RETAIL RAMBLINGS & REFLECTIONS - SUMMER 2020
The end of June saw us reach 100 days of lockdown. Whilst Covid-19 is still very much with us, lockdown has been eased for many and we’re relieved non-essential retail is, by and large, now able to reopen across the UK.
So what are this month’s highlights? Given the sad, daily, onslaught of news about job losses, store closures, CVAs and liquidations, one could be forgiven for thinking retail is dead. It is in a crisis but there are some encouraging signs emerging from the sector.
Digital transformations and reductions in store estates are accelerating at pace, consumer sentiment is changing, and habits have inevitably shifted in favour of online. Whether this is the new norm or just a temporary adjustment remains to be seen.
Whilst some well-known multichannel retailers have pivoted to join a growing number of digital-only or digital-first brands (see "Our round-up of retailers in the news this month" below), physical stores still have a very relevant and vital role to play in enhancing the end to end customer experience.
Covid-19 is also shining a light on some key issues tainting the fashion industry. Various campaigns have launched to step up action to tackle the environmental impact of the sector, its wastefulness and unnecessary discounting. We’re also seeing a strong and growing global movement to support a more inclusive and just society, address racism and increase diversity and opportunity. Here’s https://www.my1styears.com/black-lives-matter one example of a detailed plan published by one of our clients, My 1st Years, highlighting the changes they’re making after an honest review into their own business.
WHAT’S HAPPENED IN STORES SINCE REOPENING?
Non-essential shops started reopening from 15th June (England initially) and cautious shoppers have been slowly returning to a very different in-store experience.
Social distancing, queuing, requests to use hand sanitisers and not to touch merchandise unless buying it, closed amenities (fitting rooms, toilets, cafes), quarantined stock (for returns & tried on items) and reduced opening hours removes the social, convenience and pleasure aspects so many of us love about going shopping. Factor in job insecurities, financial worries and concerns about a second wave, and the latest forecasts indicating footfall and spend will take longer to return to pre-Covid levels are to be expected.
There’s been an explosion in apps and technology to help retailers manage the customer experience post Covid-19 including physical queue and social distancing management in store, keeping customers informed, virtual shopping services, private appointments in-store and thermal imaging temperature checking. Here’s https://www.mintvelvet.co.uk/content/personalstyling an example from another one of our clients, Mint Velvet, showing how they are adapting their services.
Scotland became the last nation to allow non-essential retail stores to open from 29th June. Yet again we’ve seen images of queues forming outside stores (no-one’s in any doubt this is more to do with social distancing measures) with the likes of Primark, Nike, Sports Direct, Zara and TK Maxx seemingly attracting a high volume of shoppers.
SOME STATS IN A NUTSHELL Number of stores reopened: around 75% of all stores have reopened across the UK as retailers continue a phased approach to reopening. Very few national retailers have opened all their stores yet; Topshop/Topman are two examples of retailers in the apparel sector that have.
Conversion rates and average spend: Some positive news from these very early days is conversion rates for brick and mortar stores have been reported to be as high as 90% (compared to an average of around 20% and anywhere between 20-40% for major retailers), with double digit increases in average spend. Those who are venturing back are clearly on a mission and making sure their visit is worth it!
Footfall: Here’s some footfall insights from Ipsos Retail Performance.
60% of stores in England reopened on 15th June with footfall down 38.4% year on year on a comparative basis for the stores that were open.
In the last 2 weeks, shopper numbers have been recovering slowly with footfall at around half the level of last year on a like for like basis, and just over 60% overall.
Retail parks are doing slightly better than high streets and shopping centres.
London and the South appear to be taking longer to recover, as are clothing and shoes.
For further information see https://www.ipsos-retailperformance.com/en/insights/retail-reopens-bringing-you-the-latest-footfall-results/.
Again, none of this is surprising when you consider:
we’re in a pandemic
social distancing is in place
we’re still being encouraged to avoid public transport and travel local as much as possible
there’s been little requirement to invest in apparel, with the exception of leisurewear and childrenswear
tourists are not flocking to London, or anywhere for that matter, particularly when quarantine restrictions are currently in place.
WHAT HAS THIS MEANT FOR ONLINE SALES? The Office for National Statistics released May’s retail sales data in Great Britain in June. Here’s our visualization of the key data.
This chart shows the extent of the online sales boom during lockdown, alongside food and non-food stores, as well as fuel. Online sales reached a record high of 33.4% of total retail sales in May, beating the 30.8% reported in April.
Click to Zoom
Total retail sales partly rebounded in May, although not enough to return to pre-Covid levels as the graph below shows.
The latest figures from the IMRG Capgemini Online Retail Index (an online sales performance tracker of over 200 retailers in the UK) showed June’s online retail sales were +33.9% year-on-year, and +3.5% from May. Even with stores reopening, multichannel retailers experienced a big surge in online sales in June, up a massive 51% year-on-year. This compares to a 10% year-on-year increase in June for pureplay e-tailers.
Whether this a clear sign the surge in online demand is set to continue or shoppers are still nervous about venturing into stores is still too early to call for many. One indicator retailers are expecting the online sales growth to continue this year must be DPD’s announcement that it plans to create 6,000 new jobs across the UK and invest £200 million this year in expanding its next-day parcel capacity
HOW IS RETAIL WEATHERING THE STORM? OTHER RETAIL BAROMETERS
Store Rent Payments - on 24th June, when UK retailers had to pay rent for the three months to 29th September, just 14% of the £2.5bn due was paid, according to property data company Re-Leased. This compares to a rate of 20% on the previous quarter payment day in March.
Many UK retailers are locked into rent deals which are no longer suitable, or relevant, in a post-Brexit, post-Covid, digitally focused world. Rent deals linked to turnover are the focus of many negotiations between retailers and landlords and unsuccessful negotiations are contributing to an increase in pre-pack administrations and CVAs.
Store Closures: according to Centre for Retail Research, more bricks and mortar stores have gone into administration this year to date than in the whole of 2019, which was categorised as 'the worst year for 25 years'. They have already recorded 34 retailers have gone into administration in the UK this year, affecting 1,710 stores and 43,875 employees. They are also forecasting a total of 20,620 store closures and 235,704 job losses in 2020, compared to 16,073 and 143,128 respectively in 2019.
Here’s CCR’s analysis of what’s happened so far this year;
For further information see https://www.retailresearch.org/retail-crisis.html.
OUR ROUND-UP OF RETAILERS IN THE NEWS THIS MONTH The much-loved Oasis & Warehouse brands (and our former clients) will continue to live on after all under the new ownership of Boohoo who acquired the online businesses for £5.25m from Hilco Capital. We wish them well as online-only brands in their new home, back alongside their former siblings Karen Millen and Coast.
JD Sports bought back Go Outdoors in a £56.5m pre-pack deal saying it would work to preserve as many of the 2,400 jobs. It’s not known at present how many of the 67 standalone stores will continue to operate long term.
Monsoon Accessorize went into administration and was quickly re-acquired by founder Peter Simon in a pre-pack deal. Of the 230-strong estate, 157 stores are now expected to be saved following landlords’ agreements to turnover-based rent deals. Only a handful of the stores are likely to trade as Monsoon. The new owners of TM Lewin (Torque Brands / Stonebridge Private Equity) have confirmed its entire store estate of 66 stores will close as part of a pre-pack administration as it shifts to become a digital only brand, resulting in the loss of 600 jobs.
Quiz permanently closed 11 of its 82 stores as part of a pre-pack administration deal.
Aldo collapsed into administration resulting in 5 stores shutting. Options for the remaining 8 stores continue to be explored.
Hotter, the shoe retailer and UK’s biggest shoe manufacturer, has said it is planning to enter into a CVA process imminently as it looks to rapidly and significantly reduce its store portfolio from around 60 to 15 stores whilst aiming to boost its online operations. It also wants to cut 120 jobs at its Lancashire head office and factory.
Marks & Spencer and Next are reported to be interested in becoming the franchise partner for the UK arm of Victoria’s Secret which went into administration this month
John Lewis has reopened 22 of its 50 stores following the easing of lockdown and confirmed a further 10 to reopen by 16th July, including the Oxford Street flagship store. The group has announced it is highly likely several stores will close permanently, along with one its London head offices. The number and location of store and people affected is not known with employees due to be informed in mid-July.
New Look has warned landlords it might have to launch a pre-pack administration if they continue to block the retailer’s attempts to negotiate turnover-based rents.
Laura Ashley has reopened its stores and continues to operate its online store. Whilst it was acquired out of administration by Gordon Brothers in April, the deal did not include any of its 147 stores, nor its manufacturing and logistics operations in the UK or Ireland. The administrators are still seeking a buyer for these parts of the business and stores are reopening for a period of time to clear stock or because selected stores form part of a sale of the business.
Oak Furnitureland was immediately bought out of administration in a pre-pack deal by hedge-fund Davidson Kempner Capital Management. The business continues to trade although some rationalisation is expected with the closure of some stores (currently around 100) and reductions in staff (currently around 1,500).
Lee Longlands, the Birmingham-based upmarket furniture retailer with six stores mainly in the Midlands, has gone into administration. The company continues to trade.
Alteri Investors, the owners of Bensons Beds, the beds and bedding business with around 240 stores, including shared units with Harveys and 1,900 employees, and Harveys Furniture, the second largest furniture retailer in the UK with around 100 stores and 1,500 employees, put both businesses into administration. Bensons Beds was bought back immediately in a pre-pack deal with plans to close 24 stores immediately, with more expected to close in the future to reduce its store portfolio to around 150 – 175. PWC, the administrator of Harveys Furniture, has said the business would continue to trade while in administration and 20 stores had closed with 240 job cuts, with a further 1,330 positions under review.
In another blow for the retail sector, Intu Properties plc, the owner and manager of some of the largest UK shopping centres, went into administration with debts of around £4.5bn as talks with lenders failed. All centres continue to trade as Intu’s relationships with its tenants are with operating companies, not the central group companies entering administration. It is still possible that some of the shopping centres could close unless a new buyer acquires some or all of them.
Mike Ashley’s Frasers Group (formerly known as Sports Direct) has raised its stake in Hugo Boss from 5% to 10%. The group is renowned for acquiring distressed retailers to expand its portfolio. In February it bought a 12.5% stake in British handbag company Mulberry.
OTHER NEWS TO NOTE Magento 1: Adobe ended its support for Magento 1 for both Magento Commerce and Magento Open Source on 30th June. Many merchants have already migrated to Magento 2 which offers a wealth of built-in features not available in Magento 1, plus infrastructure that is easier to maintain and support. It’s a better solution for growing businesses to succeed and thrive in digital commerce. As an ecommerce platform for a number of our clients, we have built a quick and easy out-of-the-box integration with Magento 2, in addition to some of the other popular ecommerce systems including Salesforce Commerce, Shopify Plus and Aptos Digital Commerce.
The Government has dropped plans to temporarily extend Sunday trading hours during the Covid-19 crisis after facing opposition from many backbench Conservative MPs.
Online shopping could get a bit more expensive if a report by The Times proves correct that the UK government is considering an extra charge linked to deliveries of online purchases to reduce both road congestion and environmentally harmful emissions.
SO WHAT’S IN STORE AHEAD?
In another example of the strong and growing movement to tackle hate and racism, a growing number of influential retailers, including Levi’s, Unilever, The North Face, Patagonia, Starbucks, HP, Adidas, Coca Cola, Lego and Ford are boycotting Facebook by pulling their advertising spend on the platform in July as part of a #StopHateForProfit campaign (https://www.stophateforprofit.org). Whilst it’s been a US focused campaign to date, there are growing calls to expand it globally, as well as to other platforms. Two leading UK firms (Aviva and Intercontinental Hotels Group) have just announced they too are pausing their advertising on Facebook.
The worldwide economic impact of the pandemic is brutal. Many sectors are announcing cuts with increasing frequency and severity. In some slight relief to this, Andy Haldane, the Bank of England’s economist, commented on 30th June that the UK economy is still on track for a quick, V-shaped recovery. He said the recovery in the UK, and globally, had come "sooner and faster" than expected. That said, he sounded a note of caution on jobs as consumer spending has been strong due to many people working from home or being on furlough. Consumer spending will either ease unemployment or, unemployment will cut household spending, and no-one knows how many of the 9 million people currently furloughed will have jobs to go back to.
It’s “Super Saturday” on 4th July in England as many businesses in the hospitality and leisure industry, including pubs and restaurants, can reopen, along with hair salons. In addition, the social distancing rule is being relaxed from two to “at least one” metre. All of which may help to encourage shoppers to return to stores.
Finally, our thoughts are with the people and businesses in Leicester as parts of the city have gone back into lockdown for at least two weeks to combat a surge of coronavirus cases.