As is tradition in the last edition of Mintel’s UK Retail Briefing we look back at the previous 12 months, and 2020 has served a year like none before it.

COVID-19 and the boost to online…

There is only one place to start in reviewing 2020 and that is of course the global pandemic which has shifted so much of consumer behaviour. A hopefully once in a generation event, COVID-19 has served to not only overnight change behaviour, but most notably accelerate the shifts in the market we had been seeing over the past decade.

The online channel has obviously been the big winner of the pandemic. Online penetration of all retail sales quickly jumped from around 19.0% pre-pandemic to 30.2% in April and we estimate for the year online sales will average out at 27.0% penetration. Whilst penetration will ease in 2021, the prolonged period of heightened online ordering will have upped the frequency and repertoire of products purchased across the consumer spectrum, and in particular older shoppers, and this we feel will lead to a legacy of heightened online use in the UK retail sector.

Online-only businesses were naturally well equipped to tap into heightened online demand, and it will certainly be a record year for Amazon. However, the share of online sales claimed by those businesses without stores has fallen in 2020, from a record high of 52.7% in 2019 to an average of 47.5% since the pandemic hit in March. In will not have replaced lost store sales but store-based players have once-more shown they can be competitive in the online market and that notably customers will transition from stores to online within a brand, when the latter is not a choice.

Within online, it has been grocery sales which have seen a dramatic tick-up. The grocers collectively struggled to meet demand in March and early April but from this point as more capacity was added sales have on average been double what was seen in 2019 (+104.6%). There will naturally be some scaling back in 2021 and onwards as retailers work to make their inflated online businesses sustainable, but equally most have confirmed a longer-term boost to capacity and therefore 2020 and COVID-19 will likely market a step change of the role of online within the grocery sector.

…and the impact on stores

If the online channel has benefitted from COVID-19 it is a polar opposite for store-based trading, particularly in non-foods. The now numerous periods of non-essential store closures have naturally impacted sales but combined has been the hesitancy for much of the year from consumers about visiting, with Mintel’s COVID-19 tracker on average (16 April – 16 December) showing 44% of consumers looking to limit their time in-store since the pandemic hit.

Online has naturally been looked toward to pick up some slack from store closures, and the penetration rate of online sales among store based retailers has dramatically grown from around 15.0% in 2019 to an average of 29.8% since April. Naturally among more experienced online players this rate has been higher but for many the inability to open the doors has been critical. Indeed, overall store-based sales of non-food retailers are estimated to have fallen by 12.7% in 2020.

That number would have been far worse if, when allowed, customers didn’t show interest in returning to store. Purely from a store-based retail perspective the pictures of queues outside Primark, Ikea and numerous other businesses following the first lockdown should be seen as an endorsement of the physical shopping space. Times are not ‘normal’ and with or without COVID-19, although it will accelerate the issue, online was going to continue to grow – but physical retailing is not dead.

The economic uncertainty

To reiterate the point above, and the one made in last year’s round-up, physical retail is not dead nor will it ever be. However more than ever it needs support, and quickly.

COVID-19 has not only been a health crisis but an economic one, and the short sharp recession will take the UK economy years to recover from – something that will only be further impacted by a ‘no-deal’ Brexit. Naturally this has effected businesses and seen unemployment tick-up, although not to the full extent we expect in 2021 due to Governmental intervention to protect many at risk jobs.

Retail has played its part in the uptick in unemployment with the Centre for Retail Research estimating some 95,000 retail roles have been lost as a result of retail failures or administration so far in 2020, higher than the total seen in 2008 (74,500). Of course the sector has created jobs as well, particularly in grocery, but the number of total retail casualties seen in 2020 has been particularly shocking.

If the scale of business administrations/failings is shocking, those whose have been lost were less so, at least early in the pandemic. In the case of early administrations from the likes of Oasis and Warehouse and LK Bennet the pandemic may have been the straw that broke the camel’s back but the commonality among these early casualties were serious underlying issues. It is only late in the second half of 2020 that we have begun to see causalities directly tied to the pandemic, with the financial situation at Arcadia the most obvious example. However even here many of the brands within Arcadia have faced recent struggles, with pandemic only serving to magnify the issues with the business.

Unfortunately, this is a situation that is likely to get worse before it gets better. Governmental intervention, such as business rates relief and staff furlough, will be removed in the first half of 2021 and unless this coincides with a return to more normal levels of discretionary spending this will be too much for some in the market.

The future of the high street

The collapse of a business like Arcadia or Debenhams is an individual shock to the retail sector and to physical shopping locations, but if this happens in isolation it is manageable with new tenants able to be found and a level of rejuvenation able to happen. However, a collective collapse of multiple key tenants is hard to recover from, and as we saw in the last recession this can take years or may leave high streets forever changed.

Add into this the significant business failing in foodservice and leisure and the shift to more working at home practices and many town and city centres face a crisis in 2021 in their ability to create a compelling mix to drive footfall back.

As we have highlighted in the past, one of the key impacts of online has been to discourage major retailers from taking on more physical space. COVID-19 has only accelerated this trend with major brands such as John Lewis and Argos announcement plans to at the very least hold if not reduce physical space moving forward.

Again on an individual basis such decisions are understandable, but collectively an unwillingness to be the anchor to rejuvenate a high street will leave many units bare and the path to recovery far harder for some shopping locations. Equally certain logical moves by store-based players to react to the pandemic, such as Currys Shop Live service or a greater proliferation of AR, have longer-term potential to erode USPs of stores should they maintain or gain popularity post-pandemic.

This is why more than ever Governmental or local authority intervention is needed. Encouragement is needed not just for major brands but for smaller players, and not just for the retail sector but all pillars of shopping locations. A case for a business rates review will be harder to make in 2021 as the Government looks to find ways to plug the deficit caused by COVID-19, but for the longer-term economic benefit of physical consumer facing locations it is desperately needed.

However, the retail sector also cannot rely on a white knight, the rebuilding of physical shopping needs to come from retailers themselves. The queues outside store post-lockdown were notably greatest among those retailers which have a focus on experience. More than ever there will be a need to offer a differentiated experience in-store, and this will require investment and true commitment to the physical format.

Innovation in the face of adversity

2020 has not been a year for ‘progress’ but one about reacting to the new conditions hear and now that COVID-19 brought. However, in the midst of the chaos a number of important trends emerged.

Forced to spend more time at home and in the local area, physical shopping has become more localised as a result of COVID-19 and is likely to see a legacy boost in this regard as fewer individuals travel into major city centres less regularly. In areas where there is still a strong independent sector this has been a major benefit to smaller chains and independents and when combined with the goodwill and support felt toward such businesses this will have brought more individuals into this market.

However, it was the better embrace of online and, in many cases, the collective way this was achieved which will strengthen the independent sector moving forward. We have long argued that in the current environment it is only major businesses, such as Primark and the discounters, that can afford not to have an online presence, and even their position as online-abstainers is looking weak.

From garden centres to local butchers, early in the lockdown there was an acceptance born from an inability to trade or trade well with current footfall that delivered-to-home services were needed. These individual services quickly gave way to new and more formalised and consumer-friendly platforms such as Click It Local or which show there is strength in numbers, but more crucially give businesses an easy access to the online channel.

Of course a platform is one aspect but delivery is still a costly venture for many businesses. However here too the pandemic has highlighted future opportunities. The wider-spread use of the likes of Deliveroo and Uber Eats from the grocers is a trend that was emerging in 2019 but has exploded from necessity in 2020 and has allowed many new entrants, notably Aldi, into the market. From a legacy perspective the greater influence of such businesses not only has the potential to allow more businesses to access the online channel, but evolve the range of missions served by online grocery.

Until next year

Of course far more than this has happened over the course of 2020 and the true significance of behaviour, strategy and societal shifts caused by COVID-19 will take many years to understand.

However, at its core retailing is a simple business and to repeat our mantra from last year: success depends on having the right merchandise, in the right place, at the right time and at the right price. Place and time may have been the more dominant themes in 2020 but as society reopens once more produce and specifically price will be key in 2021.

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