Shoosmiths

‘Bricks and clicks’ – the future of retail

Question

What does the future hold for the British high street?

Answer

Over the last few years, news that some of the nation's most iconic retail stores have closed has become more frequent. Stores such as New Look, Morthercare and now Debenhams, which dealt a fresh blow to Britain’s struggling high streets last month with plans to close 22 department stores. The planned closures are just a first phase as the retailer intends to close a total of 50 of its worst-performing stores.

It is no secret that many retailers have been adversely affected by the changing shopping habits of consumers, ever since the introduction of online shopping has forced companies (particularly those with large property portfolios) to adapt quickly to accommodate ever-changing consumer habits.

The short-term impact of store closures may have piled pressure on the retail sector, but the longer-term picture still holds opportunities for retailers. Even with more and more consumers turning to shopping online, sales from online retailers still only accounts for 17% of total retail sales in the UK (according to the Office for National Statistics).

Britain’s retail landscape is dominated by the ‘big four’ supermarkets followed by department stores such as John Lewis. Technology retailers also make the top 10, along with Boots. However, the online impact can be evidenced by Amazon making it in to the top five this year, accounting for £4 in every £100 spent in the UK.

The ongoing shift toward online, dovetailing with the growing experience economy, is impacting many traditional retailers which face inflexible leases, high rents and excess properties. Departures from the high street have raised serious concerns around retail rental income for UK investor landlords. Retailers are taking shorter leases with earlier break options, resulting in rental income for investors becoming less guaranteed. A change in the way retail real estate is managed and leased goes against the traditional, pre-recession long-term investment models favoured by funds and institutions.

With retail tenants unlikely to commit to long-term leases, the door is open to alternative uses. The conversion of retail space into co-working centres is being pursued by a number of retailers for extra revenue.

While retailers are under increasing pressure, the picture is not bleak for all. New technologies – from Augmented Reality (AR) to robotics – are helping retailers to turn the tide, with many now combining online and offline, digital and physical, to survive in turbulent times by artfully blending in-store and digital experiences. This allows retailers to present a truly cohesive and instantly recognizable brand experience for consumers. As technology develops, new opportunities arise to create immersive digital experiences in a physical space.

Change is nothing new for the retail sector. Retailers have weathered major upheavals, but one of the most significant is without doubt the pace of changing consumer behaviour. Retailers who are making the most of the difficult situation are those which adapt to customers’ evolving needs and demands around technology and service.

The problem is retailers have been reactive in investing in the digital trend, instead of adopting a proactive approach. Retailers are now taking a different approach to regain a competitive advantage, blending online and offline shopping. Argos is one retailer that has truly cracked mobile digital experience. In the UK, it was the first retailer to pass £1 billion of annual sales through mobile with the aim of building connected experiences, irrespective of the device, so that customers can enjoy a great shopping experience whenever and however they choose.

But the technology most likely to reshape the retail landscape is artificial intelligence (AI), driven by data from customers themselves. In-store, AI can also offer smart experiences that can keep customers coming back with the use of in-store employees with access to virtual assistants who can make smart recommendations that add value for the customer.

Technology can also help to deliver ‘personalised’ experiences such as products customers design themselves. Nike pioneered the idea with its NIKEiD online service to customise its trainers.

Customers are increasingly using smartphones to check prices, look up items and even complete purchases. eBay UK confirmed that as the majority of its sales now come from people shopping on the move, it intends to invest in AI-powered technology such as image search and recognition to help customers find the exact item they’ve been looking for.

The stores of the future will provide experiences, rather than simply focusing on selling stock. For example, US luxury retailer Nordstrom has already trialled concept ‘stockless’ stores, where customers can get advice from stylists, but cannot walk out with clothes. Apple is another great example of the concept of combining ‘bricks and clicks’ for its customers by providing a visually powerful showrooming concept, where the store is primarily a front face for consumers to see, feel and experience the product. Many companies have followed suit, like Tesla.

Retailers in Britain are facing challenging times – and that is set to continue. A third of Britain's retail jobs could vanish by 2025, according to the British Retail Consortium. Yet it could be suggested that the picture isn’t quite as bleak as many paint it. This can be evidenced by high street fashion chain Primark, which has just opened its first ‘megastore’ in the former Pavilions shopping centre in Birmingham. Primark is one retailer that bucks the trend in terms of no online offering, but it has over 5.3 million followers on Instagram, showing that connecting the public with what is available in store gets customers through the door.

As the high street continues to change, retailers which bridge the gap between digital and real-world interactions will prosper. Those that work hard to acquire customer knowledge and then put it to good use will be best placed to compete in the future.

We are a long way from an online-only future as people still enjoy visiting the high street, and while some offline shops are closing, other online shops are seeking a high-street presence. We may see consolidation between some of the data-rich online players and those that bring high-street glamour, as they all seek to defend themselves against the online giants.

Sarah Minshull is a first-year trainee at Shoosmiths. She is based at the firm’s Manchester office.

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