Should ailing retailers dump stores post-COVID?
With High Street clothing and footwear retailers among the hardest hit by the Coronavirus lockdown, some are suggesting that those going under would be better to re-emerge as online-only brands.
A recent case in point was Gordon Brothers acquiring the rights to the Laura Ashley brands last month, but not its 147 stores. The global advisory, restructuring and investment firm stated that it intended to “place a strong emphasis on building e-commerce, developing more strategic wholesale relationships, and expanding the portfolio of licensees and franchisees globally”.
Sofie Willmott, lead analyst at GlobalData, explained: “The format of the sale follows a similar pattern to other fashion brands that have been rescued in the past few years, including Karen Millen, Coast and Orla Kiely – all of which have lived on, but without their physical stores, as retail spend continues to shift online.
“If other fashion brands that have tumbled into administration in recent weeks - including Oasis, Warehouse and Cath Kidston - are rescued, sale agreements are likely to follow the same format, with the physical high street’s troubles exacerbated by COVID-19.”
Cath Kidston also filed for administration in April, with parent company Baring Private Equity Asia buying back the brand and online operations from administrator Alvarez & Marsal. A statement explained that this would result in the “cessation of the retail store network”, so the clothing and homeware retailer will now only trade online and wholesale.
Even before the COVID-19 pandemic emerged, this trend had begun – fuelled by dwindling demand and fierce competition from online-only players. In January, Forever 21 announced that it was relaunching its international online store to drive growth from consumers in Canada, Asia and Latin America, as part of a shift in focus away from physical retail ahead of upcoming store closures.
After filing for bankruptcy in September last year, the US fashion retailer stated that it would close most stores in Canada, Asia and Europe, but would continue to ship to international customers through its US website.
Company president Alex Ok said at the time: “E-commerce forms a large chunk of the profitable core of our operations and as part of our new global strategy - to engage digitally savvy consumers today - retailers need to invest in creating a unique online experience that speaks directly to the shopper.
“With the continued increase in demand from international shoppers for our brand, we recognised that an advanced global online shopping experience is a fundamental part of our future growth.”
Back to the present, and much like the rest of society, the retail industry will never be the same again after Coronavirus.
In the UK, a report from the Centre of Retail Research predicted that over 20,000 stores will never reopen due to the damage caused by the pandemic on consumer spending. This amounts to a 28 per cent increase in store closures when compared to 2019, which was already among the highest on record.
In a recent financial update, Dixons Carphone warned that some sales that have shifted online during the Coronavirus lockdown will never return to bricks and mortar stores.
Group chief executive Alex Baldock said he was preparing to open stores with “extreme care” and that the business has seen a great deal of store sales shift online, adding that it was “unrealistic” to suggest that these will all return to stores.
Tania Oakey, a retail expert at software vendor Cegid, noted that Primark - which has no e-commerce website - is now facing the reality of extended store closures, updating analysts recently that the lockdown was costing £650 million a month in lost sales.
“As consumers have become accustomed to online shopping during the current lockdown, there may even be a partial and permanent shift to online shopping habits post-pandemic – but I still believe there will always be a need for meaningful ‘real-world’ experiences that only physical stores can offer,” she commented.
“Let’s face it, most retailers aren’t set up for such a drastic move to online-only retail - as has proven to be the case these last few weeks - and nor does the consumer want it, so tomorrow’s retail model will remain omnichannel.”
Paul Kirkland, director of retail at Fujitsu UK, pointed out that many high street retailers have had to abandon plans for long-term growth in favour of short-term survival; which appears to be all down to online shopping.
“Long-term success will not just be defined by online channels however, as once shops are reopened and social distancing measures are eventually relaxed, there will be a yearning to revisit the high street,” he stated. “The way bricks and mortar stores respond will be vital: they will need to lay the foundations to turn their stores into experience-driven hubs.”
Kirkland cited Next as a good example of a retailer that has successfully transformed its online offerings, while providing a similarly engaging in-store experience. “The pandemic will likely change the way brands view omnichannel and reassess the way in which each channel should be used to connect with consumers,” he added.
Hugh Fletcher, global head of consultancy and innovation at Wunderman Thompson Commerce, suggested that those that have gone to the wall were already struggling in the first place.
He advised the survivors to review their offerings and optimise ranges by using internal and market data to understand consumer behaviour and current purchasing trends. “Take and look at your product range and promote the products that will be most relevant to customers at this time.”
Fletcher continued by advising that retailers must prepare for the eventual bounce-back, be that reopening distribution centres or store estate, with social distancing measures and planning in place for large volumes of online orders.
“The businesses that will survive this time are those that have learned from the experience and are brave enough to make changes for the future – use any downtime you have to review your business processes and note the successes or failures.”
He concluded by warning that legacy brands need to address key elements of their business: systems infrastructure and investment; usage of data; culture and senior decision-making.
“The challenge of course is that they need to do it at a time when their budgets will be cut and when consumers may be spending less,” accepted Fletcher. “Bravery is therefore one of the key ingredients for businesses that want to pivot and survive – it’s no surprise that the businesses that have been successful in this period have been agile, have offered digital products and services, and have owned much of their own supply chain infrastructure.”
A GlobalData survey of 2,000 nationally representative UK adults conducted in May found that over a quarter of shoppers are now planning to spend more online after the COVID-19 restrictions are lifted.
It revealed that 42.6 per cent of UK shoppers are spending more than usual online at the moment - predominantly on food, household, clothing and entertainment - and 61 per cent plan to keep doing so after the pandemic, driven by the convenience of home delivery and fear of travelling to busy shopping locations.
Thomas Brereton, retail analyst at GlobalData, commented: “COVID-19 is drawing a permanent scar on the landscape of UK retail, and one that easing restrictions will not heal – as the online channel grows, pressure will mount on offline retailers to retain sales – for some players, to fatal levels.”