting their money.

Success used to be measured by the number of square feet a retailer owned, particularly during the 80s when chains looked for a presence in every suburban shopping centre. American retailers used to strive for 5,000 stores as proof they were making it, now it’s more like 500. 

What many retailers are now focused on is a flagship store in major cities to showcase their top products, with the rest of their stock available online and sitting in-out of-town warehouses ready to be shipped to customers within 24 hours.

Online retailer Amazon is rumoured to be opening a store in Manhattan, which has been described as ‘reverse disruption’ – a virtual company creating a physical store. But it’s actually part and parcel of this same trend of presenting the consumer with the whole package – a store that links across digital channels, offering the flexibility of omni-channel convenience. Argos’ well-publicised re-launch last month is another prime example.

This is not to say that people don’t want to go shopping anymore. They do. It’s still the most popular way to buy and the value of physically seeing and touching a product can never be underestimated. But what people now want is to be able to mix and match their options and, overwhelmingly, to use their smartphone for research beforehand and in-store to decide what to buy, and to find shop staff with tablets updating options in real time.

John Lewis is predicting a ‘click and collect’ Christmas this year, expecting more than half of sales to be picked up rather than delivered to homes. But they also admit to not being 100% sure what customers will do, given the shopping choices available. 45 million hours will be spent shopping online this Christmas, and what is certain is that the retailers that get it right will be those that offer the right combination of digital to drive in-store sales. 

Mobile is the biggest retail revolution since the credit card. At 32%, the UK has the highest percentage of people in Europe who make a monthly purchase on their smartphone.  Only about half of customers who use their mobile in store say they have a good experience, though, and very few retailers are responding well to creating the enhanced in-store experience customers want. A creaking IT system holds some retailers back, but mainly it’s a lack of awareness.

The importance of establishing yourself on the high street has been overtaken by the need for efficient fulfilment. Retail technology is now all about engaging across every channel and having the synchronised stock visibility to deliver what you promise.

In a recent survey, half of retailers said problems with inventory and order integration across channels was among the main reasons holding them back. Many missed the importance of the relationship altogether.

Customers should be getting what they want and retailers are relieved of the burden of crippling real estate. What this means is that the high street now has to rethink its purpose. The boom in coffee shops and American restaurants was also flagged in the PwC report, and suggests retail is becoming more about socialising than shopping. Pottering around the farmers' market on a Saturday morning and grabbing a coffee is as much a communal hobby as it is demand for organic food.

One possible downside is that as small independents disappear to trade online, and high streets are left with homogenous flagship stores that become indistinguishable right across Europe. Cities and local councils have to re-think what the purpose of their main centres is. The digitalisation of shopping will free up space in the city centres and that creates the challenge in imagining what to do with it. Even in a booming economy, this won’t mean retailers always have an appetite to create more stores on the high street. City councils are faced with the challenging task to fill the space left behind by the retailers with a meaningful purpose besides retail.

So shop closures definitely don’t signal a decline for retailers; rather they signal a shift in the economic realities of running retail operations. High Street square footage is expensive. A way to avoid high overheads is to augment high street stores with an ‘endless aisle’ that stretches via the Internet to a warehouse in the cheaper parts of the country or town. In this way retailers are still able to offer a diverse product portfolio at a fraction of the usual costs. It’s could potentially be the best of win-win situations - reduced costs for the retailer while increased service and experience for the customers.

Stefan Schmidt is VP of Product Strategy at hybris, a provider of enterprise software and on-demand solutions for ecommerce.

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By Lloyd Buxton
26th Nov 2014 18:22

As you say Stefan, retail is evolving into a true multichannel discipline, with stores just part of it. An interesting report from the University of Southampton points out that consumers are driven by a desire for convenience, rather than particular channels, showing the need for physical shops, close to where consumers live and work. More on the study in this Eptica blog post https://eptica.wordpress.com/2014/08/01/why-convenience-is-key-to-offline-retail-success/

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