Jul 17 2020
The COVID-19 (coronavirus) outbreak and associated lockdown has delivered the most profound shock to the economy in living memory. The retail sector, which employed 2.9 million people and contributed 5% to UK gross value added in 2019 according to Retail Economics, has been one of the hardest hit sectors. However, 12 weeks after being told to shut, non-essential shops were allowed to reopen their doors on 15 June 2020, albeit with a raft of social distancing measures in place. One month on from this reopening, IBISWorld analyses the early fortunes of retailers as they seek to navigate a challenging and unfamiliar landscape.
Having depended on government support throughout the enforced shutdown, widespread scepticism emerged as to how retailers would fare upon reopening, with one-way systems, hand sanitising stations and reduced in-store capacity presenting a potentially uninviting environment for customers. These concerns were reinforced by research undertaken by the Office for National Statistics (ONS) on 12 June 2020, in which less than four in 10 people surveyed said that they felt safe or very safe outside of their home. Early signs have pointed towards a cautious return for shoppers, with the number of customers visiting UK shopping destinations in June 2020 remaining less than half what they were in the same month in 2019, according to footfall data from Springboard. This was despite sustained weekly growth in footfall since the reopening of non-essential retail stores. However, the British Retail Consortium (BRC) and KPMG’s retail sales monitor for June 2020 paints a brighter picture for the sector, with total retail sales increasing 3.4% in June 2020 compared with June 2019, the fastest rate of growth since May 2018. This will present a welcome relief for retailers desperately trying to generate sufficient revenue to remain viable in the short term.
Despite being far from a new phenomenon, an accelerated shift towards online shopping has been one of the clear consequences of the coronavirus, presenting a further challenge for high-street retailers in the longer term. Online grocer Ocado has stated that the online grocery market has recorded years’ worth of growth in a matter of months, with the firm itself having recorded a 27% increase in sales during the first half of 2020. Meanwhile, according to the ONS, the proportion of retail sales made online reached a record high of 32.8% in May 2020. This proportion had recorded a sustained rise prior to the coronavirus outbreak, but lower levels of internet use among some age demographics, particularly consumers aged 65 and over, had long been considered a barrier preventing a surge in growth. However, with many consumers in this age bracket having been subject to the strictest lockdown measures, the coronavirus is likely to have necessitated a change in shopping habits towards online purchases. According to a 2009 study published in the European Journal of Social Psychology, it can take as little as 18 days to learn a new behaviour, and on average that new behaviour becomes automatic in 66 days. Therefore, the 12-week period in which non-essential retail stores were forced to close presented ample time for online retailers to penetrate previously inaccessible markets. This provides a strong indication that while a slight fall on the levels recorded during the lockdown period is likely, the proportion of retail sales made online will remain well-above pre-coronavirus levels in the long term. This theory is supported by the BRC-KPMG retail sales monitor for June 2020, which noted that the non-food online penetration rate increased from 33.1% in June 2019 to 50.7% in June 2020, despite the reopening of non-essential retail shops during the month.
Inevitably, there will be some store closures and company insolvencies in the retail sector as ongoing health concerns associated with spending time outside the home are exacerbated by the economic fallout from the coronavirus. Major retailers including John Lewis have already announced store closures, while Intu Properties, which owns 17 shopping centres across the United Kingdom, has entered administration. However, a raft of supportive measures introduced by the government are expected to assist firms navigating upcoming challenges. In addition to benefiting from a business rates holiday for the 2020-21 tax year, 85.1% of retail and wholesale respondents to the ONS Business Impact of COVID-19 Survey have applied for support through government schemes such as the Coronavirus Job Retention Scheme and the Retail, Hospitality and Leisure Grant Fund. Additionally, retailers are expected to benefit indirectly from measures implemented in the Summer Statement to encourage people to visit hospitality establishments, while the decision to make the wearing of face coverings compulsory in shops in England from 24 July is partly designed to give people more confidence to shop safely.
The implementation of these measures will provide some optimism among retailers of a continued rise in footfall, which should allow them rebuild their finances in the medium term. However, in order to remain competitive, retailers will have to adapt to a new landscape in the short term, with several firms currently benefiting from being more accommodating to consumers by providing more detailed online information, as well establishing appointment systems to reduce unnecessary queuing and enable a more personable in-store approach. Meanwhile, an accelerated shift towards online purchases is expected to act as a catalyst for significant change to the in-store experience, with retailers expected to focus on creating an omnichannel approach, allowing them to drive higher customer lifetime value and improve profit margins.