Digital transformation of retail

Less than 20 years ago buying anything from the internet was a slow process. You waited while your computer dialled up for access while all the time emitting a high-pitched noise that made your ears hurt.

Then when you were actually connected webpages downloaded slowly. Very slowly. That’s assuming of course that the company you wanted to buy from actually had a website.

Amazon.co.uk launched in 1998. It sold books and only books. You had to wait another year if you wanted to buy anything else and then it was only music.

And you had to pay postage as well. It was five years after Amazon launched that it began to offer free shipping but you had to fork out £39 to qualify.

Now it’s probably more difficult to come up with something that Amazon doesn’t sell and virtually every major retailer sells online, even Morrisons, which finally succumbed in 2014.

Even Morrisons now sells online: Shutterstock

Virtual basket

Of course, getting on the internet now is simple. A few clicks on your mobile and whatever you are looking for can be in your virtual basket and on its way to you.

In November 2017 the average weekly spend online was £1.2bn; an increase of 10.2% compared with November 2016.

Shopping online accounted for 17% of all retail spending, excluding automotive fuel, compared with 16.1% in November 2016.

If you take food out of the equation, the numbers are a lot higher. In October 2017 27.4% of all non-food shopping was done online.

This obviously impacts on the retailers’ physical stores but the effect on the food and non-food sectors seems to be different.

Food

This is the slowest growing sector on the internet with sales up by 4.6% in the year to November 2017 compared with textile, clothing and footwear stores where online sales were up 22.5%.

The biggest danger for the established supermarkets is not online competition but the rise of the discounters, Aldi and Lidl. Aldi is now the fifth largest supermarket in the UK and Lidl the seventh largest.

Aldi is aiming to have 1,000 stores by 2020. Lidl is looking to add 60 stores every year. Lidl does not offer online shopping.

Non-food

Swedish retailer H&M is typical of the non-food retailers in announcing recently that it is going to close a number of stores.

The company said: “The H&M brand’s online sales and sales of the group’s other brands continued to develop well.,” In order to respond quicker to customer behaviour it would be “intensifying the optimisation of the H&M brand’s store portfolio – leading to more store closures and fewer openings”.

Clothes lend themselves particularly well to being sold online or through catalogues. Middle England favourite Boden’s sales last year were £308m.

Microsoft is looking to open a flagship store in the UK: Shutterstock

Concept stores

In some cases the store follows the online presence. The store can be an effective way of advertising the brand and getting customers to buy into the brand experience.

Microsoft is currently looking for a location in the UK for a flagship store while online fashion retailer Joe Browns recently opened its first physical store in Sheffield.

Joe Browns said it wanted to create: “An inspiring environment – that would really make people sit back and think – completely different from traditional high street stores.”

The Local Data Company’s Matthew Hopkinson says: “The role of physical retailing continues to evolve and the place that a shop has in the overall buying cycle varies from brand to brand and sector to sector.

Stores continue to perform a vital role in the purchase cycle and consumer journey but the key questions remain around how many shops you need, what kind of format and in which locations.”

Shopping for shops

LDC figures showed retail vacancy rates in the first half of 2017 ranged from 7.5 % in Greater London to 15.1% in the North West.

And the RICS Commercial Property Market Survey for the third quarter of 2017 shows that demand for retail property fell for the second consecutive quarter, with demand down by 16%.

But investment is still going into shops in the right places and for the right markets. CBRE’s 2018 market outlook predicts that significant amount of new high-quality shopping centre space will open.

High-end shopping outlet Bicester Village recently added 30 more shops. It attracted 6.4m visitors in 2016, 60% of them tourists. It is particularly popular with Chinese visitors.

Bicester Village attracts 6.4m shoppers a year: Shutterstock

London is the place for me

Savills’ Global Luxury Retail 2018 Outlook found that London was in the top five for opening of stores for luxury brands in 2017 and second only to Paris for openings of “affordable luxury” stores

London also fared well for investment in retail property with Savills concluding that: “London [is] the most attractive investment market despite it being one of the most expensive cities to buy into, due to the size of its retail market and its relatively attractive occupier terms for investors/landlords”.

Second chance

The RICS survey found that despite falling demand on a 12-month view, secondary retail was the only subsector where capital expectations were negative nationally.

Secondary retail refers to shops in slightly less than ideal locations such as near the high street but not on it.

But all is not lost for these types of shops. Due to changes in the buy-to-let market semi-commercial properties with shops and flats together have become increasingly attractive to small investors as they are not subject to the additional 3% stamp duty surcharge.

Many empty small shops are also being converted into flats under the permitted development rules.

Virtual reality

While online sales will keeping on increasing, shops in the right locations and those offering the shopper something extra that they cannot get online will continue to survive.