Despite challenges in the retail environment, physical stores will remain for the foreseeable future, but their form and function will likely undergo some changes, according to the latest white paper from KPMG and Ipsos Retail Think Tank (RTT).
James Knightley, chief international economist at ING, said: “Store closures and bankruptcies attract headlines and make it difficult to argue against the view that retailing faces many challenges”.
The RTT members agree that the store will stay, however, despite the challenges retail is facing.
One of the main challenges highlighted is the way in which retailers are using physical space. So what opportunities or threats do they face and what might its role be in the future?
The most commonly cited factors driving change are the rise of online, mobile and click-and-collect carving out a new retail landscape.
Online transactions
Paul Martin, UK head of retail at KPMG, said: “In the UK, about 20% of all transactions are now conducted online, and when taking the end-to-end customer journey into account, the online channel influences 90% or more of purchases across many categories”.
He added that this is putting increased pressure on the physical retail model.
James Sawley, head of retail and leisure at HSBC, said that the rise in multichannel retail is another important factor.
He said: “Take apparel and footwear, it’s the largest online category [by value], but still 90% of clothing consumers shop online and in-store”.
This, he believes, reinforces the fact that using multiple channels “significantly increases [a retailer’s] addressable market and enables retailers to build their brand in a physical, more engaging, environment, rather than just digitally”.
There has recently been a rise in online-only retailers establishing their presence on the high street, with brands such as Missguided and Joe Brown’s recently opening physical shops, testament to the continued need for physical stores in the future.
Physical and digital worlds
Martin said stores play a crucial role “as the bridge between the physical and the digital world”, with some being used as distribution hubs, while others cater for an increasing appetite for experience-led retail.
In addition to the rise in online, customer-centricity, changing consumer behaviour and the growing desire for experience are also playing an important role in determining the future purpose of stores.
Tim Denison, director of retail intelligence at Ipsos Retail Performance, said: “Good stores have always been places where customers can receive expert advice about the products [a retailer] sells. Nowadays though, most product details are available on the web and shoppers often find, having done their research online, that they know more about the products than sales assistants.”
He added that the future of the store has to go beyond being a centre of expertise or a place to simply transact. He said: “The future success of the store is not just about the what, it is also about the who”, pointing to the crucial need for a store to recruit passionate staff who drive consumer engagement and “…bring back that loving feeling between stores and their shoppers”.
The store could be more that of a showroom, perhaps using the latest technology, whether that be virtual reality, augmented reality, smart mirrors or digital screens.
Convenience driving change
Convenience was also a key driver of change, as Maureen Hinton of GlobalData pointed out. She referred to the Chinese retailer, BingoBox, which operates with no human presence, and payment for goods collected by smartphones.
She highlighted the growing trend of consumers looking to just “pick up goods and go, as your phone does the checking in and paying automatically”.
Mike Watkins, head of retailer and business insight at Nielsen, pointed to how consumers have become more diverse and channel agnostic, with this being especially disruptive in grocery retail sector. He pointed to shoppers making purchases from supermarkets more than four times a week, with daily touchpoints in food-to-go and food service.
A key theme to emerge in the discussion is that irrespective of which drivers were prompting a rethink of how retail stores are being used, retailers currently hold too much physical retail space.
Most suggested a surplus real estate portfolio of around 25%, but it was also suggested that non-food categories – given their prominence online – may be more susceptible to having too much space.
Technological advances
Knightley added: “property valuations, technological advances and faster, more efficient methods of delivery to consumer’s homes [all] mean that less stock needs to be held. This suggests that the size of the store can become smaller…and cheaper”.
The recent business rate hikes earlier in the year will have prompted a revaluation of the need for so much physical space. Albeit, the recent Budget relieved some concerns with the tax now measured using the retail price index (RPI) instead of consumer price index (CPI), and revaluations occurring every three years, instead of five.
When asked what retailers might do with the excess space, some members suggested that it would be snapped up by peers interested in shared space. Meanwhile, others even suggested that the space could be used to ease the UK’s growing demand for residential property.
So what does the future hold for the real store?
There was no disagreement among the RTT members that there will always be a place for physical retail in the future, regardless of the factors driving change in the industry. The form and function however, need to evolve and change to the will of the customer and other external forces.
Growth over decades
Looking to online retail specifically, Maureen Hinton said: “there has been massive growth in online retailing over the past two decades, but we still spend far more in physical stores than online, and this will continue”.
Added to that, multiple members referred to arguments and research which suggest that shoppers want to visit physical stores.
Suggesting what we can expect to see more of in the coming years, Martin Newman, chief executive officer of Practicology, said: “The role of the store will certainly change. It will become much more about experience and true retail theatre. The store environment will seek to entertain, educate and engage”.
Martin Hayward, founder of Hayward Strategy and Futures added: “stores will remain a very important part of life for the foreseeable future. They will change and evolve, and poor ones will close as was ever the case. but there are fundamental social, emotional and logistical reasons why the store is an important part of life.”
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