We like to shop. We need to shop. And many of us would consider our personal shopping habits to be just that – personal. But how we shop is of immense interest to those who want to invest in one or other twin shopping sectors of retail and logistics.
Although servicing similar shopping needs in many respects, the faces of these twins are, at first glance, quite different. In real estate terms this means traditional retail shops in buildings, versus large distribution centres and other logistics infrastructure that support online purchasing. Yet the logistics sector also underpins the physical retail sector, from farm-to-fork distribution, to the ever-growing hybrid market of retailers who offer both ‘bricks-and-mortar’ retail experience and an enhanced online service, supporting click-and-collect facilities. Like most relationships between twins, these sectors are co-dependent.
Retail is the largest industrial sector in Britain, contributing 11 per cent towards the UK’s economic output in 2017 and employing 4.5 million people. But almost daily headlines tell of struggling high street retailers, administrations and company CVAs, suggesting the days of the traditional retail model are numbered. The recent announcement from Marks & Spencer, that it will close 100 stores nationwide by 2022 and move a third of its sales online, is yet another blow to traditional retail.
While tempting to conclude shopping in shops is a thing of the past, the reality is more complex. Although the share of the retail market held by online sales has been rising steadily for a decade, it is still only around a fifth of total retail sales. It’s safe to predict online sales will continue to increase their market share, but traditional shopping remains an attractive option, although what makes a traditional shopping experience appealing is evolving too.
Footfall statistics show those shopping in person prefer retail/leisure parks to the high street. In the first half of 2017, over 100 more retail and leisure units opened in the UK than closed, most in mixed-use retail parks. That reinforces the perception that “experiential” shopping still matters. While online shopping will continue to increase for everyday consumables, we want to see the prime rib-eye steaks before we buy them; we don’t mind buying new socks online, but for many, the purchase, in person, of a new suit or a dress for a special occasion continues to appeal.
Despite this, large elements of the physical retail sector are suffering: there are reports of swathes of high street closures in Scotland – over five stores a week in 2017, bucking the overall net gain figures for the UK. This is not merely a local phenomenon: the effect is being felt globally.
Where traditional retailers face a particular challenge is in rising to the changing demands of consumers in relation to the live retail experience. Destination shopping is clearly attractive, and retail/leisure parks have the advantage of supplying a mix of shopping and leisure experiences, although they have also been suffering from the effects of recent retailer collapses.
Traditional retail models must do more to adapt to the growing sophistication and selectiveness of shoppers. The lesson from the demise of Toys R Us is clear; retailers need to adapt to the changing preferences of the shopper in imaginative ways. Sticking to the original formula is not good enough.
Nor is it simply a matter of moving some of your business online. The experience of retailers like M&S and Debenhams has shown this often simply moves the same customers from stores to online, with significant additional costs of maintaining two shopping channels instead of one.
Imaginative alternative uses are starting to emerge – in legacy large supermarket space, for example, a variety of shopping options are becoming available, from Argos sections within larger Sainsbury’s stores, to the integration, following the Tesco takeover of Booker, of stores combining wholesale cash and carry with retail.
In Ocean Terminal, Edinburgh, the former BHS store is now a roller rink and indoor skate park; Selfridges recently trialled a boxing gym in its London store; and other retailers have announced initiatives ranging from the establishment of yoga studios to champagne bars. The failure of many retailers is due in part to the inability to think differently. Stronger partnerships are also needed between landlords and occupiers, communities and high street occupants, and local authorities and ratepayers, with a view to actively promoting, encouraging and facilitating the enhancement of customer experience in innovative, cost-effective ways.
David Mitchell is a partner with Shepherd and Wedderburn LLP.