UK could see loss of a quarter of all shops
As many as a quarter of all shops in the UK could be redundant over the next few years, which will add to the already troubling levels of vacancies on the high street that have trebled over the past five years.
By Glynn Davis
This was the stark prediction given at this week’s inaugural Retail London Conference by Tony Stockil, chief executive of Javelin Group, who believes “the recession is only now hitting some retailers and so we will see more vacancies”.
But it is more than the economic climate that is driving this radical change as Stockil also points to: the rising costs of operating shops; the increasing costs of raw materials that is impacting gross margins; the ever-more competitive retail environment as a result of the supermarkets targeting non-food; and more fundamentally the rapid growth of e-commerce.
This has pushed online sales to around 8% of total UK retail sales, which is one of the highest in the developed retail world, and the predictions are that this will reach more than 10% by 2014.
One of the reasons for the UK’s impressive adoption of e-commerce is the moves by the major grocers who have made it an important plank of their expansion plans to develop their online businesses, and the recognition by stores-based retailers that multi-channel strategies can be beneficial.
These two groupings now account for 60% of the £25 billion of e-commerce trade in the UK with the remainder taken up by pure-plays and catalogue operators. In contrast, in other European countries the latter pairing accounts for the vast bulk of online sales.
Stockil told delegates: “UK retailers have seen a feature that’s often missed by other people – the dual-purpose of a website. For electricals, clothing and home-wares, customers are doing research as well as shopping online.”
This is leading to a high level of store sales that can be directly attributed to the online channel that is making the “cross-channel effect very significant”. It now accounts for 15% of clothing sales, 50% of electrical transactions, and 33% of furniture purchases.
As a result of the ‘web-to-store’, effect whereby customers first research online and buy in-store, Stockil says there is now a focus on exactly what role stores play in the multi-channel mix – especially when considering how popular Click and Collect-type services are proving.
“Some retailers have predicted this and have been adjusting their estates accordingly. It [click and collect] works so well for Halfords with 80% of its online purchases being Reserve & Collect that the web is doing the work of the stores so it needs fewer [large] stores,” says Stockil.
Halfords is therefore focusing on fewer 10,500 sq ft stores and instead going for 8,000 sq ft units, which can achieve the same level of sales-per-store. He also cites House of Fraser as considering opening small stores of 1,500 sq ft that could be used purely as pick-up points for Click and Collect orders.
Such shifts could lead to the de-stocking of stores with only fast moving goods held in-stock and slower moving lines having to be ordered. The level with which this affects retailers will be largely determined by category, according to Stockil, who suggests music and video retailers would be hardest hit with “the declines in store numbers seeing no slow-down as the shift to online is inevitable”.
For the retail industry as a whole Javelin is forecasting a decline in store numbers in the UK of 25% by 2020. “Retailers need to plan in advance, understand customer journeys and what role stores play in this. Plan the size of the stores estate and ensure you are not locked into long leases,” recommends Stockil.
