May 2023
With Christmas sales from stores defying expectations and positive results continuing during the first quarter of 2023, are we witnessing a revival for the high street? GCW’s Simon Morris explores the resilience of bricks and mortar stores.
When we look at the state of high street retail, we see a complicated picture. On the one hand, to paraphrase Mark Twain, reports of the death of physical stores have been greatly exaggerated. Too many retailers took habits created during the pandemic as an absolute, rather than temporary change. Examples of this would include the likes of Made. com (misreading consumer demand) and Joules (abandoning stores to focus on online only). The most dynamic occupiers understand their customer and how they like to shop and respond to it rather than trying to get them to bend to their will.
In-store sales were strong because this was the first Christmas that was uninterrupted by covid and government guidance. This allowed people to shop as they wish and for many of us, the Christmas spirit is enhanced by the festive displays both in store and in town. A significant proportion of people chose to use this Christmas to blow out and treat themselves, their friends and family because they couldn’t last year. With a warmer than expected Autumn the costof-living squeeze was yet to fully bite for many.
We are continuing to see occupiers seeking to grow, right size and right locate their store portfolios. This growth is in stark contrast to headlines that point to an increasingly pressed consumer while occupiers’ costs, especially energy and wages, are rising but difficult to pass on.
So, what is driving the demand?
Firstly, retailers have learnt from the experience of covid. Many occupiers on reflection consider they cut stores too hard and too fast with hindsight. In such an unprecedented scenario these decisions were understandable. Occupier feedback is that whilst the current blend of ingredients is unique, individually they have been encountered before. This gives confidence that the storm is navigable and there will be a recovery, probably sooner than expected.
Secondly, stores are cheap and trading online is expensive. The costs of delivery and returns are well documented but the cost of promoting and retaining customers is often overlooked. Google, Facebook and other search and social media advertising, page ranking and key word searches can impact margins by 20- 30%. Falling occupancy costs, including certainty on business rates and flexibility offered by shortening lease terms, have made stores more competitive as the online trading costs continue to rise.
As a localised distribution and return hub, stores offer a more cost-effective way of getting product to the consumer, replenishing for sale, and turning a return into an exchange. It is an end-to-end experience combining digital and real world channels.
Another issue driving demand is proximity. Brands want to be where their customer is. Partnering better data, AI and real-world experience, brands across the spectrum have a better understanding of their customer and place themselves where they are. Whilst it is easy to see this as a way for direct-to-consumer brands to offer an experience that drives brand loyalty, there are some regular examples too.
The recent demise of M&Co resulted in 150+ stores being offered to the market, the rump being in fairly ubiquitous towns. We understand that significant demand was generated from fashion, convenience, and F&B occupiers for the majority of the portfolio. This portfolio is the pinnacle of local and demonstrates how eager, informed occupiers are trying to get closer to their customers.
Does this make everywhere and everyone a winner?
No. The place needs to have an identity that people can align with, be proud of and want to spend time in. It can be close and accessible or offer more. More might be scale, diversity of offer, environment, leisure, tourism, architecture/ public realm.
The occupier needs to understand their customer and want to serve them, not the other way around. Those retailers that have a convincing offer and tune in with consumer demand can take the opportunity to increase their market share. The great British public still love shopping and with the right proposition will continue spending their hard-earned cash in our streets and shopping centres.