Physical stores boom, but don't neglect omnichannel says retail think tank
In a world in which physical shopping has bounced back more strongly than expected, they think that omnichannel is the way forward.
The members include Paul Martin (KPMG), Joe Marshall (Ipsos), James Sawley (HSBC), and retail experts Nick Bubb, and Maureen Hinton. They said that years of speculation that online retail would cannibalise physical stores were wide of the mark. In fact, “the high street is making a comeback – driven by the cost-of-living crisis, and a post-Covid appetite for real-life experiences”.
That said, at the first quarterly meeting of the RTT this year, members agreed that the road ahead was likely to be rocky in Q2 – although, going into the summer months, “there are reasons to be optimistic”.
They suggested the sector is potentially reaching an inflection point with inflation set to slow, while low unemployment rate and fast wage growth “should bolster consumer confidence”.
This is “expected to provide a boost for retailers with physical stores, who have long had to watch their market share being taken by online-only players with no costs related to physical stores and overall lower cost of capital benefiting customer acquisition”.
It’s all happening as “pent-up demand for in-person experiences after the pandemic is driving people to shops and leisure attractions”.
But the RTT also said retailers “will still need to significantly invest in technology to refine their omnichannel offer – delivering not only exceptional experiences for shoppers but also driving down the cost to serve, especially while high levels of inflation continue”.
The RTT also suggested that physical stores were more appealing to budget-conscious shoppers. Nick Bubb, Retailing Consultant, Bubb Retail Consultancy Ltd, said: “The big conundrum is how far the cost of living crisis has stimulated the return to store shopping, with the most hard-pressed consumers finding it easier to control their spending and check for price promotions in-store, rather than online.”
Value retailers, “who often don’t have unprofitable online channels to service, are benefiting from more cost-conscious consumers opting to shop with them,” we’re told.
There was a time when we might have though that the cost-of-living crisis would push consumers seeking out rock-bottom prices even further online – but that doesn’t seem to be the case. “In fact, it seems that the market is rebalancing after the pandemic,” the RTT said.
And the members agreed that “retailers with only a physical presence, particularly the discounters, were currently at an advantage compared to those having to subsidise unprofitable online channels”.
But the benefit isn’t only affecting the value sector. It’s being seen across retail and e-stores are suffering.
Paul Martin, UK Head of Retail, KPMG, said: “If we go back to August 2019, we saw online growth dip to below 10%. Now, we’re in the same place again, albeit the market has grown by 50% overall. We’re seeing equilibrium in the sector, with online penetration lower than predicted during Covid. In fact, online penetration for non-food sales has dropped every month in Q1 of 2023. When compared year-on-year – non-food online penetration has fallen from 40.7% in March 2022, to 38.4% this year.”
The barrier to entry might still be lower for online-only retailers, but “they’re currently grappling with growing warehousing costs, including a rise in business rates, competition from e-commerce giants, and consumers who want a change from non-stop digitisation”.
Those consumer attitudes are hugely important. The RTT feels that the improving fortunes of the high street is being driven in part by “a continued shift in consumer behaviours after Covid lockdowns forced shoppers online”.
James Sawley, Head of Retail & Leisure, HSBC UK, said: “Humans are inherently analogue and there is some pushback on the increasing digitisation of our lives. My bet is that younger people who lived through the lockdowns will want to go shopping.”
This return to a more social customer experience represents a major opportunity for retailers that are prepared to invest in their physical presence.
OMNICHANNEL IS KEY
As mentioned at the start, the RTT is clear that it’s not about physical vs online, it’s about combining them successfully.
“Even if shoppers flock to the high street, the appetite for convenience driven by technology won’t go away,” their report said. “While it might not be cost-effective for the discounters to start investing in online channels, most other retailers will need to refine their omnichannel models so they can serve customers better at every interaction”.
Consumers “are becoming less concerned about what channel they use but how well it meets their needs at the time”.
Joe Marshall, Managing Director, Customer Experience and Channel Performance, Ipsos Retail Performance said: “The line between online and offline is blurring. Customers want to pick the channel that best meets their needs – it’s become very fluid. For omni-channel retailers who get it right, the future is positive. It’s more challenging for those who’re fixed to one channel.”
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