It’s a sad reality that a record variety of stores are closing, with more undoubtedly to come. Even as shops began to re-open post lockdown 1.0, the destruction of the retail industry is still apparent (grocery and a few niche classifications excluded), and that has caused a considerable effect on the organization of retailers. However, it is essential to put this in context of what was currently taking place in the industry and to separate out the impact of Covid-19 in both the much shorter and longer-term.
Covid in impact was the enormous accelerator of a procedure that was currently taking place: digital change. In the years leading up to the pandemic, retailers were already having a hard time to make stores successful and to preserve their store footprint. We have seen a list of shop closures over the years as the march towards eCommerce continued. Sellers that stopped working to optimize their store estate and to make the shift to online was going into administration and then along came a black swan event that had two massive impacts:
- Inevitability: Retailers that were already struggling to keep their heads above water drowned as soon as lockdowns were imposed. Any plans they had to recuperate their business, with the little capital they had left, were overwhelmed by a massive cut in earnings, the healing was shelved, and the organization went into administration. In impact, Covid killed any opportunity of healing by any however those with the inmost pockets and required the implosion that was already occurring, barring some fantastic, however not impossible, turn-around.
- eCommerce shift: Covid-19 has likewise enormously sped up the relocation towards eCommerce by a minimum of 2 to 3 years compared to the pre-Covid trajectory. Any slow, consistent relocate to build out and grow an eCommerce channel was made redundant when Covid hit, requiring merchants to double down to make it through, and putting the eCommerce champions and pure-plays at a significant advantage. Customer practices altered irrevocably, and merchants have to deal with a new reality. That’s not to say that as things return to ‘organization as normal’ that the percentage of eCommerce as a total of retail will not swing back a little in the short-term, but customer practices will have fundamentally changed regardless.
It’s the latter point that is critical from a store closure point of view. In the pre-Covid ‘relatively’ slow-and-steady shift to eCommerce, sellers with considerable shop estates had the ability to very carefully divest themselves of stores in a gradual manner, minimizing expenses and aligning that to the development in their eCommerce channel. They were able to experiment with brand-new store designs, new ways of utilizing their shop footprint, and new services to offer customers while maintaining a semi-constant stream of profits from the traditional in-store business. Even for the sellers that were stopping working, they were doing so gradually and had some limited amount of time to alter. The economic pressure and moving consumer behavior brought about by Covid removed all of that. Stores that are not profitable (and which didn’t have a path back to success) are being quickly closed in order to reduce expenses as quickly as possible.
So what does that mean for the future of the store; is it ‘death of the high street’ and the future is completely eCommerce? Of course not. The fact is that consumers will always want to shop in the real world, they desire to touch and see the products, they want the experience of window shopping; they wish to search, be influenced –– all of that is as real today as it was 10 or twenty years ago. They simply wish to do it on their terms. Customers do not wish to be forced to go to the shop when they understand exactly what they desire and enjoy to wait to get it. Subsequently, the function of stores in the retail community is changing, which also means the positioning and volume of shops are likewise changing and will continue to evolve as this trend plays out. We’re essentially experiencing a leveling of the channels as this ‘brand-new’ eCommerce channel continues to take hold and the total retail environment progresses to accommodate it into the whole. In other words, if shop revenue used to be 100% of earnings and is now only 80% because eCommerce has taken 20%, then, of course, you require fewer shops unless the general revenue has grown by more than the 20%, which most of the times it hasn’t.
Whether sellers’ profits in the future will be 50/50 physical/digital or 80/20 (either method) remains to be seen, however, a big part of that will be figured out by retail’s capability to re-imagine the role of the store and lure clients over the limit. This suggests shops will need to be far more integrated into the overall consumer experience and part of a seamless journey to build a relationship. There are lots of methods which this will manifest, from the experiential, with more agile flagship stores using higher services together with items and constantly evolving, to the practical, things like clear presence across the whole inventory and end-to-end customer relationship.
Whilst store closures are an unfortunate screen of Covid’s severe influence on the retail industry, it’s likewise a wake-up-call to sellers that they require to reimagine their company designs to more perfectly adapt to the customer of both today and tomorrow. The shop of the future, and undoubtedly, the success of eCommerce channels themselves, will all come down to experience. Nevertheless, this is less about complex fancy experiences that draw a crowd who ultimately will not remain and more about a basic, standard concentrate on customer value, and optimization and connection of channels to benefit from the retail assets that already exist. Merchants will need to maximize the value of their total estate and offer value to clients whilst in turn, maximizing their profit.
Regrettably, I question we have seen the last store closures of some of our high-street favorites –– only recently, US seller GAP announced that it is considering closing all of its UK stores, however, merchants still standing 8 to 9 months into the pandemic have the opportunity to transform themselves, address friction points and focus on client experience and value to be in with an opportunity of not only survival but success in the future.